Improving consumer confidence suggests better capital spending

Russ Koesterich, CFA - Author

Aug. 18 2020, Updated 5:16 a.m. ET

However, as I write in my recent Market Perspectives paper “Sitting on Cash,” four interrelated reasons suggest capital spending may marginally improve.

Improving consumer confidence. Consumer confidence, while low, is improving. During the first half of 2014, the Conference Board’s measure of consumer expectations averaged a little below 82, a material improvement from the previous four years when this measure of consumer sentiment averaged below 60. While today’s levels are still far below the long-term average, they are heading in the right direction.

Market Realist – The graph above shows the consumer confidence index (or CCI) since the start of the year. The CCI measures consumer confidence, which is the degree of optimism on the state of the economy, as indicated by consumer savings and spending.

Although confidence has been improving in the last few months, the index currently stands at 86.9, which is well below what it was in 1985—the base year.

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However, stock markets (SPY)(IVV) have performed well, despite this trend, due to high corporate earnings. Bond markets, including investment-grade corporate bonds (LQD) and high yield corporate bonds (HYG)(JNK), have had a good 2014, thanks to robust earnings that helped bring down credit spreads and corporate bond yields.


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