The University of Michigan release of their consumer sentiment index (1st estimate for November) added to its gains from mid-October coming in at 64.2. The gains were primarily focused in the leading component of expectations which was up more than four points from the October read at 56.2.
While the move up in the reading is not surprising given the lift in the stock market during October it is important to remember that we are still hovering at historic lows for the index. In reality, consumer spirits are still very depressed will most likely affect consumer spending in the coming all-important shopping season.
However, if the stock market can continue to gain some traction here then it is likely that sentiment will improve modestly and might loosen up wallets a bit for the holiday season. However, most likely the gains and traction that we are making here on a short term basis will evaporate in the coming months as higher oil prices, still weak employment and stagnant incomes weigh on consumption trends.
All in all the number is better and the markets are extending gains today on hopes that Italy will save itself, Greece will get their act together and the consumer is doing much better. In reality, “hope” is not an investment strategy. Caution is still advised.