It's quite possible that good news is creeping around the corner, getting ready to jump out and startle markets into a big upside surprise.
Sound unlikely? It wouldn't take anything more than moderately good news for that to happen. After all, for stock markets, particularly over shorter time frames, the key often isn't whether news is legitimately good or bad, but it's whether it's good or bad in relation to expectations.
The Conference Board's consumer confidence data for May underscores just how low the bar is for news to be deemed positive. The index fell to 64.9 in May after a slight decline to 68.7 in April. But check these stats out:
- 13.6% of respondents said that business conditions are "good,"
- 16.6% said that business conditions will improve over the next six months,
- 15.8% think there will be more jobs in the next six months, and
- 15.2% expect an increase in their incomes.
Or think about it this way: If you grabbed 10 people off the street, you'd be lucky to get two to say that business conditions will improve by the end of the year. That's dismal.
But there's a good argument that their pessimism isn't borne out in the data. Since employment bottomed out in December of 2009, we've added close to 4 million jobs. The unemployment rate is down from double digits to 8.1%. After a pre-recession peak of $14.4 trillion and a second-quarter 2009 trough of $13.9 trillion, U.S. GDP was at $15.5 trillion in the first quarter.
Or consider some of the major components of the Dow Jones (INDEX: ^DJI) index. As of the March quarter, ExxonMobil's (NYSE: XOM) trailing-12-month revenue and profits were up a respective 61% and 107% from 2009. IBM (NYSE: IBM) has seen revenue and earnings jump 12% and 20%, respectively, and both are above the company's pre-recession highs. General Electric's (NYSE: GE) total revenue is down from 2009, but profits have bounced back 25%.
The bad news is that consumers don't have their feelings in a vacuum -- that is, lackluster consumer confidence can lead to real economic consequences like lower consumer spending. However, for investors, this may mean that there is still a lot of pessimism that's holding down stock prices. That could provide a nice tailwind for the market if that pessimism reverses to optimism over time.
