HORAN Capital Advisors Blog

Earlier this week I published that on balance financial and company data seemed to be more positive than negative. Also observed in that post was the fact the services portion of the overall economy has become a significantly larger component than the production portion. Certainly there are headwinds that appear mostly from the trade and tariff issues and this was top of the brain in the just completed week.

On the day President Trump announced that more tariffs will tend to be imposed on September 1, the market swung 600 factors. On a percentage basis though, the marketplace was up 1% that day and dropped to down 1%. A lot of the financial commentary from the press seemed focused on the point swings in the Dow Jones Index itself.

On a percentage basis not a significant change. As the below chart shows, the S&P 500 Index remains up 16.96% this year on a price only basis and is only down 3.74% from its high. I obtain it that there is no free lunch time as it pertains to tariffs and the increase in cost associated with tariffs likely gets handed down onto the shoppers of tariff impacted products at some point.

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Yet, inflation has remained subdued and below the Fed’s 2% target as seen below. Just as the services sector carries more excess weight throughout the market, the consumer continues to account for a larger part of GDP. Today the buyer (PCE) is almost 70% of GDP. In the Q2 2019 GDP Advanced estimation report, the consumption component added 2.85 percentage points. The biggest detractor from GDP was gross private local investment at -1.00 percentage points.

In other words, the buyer is actually acting as though these are in pretty good shape in spite of the trade and tariff rhetoric. The Conference Board’s Consumer Confidence Index report last Tuesday was a close to record 135.7. The high within the consensus range was 128 and the report exceeded the most positive of the anticipations. So with a confident consumer it is rewarding evaluating the sentiment of investors. In that respect bullish buyer sentiment reported from the American Association of Individual Investors increased almost 7 percentage points to 38.4%. That is essentially add up to the long-run average of the bullish sentiment reading.

The reading is neither overly bullish nor overly pessimistic. As well as the sentiment readings are most actionable at their extremes. The Conference Board’s consumer self-confidence study also evaluates the consumers’ objectives about stock prices. As the below graph shows, 41.6% of these surveyed see stock prices higher within the next twelve months.

This is above the longer term average however, not at an extreme either. And your final look at an added sentiment measure, worries & Greed Index reported by CNNBusiness. This index is now back in the Fear range after having spent most of the last month in the Greed range.