The Confidence Game
There is a close correlation between consumer
confidence and joblessness, inflation and real incomes. In short, consumer
confidence is a leading indicator for the business cycle.
Today’s surprising low consumer confidence reading
implies the economy has not bottomed and that we are in the midst of a
deeper recession than believed or perhaps hoped for. Prior to the 9/11
atrocity, there were clear signs the economy was bottoming. Economic
indications in the wake of the attacks suggest a low point in economic
activity is now much farther away.
Today’s consumer confidence reading of 85.5 from the
Conference Board, a New York research group, was a full 10 points below the
consensus estimate of 95.5 and is the first survey that fully gauges
consumer confidence after the attacks. More unemployment seems certain and
Friday’s jobs report could also come in weaker than expected. One of the
Street’s top analysts of economic conditions, bond honcho Tony Crescenzi,
underpinned this point in his commentary today on TradingMarkets.com, saying
“This
therefore elevates the importance of today’s data and points to sharp
weakness in the upcoming employment report. The
indicators appear to point to a drop of 300k, but an even larger drop is
possible, given the extraordinary circumstances now impacting labor-market
trends.”
The
consensus estimate for Friday’s employment
situation estimate is -283,000, and for tomorrow’s Q3 gross domestic product,
the estimate is for -1%.
Stocks gapped lower on the news, but both the S&P 500
(
$SPX.X |
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PowerRating)
and the Nasdaq 100 cash
(
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PowerRating) indices found support and their low
at their 1.5 Volatility Bands — at 1053 and 1320, respectively. Volatility
Bands are provided every morning before the market opens on TradersWire
Interactive.
The majors
have erased as much as 61.8% of their morning loss — but are still under
pressure. The Nasdaq Composite is down 32.96 at 1666.56, the S&P 500 is
down 16.03 at 1062.27, and the Dow is down 137 at 9132. The Nasdaq 100 is
off 30.97 at 1343.61.
Among blue
chips, McDonalds
(
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PowerRating) is the biggest loser, down 6% at 25.59 after
guiding lower for 2002.
But consumer
products giant Proctor & Gamble
(
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PowerRating) edged lowered expectations and
jolted out of the gates for a gain of 1.30 to 72.55.
Market
participants allocated assets into perceived safe havens. The gold and
silver sector
(
$XAU.X |
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PowerRating) is the only sector in the positive category, up
3.34% and moving high with a
modest up-tick in December gold futures
(
GCZ1 |
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PowerRating), up .54 at 281.2 an
ounce.
December
T-bonds
(
USZ1 |
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PowerRating), another safe-haven instrument, are also higher and
trading at a contract high. T-bonds are on TradingMarkets.com’s
Momentum-5 List, available on the Futures Indicators Page and were also a
featured long contract in the new Nightly Futures Traders Report last week.