Americans’ Economic Confidence Is Strong
$DIA, $SPY, $BA
Americans’ confidence in the economy remains strong heading into the final weeks of the Christmas Holiday shopping season.
Gallup’s U.S. Economic Confidence Index registered +7 last week, similar to the prior week’s score of +9 and close to this year’s average of +6.
Americans’ low expectations for how the GOP’s tax bill will affect the economy has not dampened confidence much, if at all. High economic confidence, coupled with other positive economic indicators, are expected to result in the Federal Reserve increasing the interest rate during its meeting this week.
However, there could be some economic turbulence in the unlikely event of a government shutdown. Congress passed a short-term budget deal to keep the federal government open until 22 December.
But if Congress doesn’t reach a long-term deal, history suggests that economic confidence could falter during the final, critical days of what is expected to be a strong Christmas Holiday shopping season.
Gallup’s US Economic Confidence Index is the average of 2 components:
- how Americans rate current economic conditions and
- whether they feel the economy is improving or getting worse.
The index has a theoretical maximum of +100 if all Americans were to say the economy is doing well and improving, and a theoretical minimum of -100 if all Americans were to say the economy is doing poorly and getting worse.
The index reached as low as -65 in October 2008 during the depths of the Great Recession.
Tuesday on Wall Street, the S&P 500, and the DJIA hit record levels in early afternoon trading as Boeing (NYSE:BA) rose and bank stocks gained ahead of a near certain move by the Fed to raise interest rate.
“You’re going to see rotation when you go into the end of the year. Some of the profits were taken off the table for big winners such as technology and into sectors that have not done as well, such as finance and energy,” said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago.
The Fed is widely expected to raise its benchmark interest rate for 3rd time this year at the end of the meeting Wednesday.
Traders see an 87.6% chance of a 25 bpt rate hike, according to the CME Group’s Fedwatch tool.
Investors will watch for the central bank’s forecast on future rate hikes and its view on the health of the economy.
“The market is anticipating 1-2 rate hikes and the Fed is looking at 3-4 (in 2018). There is going to be some reconciliation of those opinions, and so far in the last few years, the market has been more right than the Fed has,” said Mr. Nolte.
For his part, President Trump hareled the economy and market in a Tweet as he seeks a sweeping tax-reform plan.
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