When buying or selling stocks, investors can consider technical or fundamental information to help them make informed decisions.
- The Consumer Confidence Index (CCI) is a monthly survey that measures consumers’ optimism or pessimism about the economy and their finances.
- Major holiday shopping periods that have historically shown a correlation with the US stock market are primarily centered around Thanksgiving, the following Black Friday weekend, and the period leading up to Christmas (often referred to as the “Santa Claus Rally”).
How to buy stocks: Factors
When trading stocks, people primarily consider a company’s financial health (earnings, revenue growth), industry performance, market sentiment, economic conditions, and potential future prospects, analyzing these factors through fundamental analysis (looking at company financials) and technical analysis (chart patterns and trading volume). This can help determine whether to buy, sell, or hold a stock while also taking into account their own risk tolerance and investment goals.
It is also important for investors to consider how much risk they are comfortable taking with their investments, whether they are looking for short-term gains or long-term growth, and if they plan to spread investments across different sectors and asset classes to mitigate risk.
Consumer Confidence Report
The Consumer Confidence Report (often referred to as the Consumer Confidence Index (CCI)) is an important economic indicator that measures consumers’ confidence and sentiment regarding the state of the economy. It provides insights into how consumers feel about their personal financial situation, the general economic environment, and their spending plans.
Since consumer spending accounts for a significant portion of economic activity, economists, policymakers, and financial markets closely monitor the CCI to gauge the health of the economy. The CCI can also help predict future spending behavior and offer insights into the broader economic outlook.
Consumer Confidence Report’s impact on stocks
A positive Consumer Confidence Report (CCR) typically has a positive impact on stocks, as it indicates increased consumer optimism about the economy, leading to potential increases in spending and company profits. A negative CCR can have the opposite effect, potentially causing stock prices to decline; essentially, a high consumer confidence level is generally seen as bullish for the stock market.
Some additional key points include:
- A high CCR signifies that consumers are likely to spend more money, which can boost company sales and earnings, positively impacting stock prices.
- The CCR is seen as a leading indicator of future economic activity, so a positive report can signal a healthy economy and encourage investors to buy stocks.
- When consumer confidence is high, it can create a positive market sentiment, leading to increased buying activity across the stock market.
Consumer confidence & holiday spending
The relationship between consumer confidence and holiday spending is direct: when consumers are confident about their financial security and the state of the economy, they are more likely to spend freely on gifts, travel, and holiday experiences. On the other hand, when confidence is low, they tend to be more cautious and cut back on non-essential purchases.
Understanding this dynamic is crucial for retailers. A strong CCR typically predicts a booming holiday shopping season, whereas a weak report may indicate a more muted or discount-driven environment. This relationship makes consumer confidence a critical indicator for businesses, policymakers, and economists, especially during the key holiday shopping period.
What are discretionary stocks?
Discretionary stocks represent companies that sell products and services people choose to buy when they have extra money after covering essential needs. The performance of these stocks is often closely tied to the overall health of the economy and consumer confidence.
When consumers feel financially secure, discretionary stocks generally perform well, but during economic downturns, demand for non-essential goods falls, leading to weaker performance for these stocks. Investors often watch consumer confidence and broader economic trends to gauge when to invest in or avoid discretionary stocks.
Examples of discretionary stocks include:
- Luxury goods, including luxury brands like LVMH and Kering (owner of Gucci), tend to do well in strong economic conditions and are often seen as a bellwether for wealthy consumers’ purchasing power. These brands can maintain demand even during economic downturns, though they still face declines during major recessions.
- Automakers, including companies like Tesla and Ford, may see a boost in demand when consumers have extra disposable income to spend on new cars, especially higher-end or electric vehicles.
- Retailers such as Target and Macy’s perform well when consumer spending is high but may struggle during recessions when people reduce spending on clothing, electronics, and other non-essential items.
Stock sectors that historically benefited from consumer confidence & holiday spending
Consumer confidence and holiday spending have a significant impact on various stock sectors, particularly those that are closely tied to discretionary spending. Historically, certain sectors tend to benefit the most when consumers feel confident and are willing to spend more during the holiday season.
