A tiny spark of hope was ignited for tech and Internet investors last week when the Nasdaq and ‘Net stocks posted consecutive gains on Thursday and Friday.
Whether that spark can be fanned into the kind of flame needed to heat up this frigid market may depend in large part on the Consumer Confidence Index for March. The latest index results are due to be released Tuesday, and while investors hold out little hope that a five-month decline suddenly will be reversed, a better-than-expected indicator of consumer confidence may persuade buyers the bottom is near.
The index has fallen every month since last October. February’s figure was 106.8, down from January’s 115.7. Wall Street watchers are predicting another decline to 105.
It will be a big week for other economic indicators, including the release of new-home sales on Monday, durable goods orders on Tuesday, fourth-quarter gross domestic product totals on Thursday and personal income on Friday.
All are important data, and all contribute to the overall portrait of the economy as it heads into the second quarter. But consumer confidence arguably is the most critical factor of all. The long food chain that ultimately leads back to corporate earnings reports begins in millions of households across the country.
Right now, members of those households are jittery. They are being relentlessly bombarded by gloomy, even alarmist, messages from the media and the new administration about a pending recession. Consequently, they are spending (and investing) less.
The Federal Reserve’s three rate cuts so far this year have been intended primarily to reverse the downward spiral of consumer confidence. They have had little positive effect. In fact, stocks plunged in the immediate wake of last Tuesday’s half-point interest-rate reduction because it was deemed insufficient by investors who had been wishing for a 75-point cut, even though the Fed indicated that more cuts will come if the economy fails to reignite.
Ironically, a half-point rate cut in January also sent stocks reeling, but for the opposite reason: Investors were spooked by the size of the cut, which was interpreted as evidence the economy was in worse shape than believed.
As it did last week while waiting for the Fed’s latest move, stocks likely will tread water on Monday as all eyes look ahead to Tuesday’s release of the March Consumer Confidence Index. Anything close to the expected number of 105 probably won’t help. Anything below that will mean more pain in the foreseeable future.