With economic data indicating that consumer confidence is at a six-year high, all while income and spending actually fell by 0.1% in April, investors seem confused about what this means for the economy and the markets moving forward. On one hand, consumer confidence is strong, which indicates that Americans will likely be willing to spend more money in the coming weeks and months. But if income levels are slipping, consumer have less to spend, which could hurt the economic recovery in the future.
And therein lies the reason that the Dow Jones Industrial Average (^DJI -0.11%) has only gained 13 points by 12:50 p.m. EDT, while the S&P 500 and the Nasdaq have moved less than 0.1%.
With consumer spending coming in lower than expected, consumer staples are trading lower today. Procter & Gamble is down 2%, Coca-Cola (KO 1.50%) is off by 0.9%, and Johnson & Johnson has fallen 0.9% as well. Even the country's largest retailer, Wal-Mart, is down 0.5% on the news. But while we can blame April's reduced consumer spending for these declines, the more likely reason some of the Dow's stalwarts are sinking today is that investors are slowly but surely moving out of stocks and into bonds.
After rising almost every day this week, interest rates on Treasury bonds are again higher today. 30-year rates are now at 3.31%, while 10-year notes are now paying 2.15%. The Dow's consumer-facing stalwarts -- P&G, J&J, and Coke -- all saw their stock prices increase as investors chasing yields left bonds and moved into stable, dividend-paying stocks. But now that interest rates are rising and decent yield can once again be found in bonds, those investors will be selling equities.
The biggest challenge for equity investors will be holding on to shares while their prices slowly decline over a period of weeks or even months with no apparent catalyst. Coke is dealing with a strike in Venezuela, but we haven't seen any negative news pertaining directly to Johnson & Johnson or Procter & Gamble all week, and yet shares of the companies are down about 2% and 5.8%, respectively, during this short week of trading. Wal-Mart and Coke have both lost about 2% this week as well.
