Stocks rise on surprise jump in consumer strength

The statistical correlation between consumer sentiment and stocks can only be described as loose at best. Thus, any reaction to headline is largely short-term emotional reaction that will be quickly forgotten.

Consumer sentiment or expectations, while a soft indicator, is strongly correlated with confidence USA, Inc. This strong correlation can be view in inverse correlation between consumer expectations and the price of gold in the following chart:


The recent break of the March 2009 up trend in June 2010 suggests another down thrust in confidence is underway. This will coincide with higher gold prices. Expect media/headline analysis to miss this point and report it only well after the fact.

A report showed confidence climbed more than expected in August, giving traders some hope that the slowdown in the economy might be finding a bottom.

Source: finance.yahoo.com