Some Positive Observations For Stock Market Bears

Before going into detail on oil market (see next post), I wanted to draw your attention to an interesting finding of Mark Hulbert, editor of investment newsletter from US, which says that high consumer confidence levels often point out to sub-par market returns afterwards. You can find more details on his study here.

Hulbert studied stock returns following readings of consumer confidence index since 1977 and surprisingly found out that these returns were below-average after the index showed high levels and, on the contrary, following low index levels stocks showed stronger than average returns.

Hulbert explains this relation with the fact that consumer confidence is driven by more by past stock returns, so whenever you had a market rally you could expect to see high consumer confidence level. However, it says little about future stock performance.

Quite an interesting observation, especially for bears and everyone thinking this rally should end sooner rather than later. This suggests that Tuesday’s jump (on 26 May 2009) of more than 2% in US on highest levels of consumer confidence since 2003 is looking like a short-term reaction which is to be soon followed by downward trend.

Let’s see how it develops. To be fair, bulls have a few very strong arguments prepared, too.

Subscribe by RSS Subscribe by Email