This is a guest post by Michael A. Gayed, CFA, Chief Investment Strategist for Pension Partners LLC.
There is a curious disconnect between consumer confidence and retailers.
An under-appreciated phenomenon is happening in terms of economic news and equity performance. For a moment, let’s forget about the wild swings we’ve experienced so far this year in equity markets. Forget about record low Treasury yields. Forget about debt in Europe. Let’s focus on the consumer, which the media continues to stress has no more spending power.
The Consumer Confidence Index is designed to get a sense of consumer confidence, i.e. how people feel about spending and saving. Issued by the Conference Board, the data is calculated based on household surveys which seek opinions on current and future economic conditions. Below is a chart of the index since September 2007:
As can be seen, Consumer Confidence has been lacking despite the recovery in the equity markets, primarily because of a grim outlook on employment.
Yet since March of 2009, retail sales have been increasing on a year-over-year basis at a modest pace. It doesn’t appear like anything tied to consumer spending should perform that well right?
Take a look at the S&P Retail Index ETF (Symbol: XRT) relative to the performance of the S&P 500 ETF (Symbol: SPY):
A rising ratio indicates that retailers are outperforming (up more, down less) the market overall. We can see that in the middle of November, 2008, retailers began to outperform (all while broader market averages were still roiling post-Lehman). In 2010, Retailers have been a star performer, up roughly 17% while the S&P is up over the same period roughly 2.4%.
Since November, 2008, Retailers are up roughly 80%, while the S&P 500 is up 18%. If the consumer can’t spend, and Consumer Confidence remains at low levels, someone needs to tell the consumer discretionary sector…
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