Why Consumers Can't Lift the Dow Forever

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Economists routinely point to the importance of consumers to the health of the overall economy; their spending activity makes up a majority of overall economic activity. Yet even when consumers appear to be happy, the results don't always translate into gains for stock investors. This morning, the University of Michigan's index of consumer sentiment climbed a point to 85.1, beating expectations and rising to its highest level in six years. Yet stock markets couldn't overcome early losses even after the data came out, and the Dow Jones Industrials (DJINDICES: ^DJI  ) remained lower by about 134 points as of 10:55 a.m. EDT.

Indeed, consumer-oriented stocks are among the weakest performers in the Dow today. Coca-Cola (NYSE: KO  ) is down 2%, likely in response to a reduced forecast from independent bottler Coca-Cola Enterprises (NYSE: CCE  ) . The bottling company said continued trouble in the European economy combined with cold, rainy weather throughout much of the region led to volume declines of 2.5% for the quarter, confirming Coca-Cola's own 4% decline in soda sales in North America that it reported last week. Coke investors need to remember that Coke, with its global operations, is not influenced by U.S.-centric consumer figures so much as domestically focused companies.

American Express (NYSE: AXP  ) has dropped 1.7%. The financial company has historically catered to high-income customers whose spending drives not only the overall economy but also AmEx's transaction-based revenue. Even though the company said the European Commission's measures to limit fees on credit-card and debit-card transactions won't affect its business substantially, AmEx nevertheless could see similar proposals weigh on its profitability even as it tries to focus on staying competitive in the rapidly changing payment-processing business.

Finally, companies that offer products that consumers don't want to pay up for don't necessarily benefit from increased consumer confidence. TempurSealy (NYSE: TPX  ) is feeling investors' wrath today, with its stock falling more than 10% after it reported disappointing earnings last night and cut its guidance. The company had hoped that its acquisition of Sealy would give it better exposure to the lower end of the mattress industry, but poor economic conditions hurt its sales and margins. The misstep could bode ill for the company's merger if it leads customers who might otherwise have paid up for premium products to choose lower price points instead.

Even though your stocks might fall on any given day, your best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

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Related Tickers

9/23/2016 4:55 PM
^DJI $18261.45 Down -131.01 -0.71%
AXP $63.85 Down -0.78 -1.21%
American Express CAPS Rating: ****
CCE $40.23 Up +0.01 +0.02%
Coca-Cola Enterpri… CAPS Rating: **
KO $42.74 Down -0.22 -0.51%
Coca-Cola CAPS Rating: ****
TPX $76.47 Down -1.17 -1.51%
Tempur Sealy Inter… CAPS Rating: ***