America Confident in Romney

Consumer confidence has improved over the course of the last several weeks and months, and I believe one reason for it is traceable to something other than improved employment data. Stocks have held up relatively well through a challenging earnings season as well, and I think the same factor may be at play there. Over the course of the last several months and especially after the presidential debates began, Governor Romney has made inroads and gained in polling points. I believe consumers and investors are enthused about that, based on the trend in confidence measures and also stock prices.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.



The latest and final Gallup Election Poll shows President Obama ahead among registered voters, though Governor Romney is leading among likely voters. Most importantly, Gallup’s final allocated estimate has Governor Romney getting 50% of the vote and President Obama receiving 49%. Obviously, that does not tell us what the Electoral College will do. Still, Governor Romney has over time gained the attention of prospective voters, and I believe that the various sentiment measures discussed here are somewhat tied to his rise in popularity.

The Conference Board’s Consumer Confidence Index
The Conference Board last reported its Consumer Confidence Index last week, on November 1st. The measure of consumer views improved to 72.2, from 68.4 in September. As has often been the case lately, the index was mostly supported by expectations for the future and not so much the view of the current situation. Because of that divergence, we might say that consumers perhaps anticipate a change in store at the White House. Because of the differences in economic and other philosophy between Governor Romney and President Obama, perception of the presidential election result could influence consumer confidence. There is another perspective to consider as well. Political views could sour the survey, as political adversaries to the incumbent express discontent about the current situation simply because of who is in charge.

NFIB Small Business Optimism Index
The National Federation of Small Business (NFIB) Small Business Optimism Index has followed a similar pattern to the Consumer Confidence Index. It has recovered more recently after a dip just before. It’s been a steadily improving measure since the depths of the Great Recession were reached, but it is still far from reflecting a sanguine situation. In its latest reading for October, the index actually slipped slightly, by 0.1 points to 92.8. That said, small businessmen likely favor Governor Romney on net because of the pressure he may remove with regard to healthcare and also red tape and taxation. It’s an arguable issue as to which candidate helps small business more on a tax basis, depending on what level of income you consider the qualifier to be for a true small business. However, when all issues are taken into account, it seems to me that Governor Romney has more small business support; though I want to stress that this is an assumption on my part.

State Street Investor Confidence Index
Ironically, and certainly adding doubt about the thesis of this report, State Street’s Investor Confidence Index dipped when it was reported last week. But while State Street’s measure of the risk held by institutions dipped dramatically, it was mostly driven by a decline in European interests. In North America, the regional index also dropped, but by a lesser 2.7 points, to 79.0. I believe the index captured the realization of inadequate corporate earnings led by marquee names like Apple (Nasdaq: AAPL), Caterpillar (NYSE: CAT) and others. Even so, stocks, as represented by the SPDR S&P 500 (NYSE: SPY), are only down 3.7% since marking their September 14 closing high.

Let’s See Action
When all is said and done, confidence doesn’t mean a heck of a lot if it’s not followed up by action. We already know that stocks have taken a hit, but have still held up relatively well through the earnings season. Well, that’s as long as you don’t look at the NASDAQ. The PowerShares QQQ (Nasdaq: QQQ) is down 6.8% since September 19. So what about consumers then? Are they backing up confidence with spending?

The answer is “not really,” which is seen in the weekly chain store sales data. The reports from the International Council of Shopping Centers (ICSC) and Redbook show sales hardly edging the rate of inflation on a year-to-year basis. The last Personal Income & Outlays Report showed consumer spending up by 0.8% in September, but that was skewed by higher pricing. The PCE Price Index was up 0.4% month-to-month. The last Retail Sales Report published in mid-October showed retail sales up by a robust 0.9% excluding autos and gasoline. However, we reported that the data was apparently skewed by Apple product introductions.

Wal-Mart (NYSE: WMT) is a barometer for spending because of its important market share in the U.S., but its accuracy is distorted a bit because of the chain’s low price points for shoppers. While we have warned that the stock’s success may not mirror its market share gains, due to its expanded valuation, we understand why it has expanded. Still, we cannot say America is shopping simply because WMT is doing well, at least not yet. Americans are buying what they need at the best price, and sometimes at the sacrifice of quality.

In conclusion, the Consumer Confidence Index clearly shows a divergence between current views and expectations. In that kind of scenario, we would expect shoppers to act cautiously. But if there is a tie between expectations for Mitt Romney and American confidence, then we should expect economic conditions to benefit should Romney win. In theory, a benefit could come through self-fulfilling prophecy. As Americans spend on high expectations, future economic conditions would reflect improvement, at least over the short-term. One thing is for sure, we will know for sure how American consumers feel about Mitt Romney should he be victorious today. Though, keep in mind that how Americans feel about Romney’s impact on the economy could be different than how they vote.

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