U.S. stocks: Is confidence enough?

Written by: Global Thought Leadership | July 21, 2017

Source: Bloomberg, as of 6/30/2017. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment. 

The Bottom Line

  • June data shows consumer confidence and small business optimism remain solid—although both measures have softened a bit following post-election surges.
  • The Conference Board’s Consumer Confidence index came in at 118.9, off the recent peak of 124.9 in March, but well above the 20-year average of 92.9.
  • The NFIB’s Small Business Optimism survey was 103.6, below the January high of 105.9, but also above the 20-year average of 96.9.
  • These relatively high readings help explain why stocks are at record levels.
  • Yet elevated confidence levels are sometimes a warning sign.
  • History shows that when sentiment is high while economic fundamentals are weakening, a downturn could be ahead.
  • However, many indicators appear solid now. Unemployment is low (4.4%), inflation is benign (1.6%) and manufacturing activity is expanding (the June ISM Manufacturing PMI was a solid 57.8).
  • That, coupled with improving global growth, continued strength in corporate earnings and overall financial conditions that remain loose for this stage of the business cycle, arguably offers an optimistic backdrop for the equity markets.
  • Of course, that doesn’t preclude a sudden change in the weather. And with stock valuations generally elevated careful analysis is paramount to select attractively priced investments—a potential advantage for strategies managed by experienced stock-pickers.
  • For more about the trends that signal continued upside for stocks, read the latest update from ClearBridge Investment Strategist Jeff Schulze.

 


Source for all data is Bloomberg.

Top

IMPORTANT INFORMATION: All investments involve risk, including loss of principal. Past performance is no guarantee of future results. An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice.  Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not  take into account the particular investment objectives, financial situation or needs of individual investors.