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That may not be much of a paradox, however, given the state of financial markets towards the end of 2018. Neither consumers nor businesspeople are impervious to deepening market gloom and depressing financial news headlines. Come January 2019, they must have been heavily influenced by the lousy returns in the last quarter of 2018 – and then relieved to see that markets once again took a turn for the better.

You may not expect to read about research in a monthly commentary, but bear with me. Willem Van Zandweghe, an economist with the US Federal Reserve System, has examined the relationship between stock prices and consumer confidence. I'll cut to the chase:

Changes in equity prices predict changes in confidence, but changes in confidence do not predict changes in equity prices.

See? Remember those articles you read at the start of the year about falling confidence and sentiment indicators? In a sense, they may have been little more than reflections of the past market decline.

When you think about it, it's not that surprising. Logically, equity prices, being forward-looking, should influence sentiment. An older piece of Federal Reserve research, by Maria Ward Otoo, concludes that "people use movements in equity prices as a leading indicator".

In essence, then, you can discard a lot of survey-based market predictions as little more than rear-view mirror observations.

Oops, it seems I just prevented myself from making much of the improved consumer confidence measures in April.



Historical returns are no guarantee for future returns. Future returns will depend, inter alia, on, market developments, the portfolio manager's skill, the fund's risk profile, as well as fees for subscription, management and redemption. Returns may become negative as a result of negative price developments.

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