What’s Going On Here?Leuthold’s latest analysis just got us in our feelings: consumer and investor sentiment shows now’s a great time to buy into US stocks. What Does This Mean?Leuthold Group first looked at a measure of US “consumer comfort”, which shows how everyday people feel about both their personal finances and the economy at large. It turns out they feel better than they have done 76% of the time since 1987. The research firm then looked at the difference between the number of investors who feel positive about markets and the number of who are more skeptical: that figure’s lower than it’s been 97% of the time since 1987.
Together, those stats unlock a pretty unique opportunity: Leuthold found that whenever consumers are more optimistic than investors – that is, whenever “Main Street” is more optimistic than “Wall Street” – stocks typically rise by an annualized 20% over the following week (tweet this). Why Should I Care?For markets: The economy just got real.
The past doesn’t predict the future, but it is pretty instructive. Main Street’s consumers and small businesses, after all, drive the so-called “real economy” by buying whatever they can afford. So when they’re feeling optimistic, they tend to spend more, which in turn drives up company earnings. Couple that with pessimistic investors, and you’re more likely to get earnings reports that beat expectations. That should, in turn, drive stock prices higher as investors raise their forecasts to match reality.
The bigger picture: It’s all you, you, you.
Stocks have tended to perform their worst when both Main Street and Wall Street are feeling positive, rising by an annualized 8% over the following week. And when investors are more positive than consumers – or both feel much the same way – stocks turn in a roughly 12% annualized return. Consumers and investors, then, work together to drive stock market returns – so no matter who you are, you’re impacting the financial world more than you think. | 