VIDEO: How a Big Miss in Consumer Confidence Affects Our Game Plan
There's no need to be a hero with the S&P 500 moving below its 100-day moving average.
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In today’s TheStreet Pro Portfolio Daily Rundown video, Chris Versace discusses the bigger-than-expected drop in the February Conference Board Consumer Confidence Index and explains why it's pulling the market lower.
Chris also explains that why while we are keeping our eyes on some stocks, we are not in a rush to put capital to work, preferring instead to let better stock prices come to us.
In keeping with our mantra for this week to play chess not checkers, we remind you about the other February data being published next week.
Transcript
CHRIS VERSACE: Hey, everybody. Chris Versace here. Tuesday, February 25th. And the market selloff continues today following the much weaker than expected February consumer confidence report.
In our opening comments this morning to you, we walked through a couple of different things, but also identified why we would be paying close attention to this report. Our concern was that it might echo some of the woes, if you will, that were raised in the University of Michigan's report last week about consumer confidence, inflation expectations. And I have to say, there's little question that the consumer confidence report for February found the exact same things.
Just walking through it with you really quickly, the consumer confidence index declined 7 points in February. It hit 98.3. That's down from 104.1 in January, easily missing the consensus forecast. But I think some greater context is needed here. What we saw with the February report was the largest monthly decline since August of 2021. And just leafing through It, current labor market conditions weakened. Consumers became more pessimistic about future business conditions, less optimistic about future income. And there was some called out pessimism about future employment prospects worsening, hitting a 10 month high.
At the same time, inflation has been a key concern. It was really called out in that data from the University of Michigan last week, with 1 year consumer inflation expectations rising significantly, hitting their highest level in over a year. Well, here too, in the consumer confidence report from the conference board, the average 12 month inflation expectation surged to 6% in February. That's up from 5.2% in January.
Now, let's just put this all together. And we understand that these two reports reflect rising prices that people are seeing, whether it's beef, eggs, coffee, what have you. Concern about tariffs and the potential additional inflation that they could bring. And of course, some of the other things that are unfolding in Washington about layoffs, job cuts, those sorts of things. So are we surprised that the conference board's consumer confidence index for February missed expectations? No, we're not. Are we a little surprised by the magnitude? Yes, we are.
I would say a couple of things. One, remember that this is the February data and the tariffs that were put forth by President Trump for Mexico and for Canada were pushed off. It's sounding like that they are on the table and could go into effect next week, March 4th. So that has us a little more concerned about some of the forward data that we will get for the month of March, when we're in April. But before we get there, we do have a lot of other data to look at.
Remember, our concern has been that the upcoming February data from ISM regarding the manufacturing and service PMIs could echo what we saw with S&P's flash, February PMI data. Inflation, slower job creation, and a softening in the service sector, which is the bulk of GDP. So we are kind of concerned about all of that. So we are continuing to sit on the sidelines.
And the other reason why we're doing that is in our comments this morning, we said, hey, the S&P 500 passed through its 50 day moving average and following the February conference board consumer confidence index, it is now moved through the 100 day moving average. So we're going to want to sit on the sidelines and let all of this data come in, pick our spots. We do have our shopping list, but with the market kind of coming under some renewed pressure here, renewed concerns, we are going to want to remain on the sidelines, let better stock prices come to us.
So while we do this, we will be revisiting some potential candidates in the bullpen for the portfolio, but also looking at some new candidates for the bullpen. I know these times can be nerve wracking, but we also have to remember, too, that pullbacks in the market of 3%, 4%, 5% are not uncommon. They can let some of the froth come out of the market.
Our job as investors is to be prepared for when that pullback is finished, so we can put some capital to work at better prices, picking up, in our case, well-positioned companies benefiting from multiyear structural tailwinds that are poised to deliver superior earnings. And we will stick to that job, putting our pencils to paper, fingers to keyboard, what have you. And as we uncover new ideas that we want to bring into the bullpen, we will share them with you.
And that means, my friends, at least for the time being, please be sure check your emails, check your alerts. We want to make sure you get our latest thoughts. And if we happen to make any moves with the portfolio, we find a well positioned oversold stock that maybe we want to start a position in or pick up more shares in, we want to make sure that you are right there with us. Thanks for watching.
