Maybe the news is getting old, but once again there is data out showing the American public is becoming much more confident about the economy. Consumer confidence from the Conference Board came in at 114.8 (+3.2) against consensus estimate of 110.9. This puts the level at its highest since July 2001, but that’s the wrong way to look at the data.
The better way to compare the data to the past, and correlation to the stock market, is to consider the last time this level was achieved during an upswing. In that particular case, we would have to go back to December 1996.
Ironically, that level of enthusiasm, and the stock market rally back then caught the attention of the Maestro. In a speech titled “The Challenge of Central Banking in a Democratic Society,” Alan Greenspan warned saying “how do we know when irrational exuberance has unduly escalated asset value, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decades?”
Well, confidence continued to climb for more than three additional years, reaching 144.7 in January 2000. Confidence and stocks peaked simultaneously. Since then, even with the recent spike with Dow up 44%, confidence is still 21% lower than it was back in 2000.
At this point, I wouldn’t write off the Dow closing in the plus column, but the internals hint at a weariness, and that’s worth watching for now.
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