The Survey Says…

September 11, 2020

Recent consumer confidence surveys have fallen from the impressive levels we saw at the beginning of the year to levels that are well below typical readings.1 These surveys are reflecting the depressing effects of the deepest economic pullback since the Great Depression and are probably not a surprise to most Americans. Other surveys, however, are showing a decidedly different take on our current situation.

One popular survey, Advisors’ Sentiment by Investors Intelligence, aggregates and reports the views of subscription market newsletter services. Currently, market bulls are far outnumbering market bears meaning market confidence is quite high with this group (this high reading is usually seen as a warning that investors are too optimistic).2

Another model that attempts to gauge investors’ confidence is the Citigroup Panic/Euphoria Model, which is now at its highest level since the early 2000s.3 This is in line with another tool used to analyze current market pricing and behavior, CNN’s Fear & Greed Index.4 While this index has fallen somewhat over the last month, it remains solidly on the greed side of the meter.

There seems to be a strong disconnect between the views of the consumer and the investor. This is most likely due to the very weak but improving numbers we have seen recently. Private companies added 428,000 jobs according to ADP during the month of August, well below expectations.5 The Labor Department released stronger numbers than ADP but still reported 881,000 initial jobless claims for the last week in August, a number that remains stubbornly high.6

So while U.S. gross domestic product (GDP) is on track to decrease by a tremendous amount and household finances have weakened7, there are slow moving positive developments. At least for the time being, prices have stabilized and inflation has moved slightly higher from the previous quarter.8 More importantly, hospitalizations and the death rate related to COVID-19 are decreasing.

At COVID-19’s peak in the U.S. during the week of April 18, there were 17,047 confirmed deaths and a hospitalization rate of 10.1 per 100,000 population.9 During the last complete reading on the week of August 1, the Centers for Disease Control and Prevention (CDC) confirmed 7,468 deaths due to COVID-19 and a decreased hospitalization rate of 2.5 per 100,000 population.10

The consumer and investor surveys above are reflecting the reality of the recession and the subsequent recovery. It is normal for markets to begin recovering while the economy is still in recession and news is negative. While we think the recovery will be uneven and take a little longer than what the current pricing and market optimism seems to suggest, we believe the overall trend will be improving numbers amid a higher level of market volatility than what we saw in 2019.

If you have any questions, don’t hesitate to contact your Exencial advisor.

1. Russell Investments Economic Indicators Dashboard (data as of 9/11/20) – Consumer Sentiment (CSI)
2. Investors Intelligence (data as of 8/26/20) – Advisors’ Sentiment
3. Bloomberg (9/8/20) – Citi warns equity euphoria at highest since 2002: Taking stock
4. CNN Business (data as of 9/9/20) – Fear & Greed Index
5. CNBC.com (9/2/20) – Private payrolls grow by 428,000 but miss expectations, ADP report says
6. U.S. Department of Labor (9/4/20) – The employment situation — August 2020
7. Bureau of Economic Analysis (7/30/20) – Gross domestic product, 2nd quarter 2020 (advance estimate) and annual update
8. U.S. Department of Labor (8/12/20) – Consumer Price Index – July 2020
9. Centers for Disease Control and Prevention (data as of 9/9/20) – Weekly updates by select demographic and geographic characteristics
10. Centers for Disease Control and Prevention (data as of 9/9/20) – Weekly updates by select demographic and geographic characteristics

The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities. There is over USD 9.9 trillion indexed or benchmarked to the index, with indexed assets comprising approximately USD 3.4 trillion of this total. The index includes 500 leading companies and covers approximately 80% of available market capitalization.

The CNN Fear and Greed Index is a measurement that attempts to determine if current market prices are being driven more by fear or greed. CNN looks at 7 indicators: Stock Price Momentum (The S&P 500 (SPX) versus its 125-day moving average), Stock Price Strength (The number of stocks hitting 52-week highs and lows on the New York Stock Exchange), Stock Price Breadth (The volume of shares trading in stocks on the rise versus those declining), Put and Call Options (The put/call ratio, which compares the trading volume of bullish call options relative to the trading volume of bearish put options), Junk Bond Demand (The spread between yields on investment grade bonds and junk bonds), and Market Volatility (The VIX, which measures volatility, and Safe Haven Demand (The difference in returns for stocks versus Treasuries). For each indicator, they look at how far they’ve veered from their average relative to how far they normally veer. They look at each on a scale from 0 – 100. The higher the reading, the greedier investors are being, and 50 is neutral. Then they put all the indicators together – equally weighted – for a final index reading.

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