Curious stock market reaction to this morning’s data. Consumer confidence, a notorious rear view mirror indicator soared while S&P Case Shiller home prices showed a year over year rate of decline of 18.7% and a month over month decline of 2.1% – another sign that housing is slowing its pace of deterioration, but clearly not bottoming. The stock market is up over 2% on the news.
Consumer confidence tends to be very highly correlated to stock prices and tends to peak in conjunction with the market. Most major stock market declines over the last 20 years have been preceded by spikes in consumer confidence. If you’re buying stocks on this news you might want to dust off your history book. This data is not forward looking.
Regular readers will know that the home price data does not surprise me. While I fully expect seasonality and other minor factors to cushion home prices here in the first half of 2009 I do not expect home price to bottom this year. Hence, the “false dawn” I often refer to. This is more evidence that the “false dawn” thesis is correct. The Case Shiller press release says there is “no evidence” of a housing turn around.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.