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Stocks Gain on Consumer Confidence Rebound but Eye Fed Testimony

Stocks Gain on Consumer Confidence Rebound but Eye Fed Testimony

Rich Dvorak, Analyst

February 2019 Consumer Confidence Report Talking Points:

  • The Conference Board’s Consumer Confidence Index jumped to 131.4 in February and mirrors the influx of optimism recently witnessed across stocks and risk assets
  • Current conditions, expectations for the short-term future, and labor market outlook components of the index all showed signs of improvement
  • The Dow Jones Industrial Average and S&P500 Index are both reacting positively to the report that came in higher than expected

The Dow Jones Industrial Average and S&P500 are reversing losses from early trading in response to the Conference Board’s Consumer Confidence Index report just released for February. With the Consumer Confidence Index expected to recover modestly to 124.1 according to Bloomberg’s median consensus, the actual reading of 131.4 for the period exceeds estimates by far.

US CONSUMER CONFIDENCE INDEX PRICE CHART: MONTHLY TIME FRAME (JANUARY 2015 TO FEBRUARY 2019)

US Consumer Confidence Index Price Chart February 2019

The metric’s rebound reverses the sharp drop witnessed in last month’s Consumer Confidence Index and indicates a widespread recovery after three consecutive months of declines. Consumers’ appraisal of current conditions, optimism about the short-term future, and outlook for the labor market all showed signs of improvement according to the report.

Take a look at IG's real-time Client Sentiment tracker to see the bullish and bearish biases of traders here!

Seeing that the sentiment-driven survey provides a snapshot of current business conditions and expectations in addition to consumer attitudes and buying intentions, stocks began to march higher in response.

US S&P500 INDEX PRICE CHART: 1-MINUTE TIME FRAME (FEBRUARY 26, 2019 INTRADAY)

US S&P500 Index Price Chart Response to February 2019 Consumer Confidence

February's Consumer Confidence Index echoes the returning optimism that recently flooded markets and seems to have drowned previous concerns over slowing global growth in addition to several other risks that dominated investor minds only weeks ago.

But, it appears that the worst may be in the rearview mirror – at least for now – seeing that the US government narrowly avoided another prolonged shutdown and President Trump announced he will extend the March 1 deadline that was set to escalate the trade war by raising tariffs on Chinese goods from 10 percent to 25 percent.

As these risks begin to fade, consumer confidence may continue to rebound and reflect the recovery of equity prices. Further price action in response to the Consumer Confidence Index is likely to be muted, however, as Federal Reserve Chairman Jerome Powell is delivering the semi-annual testimony to the Senate Banking Panel which looks to steal the spotlight.

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Written by Rich Dvorak, Junior Analyst for DailyFX

Follow on Twitter @RichDvorakFX

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