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Market Reaction to Consumer Confidence Index


The market reacted negatively today following the release of much worse than expected consumer confidence numbers.   The expectation of 55 was shattered by a nine point drop to 46, over ten points lower than previous results.   The S&P 500 is down 1.21% on the day and the Consumer Discretionary Sector SPDR (NYSE:XLY) is down 0.66%.   Should this have been expected?

How has the market reacted in the past to the Consumer Confidence Index?

Recent History

Data from the past two years reveals that the market has reacted rather favorably to this release, whether positive or negative.   Almost 57% of sessions advanced on the day of dissemination producing an average gain of 1.18%.   Narrowing in on the sector that is perceived to be the most affected by these numbers, Consumer Discretionary, and almost 70% of session produced gains, averaging the same 1.18% on the day.   The thrill of the release wears off in the week following with only 46% of sessions advancing in the sector and an approximate 50% gaining in the market.   These figures would give indication that this is a beneficial time to hold the market, or the sector, through these releases.   Let’s filter the data out to provide further clarification.

Instances where Market Expectations are Beat by more than 3%

When the index is released and beats expectations by more than 3% the market has reacted rather favorably, advancing in 63% of sessions and producing a gain of 0.37%.   This is in contrast to the consumer discretionary sector that showed fewer advancing days at 56%, but punching out a higher average gain of 0.49%.   The effect doesn’t last long, fading after 3 calendar days have past, seeing gains after this point that are about even.

Instances where Market Expectations are Missed by more than 10%

Removing one extraneous outlier that occurred during the October 2008 release that saw a miss of 14 points and a market rally of almost 11% in one day, history reveals that the market comes out rather flat on the day, advancing in only 50% of sessions, producing a slight return of 0.16%.   Narrowing in on the sector we’ve been focusing on and the return comes out the same, however the percentage of sessions that gained fell dramatically to 37%.   The market again dismissed the news 2 to 3 days following, showing negligible impacts beyond this point.

Instances where the Index Level comes in around 46

Isolating the instances where the index reported came in around 46 revealed that only 25% of sessions advanced in market, which is slightly worse than the sector at 37%.   Returns under these scenarios came out flat.   And again, the effect of these numbers faded 3 days later, having produced negative returns in the sector and the market on the week following.

Instances where the Index Level declined by 9 points over previous results

Surprisingly, in instances where the index fell drastically by around 9 points from previous results reveals that almost 56% of sessions advance on the day in the market and in the discretionary sector.   Advancing session results are similar on the week, however the market punched out losses on average over the day and week, and the sector surprisingly produced gains over the equivalent periods.

Bottom Line

Overall the market has been optimistic during positive results and rather flat when negative results are issued.   Moreover, it’s not the fact that the index declined by 9 points or that it significantly lagged the market expectations, it’s the doubt that continues to run rampant within this market; doubt that is revealed with the index coming to a level not seen in about 10 months, which coincidentally occurred after the start of the significant market and Consumer Discretionary sector upturn.   Doubt is an indefinite thing, or at least it should be.   The concern at hand that will continue into the immediate short term is the doubt manufactured by these results based on the levels we are currently at, and not as much to the degree to which we have fallen nor the missed expectation.

S&P 500 vs. Consumer Confidence

Consumer Discretionary vs. Consumer Confidence

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