5 Stocks To Buy On Record Consumer Sentiment

Last Friday, markets moved lower following the release of disappointing data on GDP and durable orders. A larger-than-expected trade deficit was the primary reason for the slowdown in GDP growth. Meanwhile, durable orders also declined over the month of December, contrary to expectations of an increase.

However, the economic situation isn’t as gloomy as it seems, given that the GDP report also indicates that consumer spending continues to increase at a healthy pace. Moreover, an index of consumer sentiment hit a record level in December, which means this is a good time to pick up stocks benefiting from higher consumer expenditure.  

Consumer Sentiment Hits 13-Year High

The University of Michigan Consumer Sentiment index increased from 98.2 in November to 98.5 for the month of December. This reading exceeded all expectations and is the highest observed since 2004. According to the report, 44% of those surveyed expect the economy to improve over 2017. Additionally, 33% of respondents think that the unemployment rate will continue to decline.

Much of the respondents' optimism was driven by a newly found confidence about their financial condition. Rising incomes and increasing household wealth have provided the brightest outlook for personal finances witnessed in a decade. An increase in the values of stocks and homes has also led 41% of those surveyed to think that the outlook for their personal finances has improved.

GDP Data Reflects Consumers’ Optimism

Meanwhile, fourth quarter data on GDP hit a discordant note, with the reported figure coming in well below expectations. According to the first estimate, GDP increased by 1.9%, lower than the consensus estimate of 2.2% growth. The below-par reading was primarily due to a 4.3% decline in exports, its largest contraction since the first quarter of 2015.

However, consumption expenditure, the primary engine of U.S. growth continued to rise. Consumer spending increased at a considerably high pace of 2.5%. There was particular enthusiasm around high value items such as new automobiles. A concurrent increase in business investment indicated that growth is likely to continue at a steady pace.

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