Consumer Confidence Falls—and So Do Stocks

As recession talk and high inflation persist, consumer confidence has taken another slide, descending 4.5 points in June to 98.7, a 16-month low. (The baseline is 100, set in 1985.) This development helped prompt a reversal in the stock market’s recent upward momentum, with the S&P 500 falling 2% on Tuesday.

The dip in the Conference Board’s Consumer Confidence Index, released Tuesday morning, could augur coming economic pain, in the eyes of numerous strategists. After all, gross domestic product decreased 1.5% in this year’s first quarter, and some fear that the second period will also be negative—with a two-quarter descent the common (albeit not official) sign of a recession.

“Right now, we are at an inflection point in the economy, where actual spending and economic activity are still positive,” wrote Chris Zaccarelli, CIO for Independent Advisor Alliance, in a research note. “However, consumer confidence and financial conditions (especially interest rates) are indicating a slowdown ahead.”

The Conference Board’s survey, and a recent one from the University of Michigan showing much the same thing, are disquieting signals. “Both reports underscore that the all-important U.S. consumer is responding to the slowdown in the economy coupled with still higher prices,” said Quincy Krosby, chief equity strategist for LPL Financial, in a note.

To some, the confidence slump may be an overreaction, although they add that the pessimism may feed upon itself. “The persistent weakness in confidence surveys suggests a recessionary environment can become self-fulfilling,” John Lynch, CIO for Comerica Wealth Management, warned in a note. He evoked a character from “Seinfeld,” adding, “Perhaps we should call it the ‘George Costanza Recession’–if you believe it, Jerry, it’s not a lie!”