Freepik

— University of Michigan consumer sentiment survey jumped 29% in the November/December time period … the biggest 2-month increase since 1991.

— The average survey respondent is finally becoming aware of trends that have been in place since early 2022.

— Why has this epiphany taken so long to prevail and where do we go from here?

Good News Turns Out To Be Good News

Good News!

Since March of 2022 the US unemployment rate has been running at about 3.6%. Last year 2.7 million new jobs were created, not quite as many as the 4.8 million in 2022, still a very healthy number.

Inflation is abating from from a monthly high of 9.1% in June of 2022 to averaging about 3.4% the last six months of 2023 and 4.1% for the full year. One really observable price decline came in gasoline prices. The average price of a gallon of gasoline (all grades) in June of 2022 was $5.03. By December 2023 that number had declined by $1.78 per gallon to $3.25. This is not an insignificant number and something the average consumer will notice every time they fill up. 

At the grocery store the average price for a gallon of milk was up 1.7% vs the $4.26 2022 average … not a relief but a muted increase. Meanwhile, the price of a dozen eggs is down over 50% from last January’s $4.82. The dozen will now cost you about $2.09.

People are beginning to feel the fall off in the rate of inflation where it has hurt the most … their every day pocketbook.

THE ACTUAL FACTS ON THE GROUND VS. OPINIONS ABOUT THE ECONOMY AND INFLATION ARE BEGINNING FINALLY TO SINK IN!

Fear of recession abates

The rapid rate increases since the spring of 2022 spooked everybody. It was unprecedented. The Fed had gone too far too fast. The cure would be worse than inflation it aimed to tame. Turned out the economy remained resilient. Why? Maybe it was the unprecedented stimulus, non-stop deficit spending of the last five years. Maybe it was the lingering effects of Quantitative Easing (QE) that had been in place since the financial crisis and that was that further expanded during the pandemic. Although the Fed balance sheet has been pared back a bit, the Fed never took the liquidity punchbowl away. Investors have finally stopped paying attention to the boys who cried wolf after relentlessly being pounded by those pundits telling them that an economic retrenchment was just around the corner. Ok, the boys will eventually be right and it will not be the end of the world. Recessions (i.e. economic slow downs) are normal economic events. For some reason the media seems to equate them with economic disasters.

THE ACTUAL FACTS ON THE GROUND, IN THE FACE OF COUNTLESS PREDICTIONS OF A TERRIBLE ECONOMY AND STOCK MARKET, CONTINUE TO STACK UP IN FAVOR OF THE EXACT OPPOSITE OUTCOME.

WHY HAS THIS EPIPHANY TAKEN SO LONG?

Most investors, including many Seeking Alpha subscribers (a service that carries my work), are not trained in economics or the wiles of the stock market. Even if they were it would be difficult for them to fallow the day-to-day machinations of the field. Raising a family and pursuing a career  preclude them from taking the time or attention a professional might have to separate the wheat from the chaff. Ergo, they have to depend on media outlets which are light on real news but heavy on opinion, opinion that may not necessarily be based on genuine knowledge or experience. 

Some of the reasons that this opinion may not be helpful include:

• lack of perspective. THIS IS A BIG ONE. For example, I grew up in the business in the 1970s. It was an incredibly inflationary environment. The causes of that inflation were much more imbedded and secular that our post covid experience, yet I heard over and over commentary from experts equating the post-covid rendition of inflation to the 1970s. They had no clue about that which they were speaking. In turn that erroneous speech kept people from investing at lower prices than those we see today.

• Unfortunately, the aim of all media outlets is to get and keep your attention. I know that this is hard to believe ‘but bad news (and sensationalism) sells’. Human beings seem to run to it like moths to a flame. In its lowest form just turn on your local television news. Where I live they always lead with murders, fires and car chases. So if there is a potential to spin something negative at any news source that is how it will be done. It’s all about casting doubt and keeping the consumer drawn in.

• The cautious/ erudite commentator may be correct in his or her reasoning. Caution, naming all the risk, is by many thought to be a mark of intelligence. It can also be a way to get to a neutral rating and not making a commitment.

• Finally and most hurtful of all is the political media where viewers/listeners/readers are given a daily diet of how bad the economy is. They never talk about the good news above. If that is you, the numbers above are real, just as they were real in previous administrations.

So why did it take so long for consumer confidence to come around?

IT IS THE MEDIA WE CONSUME AND THOSE WHO SHOVEL IT TO US. THE MEDIA IS NOT YOUR FRIEND. THE MEDIA IS NOT GOING TO CHANGE. IT WOULD BE AGAINST THEIR BEST INTEREST. IT’S UP TO US TO BE MORE THOUGHTFUL AND DISCERNING CONSUMERS OF THAT MEDIA.

THE MARKET HAS BEEN  TELLING US THINGS ARE NOT SO BAD OUT THERE (I have been advising the same for months). FRIDAY’S MARKET AND THE BIG JUMP IN CONFIDENCE MAYBE SIGNALING THAT THINGS ARE ABOUT TO GET EVEN BETTER. I AM BUYER AWAY FROM THE MAGNIFICENT SEVEN (OR EIGHT) … MID CAP AND SMALL CAP GROWTH AND VALUE. 

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