These sectors are closely tied to consumer spending habits and tend to see strong performance when consumer confidence is high, especially during the holiday season when spending on gifts, travel, entertainment, and luxury goods peaks.
E-commerce and retailers
The e-commerce sector refers to businesses that sell goods or services online. It includes companies that operate digital platforms for buying and selling products, as well as those that provide related services such as payment processing, logistics, and online marketing. Major e-commerce companies include Amazon, eBay, and Alibaba.
The retailer sector consists of businesses that sell products directly to consumers, either through physical stores, online platforms, or a combination of both. Retailers range from large chains like Walmart and Target to small, independent shops.
While e-commerce is a subset of retail, the retail sector also includes brick-and-mortar stores. Retailers are involved in inventory management, sales, customer service, and often supply chain logistics.
Household Durable Goods
The Household Durable Goods sector refers to a category of consumer goods that are designed to last for a long period (usually three years or more) and are used in the home. These products are typically more expensive and are expected to withstand regular use over many years, which differentiates them from consumables or non-durable goods (like food or toiletries).
Common products include furniture (sofas, chairs, tables), major appliances (refrigerators, washing machines, dryers), home electronics (televisions, audio systems, and home theater setups), flooring (carpets, rugs, and hardwood flooring) and lawn and garden equipment (lawn mowers, snow blowers, and outdoor furniture).
Leisure
The leisure stock sector refers to companies that are involved in providing goods, services, or experiences related to leisure and recreation activities. This sector includes a wide range of businesses that cater to consumers seeking enjoyment, entertainment, relaxation, and personal recreation during their free time.
Leisure stocks typically include companies in the travel, entertainment, sports, and hospitality industries. Some examples include Delta Air Lines, Marriott International, and McDonald’s.
Stock Market Timing – Does it work?
Stock market timing involves trying to buy stocks at low prices and selling them at high prices to maximize returns. However, research and real-world evidence show that consistently timing the market successfully is extremely difficult, even for professional investors.
According to Morgan Stanley, timing the stock market is challenging because predicting future movements is nearly impossible. Investors who try to time the market often underperform compared to those who simply buy and hold, as the market can experience sharp swings, especially during volatile periods. Missing key market days can significantly hurt returns, and transaction costs can further erode profits.
While market timing can potentially maximize profits and reduce losses, it remains risky and difficult to execute consistently. Investors often face the dilemma of whether to wait for ideal conditions or invest regularly regardless of short-term market movement.
Here’s more food for thought:
- A J.P. Morgan study found that investors who missed the 10 best-performing days in the U.S. stock market over a 20-year period (from 2002 to 2022) saw significantly lower returns than those who stayed invested.
- Vanguard research found that lump-sum investing tends to outperform dollar-cost averaging (DCA) over the long term because the market generally rises over time. Over a 20-year period, lump-sum investors typically enjoy higher returns due to being more exposed to market growth from the start
- But DCA has benefits. A key one is that it reduces emotional investing. Many investors are afraid of investing a large sum at the wrong time (e.g., before a market drop), so DCA provides peace of mind by spreading out the investment over time. For risk-averse investors, this may be worth slightly lower returns, especially if it encourages consistent investing.
Using Apps to Trade Based on Consumer Confidence
Investors have choices where they can buy and sell stocks. Apps like moomoo function as an options trading platform, offering numerous benefits to users, including:
- Zero commission stock trading and low fees on options trading
- Access to cutting-edge trading tools, research, and education
- Opportunities to trade in diversified investments and earn interest on uninvested cash through our Cash Sweep Program
- 24/7 customer support to answer users’ questions
- Free educational tools such as paper trading, seminars, webinars, and courses
- Trade anywhere, anytime through the app or the platform
Users can buy stocks online and place orders on moomoo two ways:
In the moomoo app, go to Accounts > Quick Trade, enter your order information, tap Buy or Sell, and then enter your transaction password in the Unlock Trade pop-up window.
A second way is to tap a stock to access the Quotes page, tap Trade, enter order information, tap Buy or Sell, and enter your transaction password in the Unlock Trade pop-up window.
