Make Sure You Know What to Listen to

Oh dear. According to a recent survey, consumer confidence plummeted earlier this month to a yearly low. This comes after a bit of a positive bounce around Budget time. But the doom and gloomers are back marshalling their warnings and prognostications.

Here’s why. The first paragraph of the media release from the survey, by Westpac Senior Economist, Matthew Hassan, states:

This is a surprisingly weak result. It now appears that last month’s surge of optimism was a brief “relief rally” following the RBA’s May rate cut and a Budget that was less “damaging” than many feared.

With these factors now behind us, sentiment has reverted back to a level more reflective of broader concerns about the outlook for the Australian economy.

Lots of the financial media, including Business Insider, the ABC and the Fairfax papers picked up on this dire news.

So exactly what is this survey? It’s the Westpac-MI consumer sentiment index. It’s essentially five survey questions, in regard to family finances, economic conditions into the future, and the buying conditions of major household items.

Here’s what I say about that — big deal!

Today I’ll show you where I go looking when I want to measure ‘consumer sentiment’…

This measuring method beats any survey or index hands down

Don’t you think that if you want to get an accurate idea of how discretionary spending is holding up, it makes sense to look at companies who sell discretionary products?

Seems like a no-brainer to me. How do we do that? Stock charts of course!

Where else but the share market can you get the absolute latest indication of consumer sentiment via companies operating in this space? I’m talking right down to the last traded price. That’s far better than relying on some person’s subjective opinion or financial information three months behind.

Let’s start with some of the retailers…

First up is Harvey Norman [ASX:HVN].

Harvey Norman weekly chart

Source: STEX

Click to enlarge

What do we see? Harvey Norman has been in a strong uptrend for all of 2015. It’s making new highs this week. Consumers must be spending for this to happen. Our take away? Consumers at least have enough confidence in their jobs and economic conditions to do so.

Likewise, JB Hi-Fi [ASX: JBH] has been in an uptrend for all of 2015. And you can add other companies in the discretionary spending area such as Beacon Lighting Group Ltd [ASX:BLX] and Lovisa Holdings Ltd [ASX:LOV], which have both made recent highs. Lovisa sells fashion accessories — not exactly of prime importance on the weekly shopping list when things are truly in the dumps.

An even better industry to watch

An even better barometer to gauge consumer sentiment than retail companies are new motor vehicle sales. A motor vehicle is the biggest purchase you can make, save for a property. You have to feel very secure in your financial position to buy a car…especially a new car. If you think you’re going to get the flick from your job, there’s no way you’d buy a new set of wheels.

Check out graph below for Porsche, Maserati and Lamborghini new vehicle sales in Australia…

That’s quite a jump in anyone’s book. Looks like there’s plenty of cash around, at least at the high end.

Now, I know what you’re thinking. Those brands don’t exactly scream middle Australia and the broader economy. But I’ve got you covered. For that we can look at the two major listed car retailers on the ASX.

The first is AP Eagers Ltd [ASX:APE] below. AP Eagers is Australia’s oldest listed automotive retail group.

AP Eagers Ltd weekly chart

Source: STEX

Click to enlarge

This stock has not had more than two weeks down for most of 2015. The trend remains up. Seems to me we are buying more new cars than ever before.

Likewise AHG Automotive Holdings Group [ASX:AHG] is hovering close to all-time new highs. Despite a recent retracement, the monthly trend still remains intact — and that’s up.

Even hospitality and leisure stocks are starting to pop up. Amalgamated Holdings Ltd [ASX:AHD] owns cinemas, theatres, hotels and resorts. It jumped into new highs recently. Consumers are enjoying themselves!

Your takeaway…

The mainstream press throws a lot of noise at you. As an investor it can be confusing. When you read that consumer sentiment is down it seems Australia might be on the brink of recession.

That’s enough to spook you out of the stock market. But the stock market is telling us that people ARE spending their money, and those companies will report good earnings during reporting season.

That’s why I’m bullish on stocks. Over at Cycles, Trends and Forecasts we think the market’s poised for a move up. To see why, get the full story here.


Terence Duffy,
Lead Researcher, Cycles, Trends and Forecasts

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Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance, the good or bad news to come — which he details in Cycles, Trends and Forecasts.

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