The yield curve’s ten-month moving average inverted in September, hence the yield curve inversion can no longer be dismissed as transitory; the Boom/Bust Indicator remains below its descending 10-month moving average, confirming economic weakness predicted by the yield curve; and, the “Present Situation” component of September’s Consumer Confidence survey slipped below its 10-month moving average for the third time in 2019.
We’ve written before about retail investors’ tendency to “conflate” stock market action with movements in the underlying economy. Misunderstanding this interrelationship generally causes the public to liquidate stocks when the economy is weak, only to ultimately buy them back when the economic recovery is obvious to all.
Optimists have continuously cited low unemployment and the ever resilient U.S. consumer as two “pillars of strength” that will help keep the economy afloat. It has become considerably more difficult to make this case in recent months, as jobs and spending data have weakened to levels associated with recessions.
The driving force behind today’s stock market is the public. Never before had they had such clout.