Will Markets Follow the Rise in Consumer Sentiment?
Consumer confidence and spending
The market gained in the second half of 2016 by ~7% as the consumer sentiment increased by ~5% from June 2016 to December 2016. Consumer sentiment is used to understand the consumer attitudes toward the business climate, personal income and finance, and consumer spending.
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The University of Michigan’s consumer sentiment index rose 98.2 in December 2016 from 93.8 in November. December reached its peak in the past 13 years, though the sentiment appears to have risen prior to Trump’s election win on November 8.
The overall sentiment is high as future expectations and current conditions are improving with multifactor advances. The biggest boost provided last year was among energy prices, which regained strength in the later half of 2016. To be sure, the pro-growth policies cited by the Trump administration have helped boost consumer confidence. But the latest reading of consumer sentiment as of February was 95.7, representing a significant fall during Trump’s first full month in office.
Evercore’s Ed Hyman expects “animal spirits” to drive the market (VOO) (SPY) in 2017 in anticipation of higher earnings after the Trump’s proposed reduction in corporate taxes. Hyman expects that another hike in the interest rate and further deregulation will positively impact the financial sector (XLF) (KRE). The stocks to watch out in these sectors include Bank of America (BAC), JPMorgan Chase (JPM), BNY Mellon (BK), and Citigroup (C).