On Wednesday, Investors Business Daily reported their IBD/TIPP Economic Optimism Index which is a survey done at the beginning of each month. It tracks confidence in the economy, and this latest poll comes in at some of the lowest since the lockdowns last year.
What’s most surprising about the data this time, is it comes at a time when the market is making new all time highs. We saw optimism rise earlier this year as the vaccine began to roll out and people were assured this would get us back to normal. But the reality has become much different than the dream several months ago. Even in areas where vaccinations have reached desired levels, breakthrough cases are skyrocketing, and lockdowns are being discussed once again.
Moving down along with economic optimism, is both opinion on federal policies and the President’s approval rating. There is no doubt the strong criticism of Biden’s handling of the exit from Afghanistan is the biggest reason for his approval to decline; however, people care mostly about their own pocketbooks, and the decline in the IBD/TIPP Personal Finance Outlook is also weighing heavily on this decline.
What we need to pay attention to is how this will affect the market in the months to come. Belief that vaccines would be the cure to put the economy back on track did not pan out. We are still experiencing major shortages in materials, like computer chips for cars which aren’t expected to return to normal for another year. These things will affect consumers directly, not to mention the rising inflation and the threat of tapering.
Overall, the market is still very bullish. Typically we see these signals when the market is already somewhat depressed, like last year when oil and COVID brought the market tumbling. When the market is still rising, we expect to see these signals doing the same. So for the outlook to be as bearish as it is during new all time highs is surprising.
As we move on through September and into October, we’ll see how the market tracks with the changes. Will the Fed begin to taper? Will supply shortages be resolved? Will relief money being sent to families be enough to keep the market at all time highs? Will inflation creep up more rapidly? I think it will be interesting to track the economic outlook poll to see if this is indeed a leading indicator of a broad market pullback, or just temporary concerns.