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Why US Consumer Sentiment Is Important for Markets

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US consumer sentiment 

According to a report from the University of Michigan, the US Consumer Sentiment Index rose slightly in April 2017. It stood at 97 in April 2017 compared to 96.9 in March 2017. However, the April figure was lower than the preliminary reading of 98.

The Consumer Sentiment Index focuses on three questions:

  • What are consumers’ views of their own financial situations?
  • How do consumers view the general economy over the short term?
  • How do consumers view prospects for the economy over the long term?
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Impact on the economy

The improvement in the US Consumer Sentiment Index is a positive sign for the economy, as it indicates that the overall situation for consumers is improving.

The improvement in this index also indicates that consumers’ long-term view of the economy (IWF) (QQQ) is getting better. Consumers seem optimistic about Donald Trump’s presidency. The market showed recovery in April 2017. However, the Consumer Sentiment Index didn’t meet the market expectation in April, which is concerning investors and could impact various US indexes in the near future.

On the other hand, the Federal Reserve is continuing its gradual rate hike process and has hinted at a hawkish stance in upcoming years. Interest rate hikes are appropriate when the economy is on a strong path. According to the US Consumer Sentiment Index, the long-term path for the economy (VFINX) (SPY) (IVV) is improving, so it’s likely the Fed will raise interest rates.

In the next part of this series, we’ll analyze the performance of the US 1Q17 GDP.

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