The Mighty US Consumer

12/28/2015 7:00 am EST


While a number of mainstream stock market analysts may be celebrating consumer spending and confidence as of late, Vadim Pokhlebkin, of Elliott Wave International, outlines what traders can do to see a different perspective on this popular fundamental indicator.

What does the trend in consumer confidence say about the stock market?

The latest consumer spending numbers are in…and they are encouraging. Says The Washington Post,

"US consumer spending rebounded in November...Economists are predicting that further improvement in the job market will support consumer spending in coming months."

Consumer spending accounts for about 70% of the US GDP, so any uptick in spending is happy news for stock market bulls. (Well, at least those bulls who believe that a strong economy leads to a strong stock market…something we've shown before to be simply not true.)

Of course, consumer spending goes hand-in-hand with consumer confidence, which has also stayed elevated. Except, our December Elliott Wave Financial Forecast points out one caveat (p. 8):

"Consumer confidence remains relatively elevated because it generally tracks social mood and thus stock prices…In 2000, consumer confidence peaked with stocks in January. In 2007, confidence peaked in July, three months ahead of the peak in stocks. This year, the survey’s January high was four months ahead of the Dow’s May high."

Click to Enlarge

So, even as mainstream stock market analysts celebrate consumer spending and confidence, all you have to do is simply plot it on a chart to see a different perspective on this popular fundamental indicator.

By Vadim Pokhlebkin of Elliott Wave International

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