The Confidence Roller-Coaster Ride

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Last month's rosy consumer confidence data left the market feeling elated. I only wish I could be surprised that, like the first drop on a roller coaster, this month sent those hopes screaming back down to earth.

After two previous months of increases, the Consumer Confidence Index fell to 49.3 in June, from 54.8 in May, while the Present Situation Index fell to 24.8 in June from 29.7 in May. The proportion of American consumers who said jobs are difficult to obtain increased to 44.8% from 43.9%. Only 4.5% of responsdents said jobs were "plentiful," down from 5.8% in May.

Investors seemed too irrationally exuberant about last month's consumer confidence data, celebrating so-called "green shoots" that looked tenuous at best. (The World Bank recently scorched those shoots.) Personally, I figured the apparent economic lull only meant that we were in the eye of the storm.

My Foolish colleague Morgan Housel recently described the difficult and paradoxical environment we now occupy. Loads of debt may slow down our recovery for years to come, and frightened consumers could save themselves to death.

What the numbers mean for you
Monthly consumer confidence data is like a lot of short-term data: far less useful or illuminating for investors than long-term trends. But the recent slump does suggest that we can't pin our hopes on any speedy recovery. That's precisely why investors should avoid many stocks that represent struggling turnaround companies, like Borders (NYSE: BGP), Talbots (NYSE: TLB), and Crocs (Nasdaq: CROX), however "cheap" they may appear on the surface.

Investors might be wiser to buy sturdy long-term stocks like Apple (Nasdaq: AAPL), Google (Nasdaq: GOOG), and Netflix (Nasdaq: NFLX). All of these companies have strong brands, resonate well with consumers, and have stellar balance sheets that vastly increase their odds of survival and success.

The word "confidence" has been tossed around a lot on Wall Street, as if consumers were somehow obligated to wear rose-colored glasses. However much we might wish for good news, consumer confidence will continue to fluctuate until the economy stabilizes. Given all the moving parts involved (and all the shoes left to drop), I fear that won't happen in the near term. Sorry, but we haven't reached the end of this rocky ride just yet.