Central banks are institutions that manage a nation’s currency, money supply, and interest rates. Central banks also oversee a nation’s banking system and are the lenders of last resort in a time of crisis. Central banks are normally a separate body from the political establishment. The goal of central banks is to create stability and low inflation in the system.
There’s one point that I cannot stress enough in this column, and longtime readers are sure to know it: consumer confidence is extremely important for economic growth here in America.
It’s simple logic. Because so much of our economy is built on domestic spending, without an increase in consumer confidence, consumer spending will languish and we won’t have higher levels of economic growth.
Recently, new information from the Conference Board was quite disappointing. The Consumer Confidence Index dropped to a seven-month low in November to 70.4, following a decline in October as well. (Source: “Consumer Confidence Declines Again in November,” The Conference Board web site, November 26, 2013.)
Over the short term, consumer confidence declined due to people stating their concerns regarding a weakening of economic conditions. What’s more concerning is that the expectations for the next six months worsened, as people stated they were increasingly worried about their job prospects and earnings, which isn’t a surprise considering the data hasn’t been all that positive lately, especially when it comes to wage growth.
If consumer confidence is turning pessimistic over the stability of jobs or paychecks, how can we really expect the average American to increase their spending or businesses to feel more confident in expanding?
This type of uncertainty leads to slower economic growth. If you are unsure of your financial health over the next few months, chances are you won’t increase your spending, and a lower level of consumer confidence leads to muted economic growth.
Clearly, one market sector I am worried about is that of companies catering to the average American.
Chart courtesy of www.StockCharts.com
Target Corporation … Read More
“Impressive” is the only word I can think of to describe the moves of the S&P 500 and Dow Jones Industrial Average to new record highs last Thursday.
Call it the “Bernanke bounce” if you want, but if you didn’t believe the Federal Reserve’s easy monetary policy was behind the bull market before, then you must by now.
In June, when the Fed announced its exit plan for its stimulus, the stock market sold off. Then there were a slew of muted economic reports along with the Federal Open Market Committee (FOMC) meeting minutes that suggested the bond tapering by the Fed might not happen as soon as many had thought—the response was a rally that drove the stock market to a record.
Some are arguing that earnings by Alcoa Inc. (NYSE/AA) helped, but it was only one reading. Of course, both JPMorgan Chase & Co. (NYSE/JPM) and Wells Fargo & Company (NYSE/WFC) also beat on revenues and earnings on Friday. We could see another upside push as the leadership from the big banks has helped to drive the stock market this year.
The earnings season will likely be good due to the reduced expectations. Corporate America is not exactly expanding quickly, but it is growing fast enough to satisfy the lower sights of Wall Street.
The easy money will continue to be made as long as the Fed holds back, so enjoy the ride.
The stock market is bullish. Investor sentiment continues to be extremely bullish with the ratio of new highs to new lows above 90%. On Thursday, there were 347 new highs on the New York Stock … Read More