Consumer Fatigue Will Weigh Down Market

I don't know about you, but I've been spending less than I did last year.
In fact, my family has had to trim out budget by quite a bit given the employment outlook lately.
We're looking for cheaper entertainment options, not eating out as much, clipping coupons . . . even growing our own vegetable garden to save money.

But there's a bit of false hope in the surging equity markets. Who doesn't like to see their retirement savings growing each day. But is this encouraging some to spend more? Or are they expecting a quick return to the days of old, when unemployment was under 5%?

I'm baffled. Earnings season is again surpassing all expectations. Sales and profits are surging across the board.

I'm confident this can not continue. There will be a day of reckoning this year, when the reality hits these consumers that we're still in for a long-haul and newly adopted frugalities will remain a way of life.

Analysts are forecasting double digit growth in earnings for the current quarter (ending June 30). I think this is the quarter that will disappoint.

Here's some supporting survey data:


Consumers to put spending on long-term diet

Desperation Shopping

I've been puzzled as to why corporate sales and earnings have been driving higher lately despite the massive unemployment and falling housing market in our country. Stocks have been rising with the expectation that sales (and more specifically consumer spending) will continue to accelerate. In fact, since my last post (calling for moving money out of stocks) the market has gone nowhere but up!

My asset allocation, conversely, has been quite defensive. I'm of the opinion that analysts are too optimistic about the recovery of the economy - V-shape, square-root shape . . . whatever you want to call it. It's a fact, though. Consumers are spending more, even with lower paying jobs (if jobs at all), flat to falling house prices and looming tax increases because of a huge national deficit.
I call it Desperation Shopping.

Here is a good article that may explain this dichotomy:

Mortgage Defaults May Be Driving Consumer Spending