The U.S. Consumer Confidence Index report from the Conference Board, issued last week, showed an unexpected sharp rise in May after five straight months of decline. The index increased by 12.3 points in May to 98, up from 85.7 in April. Historically, that’s a very large monthly move in the index. 

The Present Situation Index — based on consumers’ assessment of current business and labor market conditions — rose 4.8 points to 135.9. The Expectations Index — based on consumers’ short-term outlook for income, business, and labor market conditions — rose 17.4 points to 72.8, but remained below the threshold of 80, which typically signals a recession ahead. The Conference Board said the cutoff date for preliminary results was May 19. About half of the responses were collected after the May 12 announcement of a pause on some tariffs on imports from China.

The dramatic improvement in U.S. consumer confidence in May was largely driven by consumer expectations as all three components of the Expectations Index — business conditions, employment prospects, and future income — rose from their April lows. “Consumers were less pessimistic about business conditions and job availability over the next six months and regained optimism about future income prospects. Consumers’ assessments of the present situation also improved. However, while consumers were more positive about current business conditions than last month, their appraisal of current job availability weakened for the fifth consecutive month,” said the Conference Board.

Why Market Participants Should Gauge Consumer Confidence Often.

Consumer confidence is a major fundamental element that impacts most markets. Upbeat consumer attitudes mean better demand for goods and services, including raw commodities. Downbeat consumer attitudes mean tighter purse strings that lead to less demand for goods and services. Consumer demand for goods and services is a key driver of stock market prices worldwide.

Last week’s May consumer confidence report was a pleasant surprise for the general marketplace. Read that as being bullish for U.S. stock indexes, raw commodities (including crude oil (CLN25)) and the U.S. Dollar Index ($DXY). The consumer confidence data was bearish for the U.S. Treasury markets as it suggests a stronger U.S. economy that will probably prevent the Federal Reserve from lowering U.S. interest rates anytime soon.

How to Get More Frequent Reads on Consumer Confidence

Speculators in the futures markets are likely to be more bullish when the stock market is trending up, due to better consumer confidence. Importantly, speculators in markets are the grease that lubricates robust, liquid, and well-functioning markets. Bullish speculative traders are necessary participants in futures markets for more sustainable price uptrends. Persistent downbeat consumer confidence creates bear markets in stocks and commodities, and in turn, lower trading volumes and less-liquid markets. 

A good gauge for overall U.S. consumer confidence, to be monitored by market participants on a regular basis, is the S&P 500 Index ($SPX), which hit a three-month high last week. If the U.S. stock indexes continue to trend up, it’s due in part to upbeat consumer attitudes. And a rallying U.S. stock market is bullish for most commodity markets, save for safe-haven gold (GCM25) and silver (SIN25). Yet, it can even be argued that positive consumer attitudes and rising stock markets in Asian countries are bullish for the precious metals, due to better consumer demand for gold, which is a highly sought-after product in countries like China and India.

Most major markets are intertwined. The stock market is right at the top as an “outside market” that is impacting your preferred commodity markets on a daily basis.

The Conference Board last week said, “With the stock market continuing to recover in May, consumers’ outlook on stock prices improved, with 44% expecting stock prices to increase over the next 12 months (up from 37.6% in April) and 37.7% expecting stock prices to decline (down from 47.2% in April). This was one of the survey questions with the strongest improvement after the May 12 trade deal.”

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