Consumer Confidence: how much longer until the next bear market?

The Conference Board’s Consumer Confidence Index shot up to 138.4 today. This is about as good as it gets for Consumer Confidence (historically).

Here are all the historical readings of Consumer Confidence exceeding 138, and what happened next to the S&P 500.

On the surface this seems immediately very bearish, but that’s because the data isn’t displayed properly. A lot of these dates are clusters:

  1. 1967-1969
  2. 1998-2000

What we should be looking for is what happens to the S&P when Consumer Confidence >138 FOR THE FIRST TIME in each economic expansion cycle.
There’s a huge difference between:

  1. This is the FIRST TIME in an economic expansion during which Consumer Confidence has exceeded 138, vs…
  2. This is the 5th time in an economic expansion during which Consumer Confidence has exceeded 138.

As you can see, the U.S. stock market tends to go up for another 1.5-2 years before a bear market begins. This confirms our Long Term Risk Model, which suggests that:

  1. We are certainly in the late stage of this bull market, however…
  2. We are not quite at the peak yet.

Expect more readings of extremely high Consumer Confidence over the next year before the bull market peaks.
Also, treat this study more of as a GUIDE rather than being rock solid. There is no rule saying that “Consumer Confidence cannot significantly exceed”. Consumer Confidence might go to 140, 150, 160 etc (although that his unlikely). Similarly, there is no rule saying that the market “must” crash once valuations become “high”. For example, before the 1990s the stock market always topped when Tobin’s Q (a valuation indicator) reached 1. But after the 1990,s valuations CONSISTENTLY exceeded 1.

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