Strong Consumer Confidence Wears Thin
The May Consumer Confidence report released Tuesday morning created powerful support to consumer discretionary stocks and lifted the share values of U.S. companies across the board, allowing the Dow Jones Industrial Average (DJIA) to close higher by nearly 200 points (almost 2.5%). The Consumer Confidence Index increased from 43.0 to 54.9, marking the first time the level is above the break even level of 50 since October of 2008. The expectations of consumers has risen drastically over the past two months along side gains in the value of the U.S. equity market averages, causing some to question the index as a self fulfilling prophecy. A 900 level for the S&P 500 currently carries a P/E multiple of 16.67 corresponding to 2009 earnings estimates for the index, making the argument for U.S. equity averages breaking through 200 day SMA's a difficult sell at best.
Perhaps the aforementioned perspective is more dominant than markets are depicting at first glance. Recent U.S. equity market gains have come in a flavor of light volume and begs the cliche that global markets may be "quiet... too quiet" as bears save their strength to clobber buyers at the 940 level on the S&P 500 (200 day SMA).
Oil charged higher Wednesday on predictions from OPEC Secretary General Abdalla El-Badri that crude oil could end the year between $75 and $90/barrel, allowing the commodity to decouple from the daily shift in equity prices.
Thursday's New Home Sales report will be closely watched and may allow markets to trend higher on the day ahead of the GDP report on Friday. U.S. equity shares are trading in a range between 875 and 920 and may bob around these levels for some time until new and meaningful news makes a compelling argument for selling to resume, most likely catalyzed near the level of 940 on the S&P 500.
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