Investors got a shot of bad news yesterday, as the University of Michigan unexpectedly fell to a three month low of 66. The index came in at 70.6 in October. The consensus estimate for the index was for an increase to 71, with estimates ranging from 67.5 to 75. By comparison, during the economic expansion that ran from 2001 to 2007, the index averaged 89.2.
Analysts said that the consumer sentiment number is a warning sign for those expecting a robust recovery from the worst downturn since the Great Depression. In its early stages, they say, the recovery will be led by manufacturing and exports, as economies in developing nations are returning to growth much more quickly than those of developed nations.
High unemployment is the biggest challenge to the U.S. economy, the largest in the world. With unemployment expected to remain above 10 percent through the first half of next year, and that will keep consumer spending down. With consumer spending accounting for two thirds of the economy, without the consumer opening up his wallet, growth will remain lukewarm.
Still, retailers, who rely on consumer spending to drive their profits, are somewhat optimistic about the holiday season that's about to get underway. Macy's, for example, reported a loss in third quarter sales. But, their CFO said that they are "cautiously optimistic" about the holiday season. They cautioned, however, that there is "more uncertainty" than is normal in the retail environment.
Despite this, stocks rose on Friday, propelling them to their second consecutive weekly gain. The Dow rose by 0.7 percent to 10,270. The S&P 500 climbed by 0.6 percent to 1,093. And the Nasdaq increased by 0.9 to 2,168. For the week, the Dow was up by 2.5 percent, the S&P 500 2.3 percent, and the Nasdaq 2.6 percent.
The markets rallying despite the worse than expected news on consumer sentiment is a sign that the markets want to run. Investors, while they should always remain cautious, should seek to take advantage of this trend. As they say, the trend is your friend.
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Analysts said that the consumer sentiment number is a warning sign for those expecting a robust recovery from the worst downturn since the Great Depression. In its early stages, they say, the recovery will be led by manufacturing and exports, as economies in developing nations are returning to growth much more quickly than those of developed nations.
High unemployment is the biggest challenge to the U.S. economy, the largest in the world. With unemployment expected to remain above 10 percent through the first half of next year, and that will keep consumer spending down. With consumer spending accounting for two thirds of the economy, without the consumer opening up his wallet, growth will remain lukewarm.
Still, retailers, who rely on consumer spending to drive their profits, are somewhat optimistic about the holiday season that's about to get underway. Macy's, for example, reported a loss in third quarter sales. But, their CFO said that they are "cautiously optimistic" about the holiday season. They cautioned, however, that there is "more uncertainty" than is normal in the retail environment.
Despite this, stocks rose on Friday, propelling them to their second consecutive weekly gain. The Dow rose by 0.7 percent to 10,270. The S&P 500 climbed by 0.6 percent to 1,093. And the Nasdaq increased by 0.9 to 2,168. For the week, the Dow was up by 2.5 percent, the S&P 500 2.3 percent, and the Nasdaq 2.6 percent.
The markets rallying despite the worse than expected news on consumer sentiment is a sign that the markets want to run. Investors, while they should always remain cautious, should seek to take advantage of this trend. As they say, the trend is your friend.
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