As the market falls, our past study of public opinion sees some validation.
Back in April, we wrote about our study of consumer sentiment (as measured by the University of Michigan) and its inter-quarter effect on the S&P index.
You can read the full article here, but the findings were essentially this: as consumer confidence grows from one quarter to the next, the S&P index is expected to fall over the course of the following quarter.
Consumer sentiment is currently at its highest point since 2007.
Will the good times come crashing down in the near future? It’s hard to say, given the nature of these models and the latent variables that aren’t accounted for, but I would give some serious thought to selling off any volatile assets.
I hope that those who read my warning took it seriously. Just today, the Dow, S&P and Nasdaq all plunged by over 3%, and worries over the Chinese manufacturing sector are justifiably grim.
The preliminary July results for consumer sentiment represent a slight decrease to 93%, which is indicative of the trailing effect we’ve seen in the data from 1978-2014.
While the forecast for next week remains uncertain, one thing is for sure: when consumer sentiment outpaces the market, be prepared to sell.