US stocks drop as another consumer confidence barometer plunges

The slump in confidence was driven by a plunge in 'expectations' sub-index

USA (1)

Earlier today, there was a bit of optimism in the air with European equity markets rising noticeably. Investors were showing resilience in the face of rising interest rates, inflation, and recession risks. Granted, some indices and individual names were bouncing back from severely oversold levels, which should have been expected. But as I have been consistently warning, let’s not underestimate the big macro risks facing investors. It is far too early to be optimistic that this latest recovery will hold. In fact, the markets were starting to break lower after the early advance in the US session was rejected at the time of writing. The renewed weakness was triggered fresh data showing plunging consumer confidence.

 

Consumer confidence shattered

 

Last week we saw the University of Michigan’s consumer sentiment survey crash to record lows. Thus, the bar was set very low ahead of today’s publication of The Conference Board’s (CB) barometer.  Even so, the CB’s consumer confidence index tumbled more than expected. The headline figure fell to 98.7 from a downwardly revised 103.2 and well below expectations of around 100.0. The slump in confidence was driven by a plunge in 'expectations' sub-index as the present-situation sub-index fell only marginally.

Business confidence was great either, judging by the latest read on the Richmond Fed manufacturing index. It fell to -19 compared to -5 previously to reach its lowers level since May 2022 – the height of the pandemic. New orders plunged big time, while expectations for conditions in the future worsening sharply.

 

What does it all mean for the markets?

 

Well, the latest data is pointing to recession and, as we will undoubtedly find out in the weeks ahead, lower earnings for companies. Against this backdrop, it is difficult to justifying buying stocks on the hope that the Fed will ignore inflation and start cutting back interest rates from as early as next year. I am therefore of the view that the markets will remain in the “sell-the-rallies” rather than “buy-the-dip” mode.

 

Nasdaq hits strong resistance

 

Unsurprisingly, the Nasdaq has once again underperformed because of its large constituents of technology companies. It has stocks that pay no or low dividends and were driven higher in the past by hopes that we will see strong, sustainable, economic growth.

The Nasdaq hit resistance at 12210/15 area yesterday, a level which marks the low point from last year. It has since fallen back below last week’s high at 12113ish. Remember that it was a strong performance from the markets last week and the apparent failure of the bulls to show up despite that, is rather bearish.

220628 Nasdaq

 

Of course, it is not the first time we have seen such a scenario. This is precisely how a bear market is meant to look and feel like.

Assuming the bulls will stay largely away, the Nasdaq could drop to 11700 from here, which is the base

 

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account