The Value of Consumer Spending

Here’s a headline I read just the other day: “Stocks Hit Records as Confidence Drops to One-year Low.” Is there some sort of disconnect between consumers and investors? The answer could very well be “yes.”

While individual consumers are worried about gasoline prices, employment, and the housing market, individual and institutional investors see GE’s strong earnings and are buying stocks once again. It’s kind of a unique development.

Consumer spending is a big factor to be mindful of over the next few months. The latest report on consumer spending by the Commerce Department wasn’t good. If you didn’t already know, consumer spending is responsible for around two-thirds of the entire economy. If consumers stop spending, we’re all in trouble.

I don’t know anyone in the investment business that has a clear, determined view as to where stocks will go over the near term. As I suspected, second-quarter earnings are distracting investors from the economy’s real fundamentals. When the party is over, we could get a correction.

Then again, the way things are going this year, we could get a rally. Anything could happen in the last half of this year. It really is kind of a weird market environment right now. Market commentators aren’t saying much about the stock market being undervalued or overvalued. Market gurus aren’t saying much about how high the main market averages might go. Really, nobody knows what’s going on at all.

In any case, I think it’s wise to be cautious over the near term, but this doesn’t mean you shouldn’t be participating in this market. I am seeing less in the way of great new investment opportunities right now, but that’s okay because there’s been so many earlier in the year. Now we just have to ride these stocks for a while.