Consumer Shmonfidence

The consumer confidence index fell to 38 in October. Based on a survey of 74 economists, the average prediction called for 52. Worse than that, the most pessimistic economist was looking for 45. This was the lowest reading since 1967, when the index began. The previous low was 43.

Again, the consumer confidence index fell to 38, which is well worse than expected. So why did the Dow soar 11%, or 889 points, to 9065?

What is it?
Every month the Conference Board surveys consumers for their opinions on current conditions and future expectations. Questions include:
1) How do you feel about the current business environment?
2) How do you think the business environment will be over the next six months?
3) How do you feel about the current employment situation?
4) How do you think employment will be over the next six months?
5) How much money do you think you'll make over the next six months?

It's a measure of confidence. It doesn't measure actual earning, spending, or saving activity. You might actually be fine in this economy, but you might feel terrible about it. I bet you could survey a dozen people at Whole Foods and Starbucks and they'll all tell you the economy is doing horribly. But they're still buying overpriced groceries and coffee.

Regardless, why the stock market rally?

Worse Expectations
Perhaps the bulk of investors were even more negative than those 74 economists. It's not unheard of. Everybody knows these economists are always off. Why not form your own opinions? Remember what happened with the September payroll numbers?

Market Bottom
Perhaps people thought the report was sooooo terrible, things couldn't get any worse. This is a classic sign of a market bottom. Literally, it was soooo bad, it was good.

Remember, stocks reflect expectations. If sentiment is so terrible you that you can't imagine worse sentiment, wouldn't you expect sentiment to only get better? If you're thinking stocks, this is a pretty good reason to be buying. I hope for the sake of today's stock buyers (and the economy as a whole) that upcoming economic and financial data doesn't reflect worse expectations.