Review
On April 1, 2019, we wrote an extensive piece on the work Charles H. Dow and how the Dow Jones Industrial Average is a consumer sentiment indicator that precedes the widely quoted University of Michigan Consumer Sentiment Survey.
When we say that the Dow Jones Industrial Average precedes the University of Michigan Consumer Sentiment Survey, an appropriate response should be that, when compared to the actual data, the University of Michigan Consumer Sentiment Survey generally peaks and troughs before the Dow Jones Industrial Average. As this is an accurate claim, we are required to point out that University of Michigan Consumer Sentiment Survey is delayed and revised every two weeks whereas the Dow Jones Industrial Average is instantaneous and unrevised.
Is a two week delay all that important in the big scheme of things? It is likely that the Dow Jones Industrial Average influences the outcome of the University of Michigan Consumer Sentiment Survey. As a reminder, the Consumer Sentiment Survey is a phone survey consisting of 50 questions across 500 or more individuals/households versus the stock market that reflects millions of transactions on a daily basis.
Current Take
In the chart of the Year-Over-Year comparison of the University of Michigan Consumer Sentiment Survey and the Dow Jones Industrial Average, we have included the current cycle from the recession of 2007-2009 to the present.
In the chart above, the current view is best reflected in the late-2017/early-2018 declining trend. We’ve highlighted, in a green circle, the Dow Jones Industrial Average as it reverses a rising trend and then starts to decline. Likewise, the Consumer Sentiment Survey starts to flatten rather than continue to move higher.
Forward View
A trend doesn’t define the future prospects. However, we believe that the declining trend has not completely played out. This means that we expect that the economy and stock market will languish, in the best case scenario.
Alternatively, if the Dow Jones Industrial Average can exceed the 28,750 level, the Consumer Sentiment Survey will reflect this change of direction and move above the short-term peak of May 2019.