Why It’s Important to Invest with the Consumer’s Feelings in Mind
What thoughts dominate your mind when you hear the words consumer confidence surveys? Or are they just part of reviews that you don’t give too much thought? As a smart investor, reports on how consumers’ emotions change from optimism to despondence and back should carry plenty of investment juice for you.
Peoples’ feelings reflect in the economy and affect the performance of different stocks and eventually reflecting on your investments. Let’s see why it’s important to invest with consumers’ feelings in mind.
Optimistic Consumer Effect on Stock Market
Consumer optimism is not always a good thing for an investor in the stock market. In fact, when customer confidence is low, it is usually a sign that the stock market is about to climb. Clearly depicted when you examine the relationship between Singapore’s consumer confidence index and the STI index.
Since the turn of the century, the lowest slump in the consumer confidence index came soon after a revamp in the STI index. A case in point was in the period 2008 – 2009 when consumer confidence was perhaps at its worst point in recent history. This came right after the STI index had begun to recover from its worst low in late 2008.
Why does Consumer Confidence have this Effect on the Stock Market?
Both investors and traders in the stock market are futuristic in their dealings. They get information on economic and company performance and cash in on opportunities before the average person (the consumer) notices. This is why the stock market performance index is a crucial indicator of what transpires in the economy and what is about to happen. In most cases, investors set share prices by market expectations as a result of various analyses not what is prevailing.
On the other hand, by the time the consumer confidence index declines, investors in the stock market will have already detected this and factored the slowing economic conditions to the prices of securities.
Stock Markets also go through Emotional Cycles that wave in maximum and minimums. When the markets indicators show signs of recovery, investors express optimism and markets are often bullish. As the conditions continue to fair, investors migrate from optimism to excitement, to having a thrill and eventually peak at a euphoria. This is usually a bad point to make sort of investment. As the markets move from the euphoria to anxiety, they begin to become more bearish. Investors then move from anxiety to denial then fear and swing all the way down to despondency.
Despondency is the point of maximum opportunity while euphoria is the position of the highest potential risk.
To conclude, recent surveys carried out by survey companies such as Nielsen and MasterCard indicate that consumer confidence in Singapore is currently at a low. However, investor optimism is growing. This mix of consumer and investor feelings suggests that it is an opportune time to invest. But don’t just take my word for it; check out the MasterCard’s index of Singapore’s Consumer Confidence as well as the STI index and factor in consumer emotions in your investment planning.