High Consumer Confidence: Cause for Concern or Celebration?

Consumer confidence as measured by independent, global research association, the Conference Board, has recently achieved lofty levels only seen twice before in the 50-year history of the index (Figure 1).  Consumers are the happiest they been since 2000 but should equity investors be celebrating or running for the hills?

Figure 1: Consumer Confidence was only Better During the Late 1960s and Late 1990s.

Historically, happy consumers are not good news for equity investors.  After consumer confidence peaked in 1968, the equity market suffered a 70% inflation-adjusted loss over the course of the next decade and a half.  Following the consumer confidence peak in 2000, the equity market fell 50% over the course of the next two years.  It recovered before falling 60% and finally hitting bottom in 2009.

The flipside is that despairing consumers are often good news for equity investors.  The worst periods for consumer confidence – the early 1980s, the early 1990s and the immediate aftermath of the 2008 financial crisis— all produced spectacular returns for equity market investors in the years afterwards (Figure 2).

Figure 2: Consumer Confidence Has Been a Great Contrarian Indicator of Equity Market Health.

Not all consumer confidence peaks are followed by poor equity returns.  In the late 1980s, for example, the Conference Board indicator got to around 120 and the equity market mostly stagnated from 1990 to 1994, with price returns more-or-less matching inflation.  Nevertheless, the correlation between the level of the Conference Board Consumer Confidence index level and subsequent inflation-adjusted returns in equities is persistently negative, especially for returns 4-7 years in advance (Figure 3).

Having high consumer confidence doesn’t mean that equities will do badly in the next few months.  The correlation between consumer confidence and returns between one to 12 months in the future is weak.  As such, the fact of happy consumers doesn’t necessarily bode poorly for equity investors over the next year or two.  That said, it might not bode well for them over the course of the next 5-7 years (Figures 3).  Moreover, if consumer confidence continues to soar in 2018 and 2019, challenging or surpassing previous highs, it might indicate that the 2020s will yield inflation-adjusted equity market returns on par with those of the 1970s or the 2000s – in other words, markets where stocks consistently underperform inflation.  If so, that could increase the attractiveness of alternative investments such as Commodity Trading Advisers (CTAs) and global macro hedge funds, many of whom underperformed relative to stocks since 2009 but could generate strong returns in markets where equities suffer.

Figure 3: High Consumer Confidence has Weak Short-Term & Strong Long-Term Correlations with Stocks.

Recently, the Conference Board Consumer Confidence Index has been hovering around 130.  Historically, those levels were consistent with stock price returns that underperformed inflation by about 20% over the next six years (Figure 4).  The historic range was anywhere from about 40% lower to around 10% higher in inflation-adjusted terms. So, if we have 2% inflation per year and the S&P 500® is trading at around its current level in 2024, remember: you heard it here first. 

Figure 4: Consumer Confidence and Equity Returns – Negative Correlation with Wide-Ranging Outcomes.


All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author(s) and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.

About the Author

Erik Norland is Executive Director and Senior Economist of CME Group. He is responsible for generating economic analysis on global financial markets by identifying emerging trends, evaluating economic factors and forecasting their impact on CME Group and the company’s business strategy, and upon those who trade in its various markets. He is also one of CME Group’s spokespeople on global economic, financial and geopolitical conditions.

View more reports from Erik Norland, Executive Director and Senior Economist of CME Group.

Equities and Consumer Confidence

U.S. consumer confidence is buoyant. What does that mean for the stock market? On Friday, the University of Michigan will release its consumer-sentiment index that is closely watched by investors. Protect your portfolio with an array of equity products from CME Group.

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