If you read my last post you know that the stock market is still seriously overvalued. Well, it’s worse than that. The country’s gross domestic product (GDP) is the result of 4 components. Personal consumption expenditures, business investment, government spending and net export of goods and services. In 2019 70% of the US’s GDP was personal consumption 18% was business investment, 17% government spending and negative 5% net exports. Source.
So, obviously the largest component of our economy is consumer spending, it’s not even close. Consumer sentiment is a gauge of how confident consumers are in the economy. Well, on this count things are looking pretty bad. This is the chart of consumer confidence based on a survey by the university of Michigan.
As you can see, not only is the index low, it’s the lowest it’s ever been!
“The University of Michigan consumer sentiment was downwardly revised to a record low of 50.0 in June of 2022, from a preliminary reading of 50.2. The current economic conditions subindex sank to an all-time low of 53.8 (vs. 63.3 in May), and the expectations gauge plunged to 47.5. About 79% of consumers expected bad times in the year ahead for business conditions, the highest since 2009. Inflation expectations for the year ahead stood at 5.4%, little changed from a preliminary reading or the preceding four months. Meanwhile, the 5-year inflation outlook rose slightly to 3.1% from 3% in the previous month but decreased from its mid-month reading of 3.3%.” source: University of Michigan
Now, when you combine the fact that the market is still significantly overvalued with the record low consumer confidence numbers, the only conclusion one can come to is that things are likely going to get pretty bad and stay that way for a while.
Now is the time to reduce your stock market exposure. It’s going to get a lot cheaper in my opinion.