Consumer Confidence Will Dive When 401K Statements Arrive

By The Greek:

The Conference Board reported that consumer confidence soared in June to a five-year high, but be careful, as this is only sustainable until passive investors receive their 401K statements next month. The consumer mood is greatly shaped by the personal wealth perspective.

The Conference Board reported the Consumer Confidence Index jumped to 81.4 in June, up from 74.3 in May. Some of the gain was due to improvement in the Present Situation Index, which rose to 69.2, from 64.8. However, a good portion of the improvement came on a gain in the Expectations Index, which improved greatly to 89.5, from 80.6.

I’m always wary of gains driven by expectations, as they are built on hope more than substance, and so can disappear as quickly as they come. In this case, that’s exactly what I expect to happen in a few weeks when passive investors across corporate America receive their 401K statements. The statements will show a disruption in the returns they had grown used to recently. Such disruption is especially important because Americans feel confident when they feel wealthy, as evidenced by the “wealth effect,” which is most often related to real estate values.

Market Security	June-to-Date	Year-to-Date
SPDR S&P 500 (NYSE: SPY)	-3.4%	+11.4%
SPDR Dow Jones (NYSE: DIA)	-3.0%	+13.3%
PowerShares QQQ (Nasdaq: QQQ)	-4.5%	+7.7%

As you can see, stocks have not done well in June versus the returns investors had gotten used to this year and last. Yet, consumer relative shares are higher today on the consumer confidence news, with the two top retailers online and on the street, Amazon.com (Nasdaq: AMZN) and Wal-Mart (NYSE: WMT), up 0.1% and 0.5%, respectively today. Each of the two stocks has had a good run through the economic recovery of the last couple years. Furthermore, both Amazon.com (AMZN) and Wal-Mart (WMT) have benefited from offering lower cost goods into a still laboring economy.

Chart at Yahoo Finance

A second bit of retail data reached the wire today as well. The International Council of Shopping Centers (ICSC) reported its Weekly Chain Store Sales data. For the period ending June 22, same-store sales rose 1.1%, versus the prior week increase of 0.3%. On a year-to-year basis, sales were up just 1.6%, versus the prior week’s yearly gain of 2.5%. While inflation is low now, these growth rates are only just barely meeting rising prices, and that is not a sign of health, though possibly a good sign for Wal-Mart and Amazon.com, which cater to value shoppers.

For economists and market enthusiasts, the takeaway from the Consumer Confidence Index should be that this might not last given the new paradigm the Fed has laid out for stocks. In my weekly report at my blog, I warned investors to beware of dated data this week, which would provide false comfort to markets. This data point is not one of those as it is measuring a current period, but it is at risk of change near-term due to the likely change in consumer mood that should come with altering perspectives of personal wealth as 401K reports are received. So, in conclusion, I advise those made confident by today’s report to temper their enthusiasm.

Retail Relative Securities	June 25 Change 3:20 PM ET
SPDR S&P Retail (NYSE: XRT)	+1.8%
Consumer Discretionary SPDR (NYSE: XLY)	+0.9%
Macy’s (NYSE: M)	+1.1%
J.C. Penney (NYSE: JCP)	+4.0%
Nordstrom (NYSE: JWN)	+2.2%
Kohl’s (NYSE: KSS)	+1.8%
Sears (Nasdaq: SHLD)	+0.1%

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