Consumer Confidence Falls—and So Do Stocks

The S&P 500 reverses its recent rise, as the Conference Board report chills investors.

As recession talk and high inflation persist, consumer confidence has taken another slide, descending 4.5 points in June to 98.7, a 16-month low. (The baseline is 100, set in 1985.) This development helped prompt a reversal in the stock market’s recent upward momentum, with the S&P 500 falling 2% on Tuesday.

The dip in the Conference Board’s Consumer Confidence Index, released Tuesday morning, could augur coming economic pain, in the eyes of numerous strategists. After all, gross domestic product decreased 1.5% in this year’s first quarter, and some fear that the second period will also be negative—with a two-quarter descent the common (albeit not official) sign of a recession.

“Right now, we are at an inflection point in the economy, where actual spending and economic activity are still positive,” wrote Chris Zaccarelli, CIO for Independent Advisor Alliance, in a research note. “However, consumer confidence and financial conditions (especially interest rates) are indicating a slowdown ahead.”

The Conference Board’s survey, and a recent one from the University of Michigan showing much the same thing, are disquieting signals. “Both reports underscore that the all-important U.S. consumer is responding to the slowdown in the economy coupled with still higher prices,” said Quincy Krosby, chief equity strategist for LPL Financial, in a note.

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To some, the confidence slump may be an overreaction, although they add that the pessimism may feed upon itself. “The persistent weakness in confidence surveys suggests a recessionary environment can become self-fulfilling,” John Lynch, CIO for Comerica Wealth Management, warned in a note. He evoked a character from “Seinfeld,” adding, “Perhaps we should call it the ‘George Costanza Recession’–if you believe it, Jerry, it’s not a lie!”

To be sure, not all the data are flashing red. The S&P CoreLogic Case-Shiller Index, also out Tuesday, showed that home prices still were higher, but their acceleration slowed a bit—and the data are from April.