Consumer Confidence Slips Ahead of Key Inflation Reading

Stocks ticked lower this morning after falling slightly from their record highs. Retail earnings are now in the spotlight for investors who are eagerly awaiting an important inflation report this week.

The Dow Jones Industrial Average dropped by about 0.3% as the S&P 500 inched 0.07% lower. Tech stocks seemed more optimistic, with the Nasdaq Composite climbing by 0.1%.

The momentum in stocks has waned as investors reassess after last week’s rapid surge and turn their attention to the US economy’s condition. The PCE index report, due out Thursday, hangs over investors as the Fed’s favorite inflation gauge.

The market is highly focused on when a rate cut might occur. This is an especially important PCE report as the January CPI and PPI were both hotter than expected. Meanwhile, consumer confidence in the US economy seems to be waning.

The Conference Board’s Consumer Confidence Index for February landed at 106.7, missing bigly compared to the anticipated 115. Yet again, for the fourth consecutive month, The Conference Board significantly lowered its consumer confidence figures. January’s adjustment was the most substantial since February 2022.

Originally, January’s figure was at a two-year peak of 114 but was adjusted to 110.9. While this adjustment might not seem significant, it’s quite startling compared to what was expected. So, the excitement over January’s figures surpassing July’s revised highs has disappeared.

For some perspective, that’s a disappearance of 11.1 points in ‘confidence’ due to ‘adjustments/revisions’ in just four months. This is the most significant drop in the survey’s history. This raises the question we had last month:

How exactly do you revise consumer confidence downwards, anyway? Do consumers, in a moment of reflection after the fact, decide that they were actually less confident than reported?

The Conference Board’s indicator for inflation expectations fell further to +5.2%. Although still high, it’s moving in the right direction while the labor market indicators showed notable strength again in February. The trend of figures being revised downward a month later when no one remembers seems to be continuing.

Other economic news digested by investors today included a rise in home prices and the most significant drop in US durable goods orders in four years.

In contrast, Bitcoin’s price surged to two-year highs, briefly exceeding $57,000 per token. This surge was supported by a substantial investment from MicroStrategy. Shares of Bitcoin miners and crypto exchanges like Coinbase also climbed alongside the leading digital currency.

This morning’s earnings reports from major retailers shed light on consumer conditions. Macy’s shares fell as it announced the closure of 150 stores in an attempt to turn things around and reported another quarter of declining sales. Lowe’s gloomy sales and profit forecast for 2024 put pressure on the home improvement chain’s stock.

In essence, the market is clearly still split into ‘Nvidia vs. everyone else.’ That kind of extremely narrow breadth isn’t healthy, and with a big inflation reading coming up on Thursday, it could amplify the bearish impact of a hot PCE report.


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