By CCN: The Dow and broader U.S. stock market diverged on Friday, as investors weighed a myriad of macro risks against an apparent surge in consumer confidence. Those betting on a consumer-driven recovery may be in for a rude awakening amid record debt levels and the ongoing U.S.-China trade war.
Dow Reverses Brutal Drop
After a brutal pre-market for U.S. stock futures, the Dow Jones Industrial Average reversed losses on Friday to trade slightly higher. The blue-chip index was last up 0.1% at 25,928.57.
The broad S&P 500 Index of large-cap stocks also pared losses and was last down 0.1% at 2,873.44.
The technology-focused Nasdaq Composite Index fell 0.4% to 7,868.47.
Consumer Confidence Surges in May, but Not Everyone Buys It
U.S. consumer confidence surged to a new 15-year high in May, as Americans gave a glowing assessment of their prospects and reaffirmed their optimism about the Trump recovery.
The University of Michigan consumer sentiment index climbed to 102.4 in May from 97.2 in April. The reading was well beyond the 97.5 analysts had expected.
The gauge of future expectations surged to 96.0 from 87.4, which was also a 15-year high. The assessment of current economic conditions improved slightly.
Survey results showed that Americans were still concerned about an escalating tariff war with China, which “could further diminish the pace in consumer spending” that accounts for more than two-thirds of economic activity.
The results came weeks after the U.S. government reported an unexpected surge in GDP growth during the first quarter. However, not everyone is convinced the economy is on solid footing or that consumers should get their hopes up too soon.
Perma-bear and market contrarian Peter Schiff says consumers are over-hyping the so-called “booming economy” because they think it will help their personal circumstances. But nothing of that sort will happen once rising prices diminish their purchasing power.
Consumer sentiment jumped to a 15-year high in May as all the hype about a booming economy has consumers hoping that their personal circumstances will eventually improve. When those hopes are dashed by recession and rising consumer prices, sentiment will crash.
— Peter Schiff (@PeterSchiff) May 17, 2019
Schiff says that a full-blown U.S.-China trade war would hurt America the most because the Chinese have been subsidizing the world’s largest economy for decades. “When China withdraws the supports, our credit based service sector economy will implode!” he tweeted earlier this week.
The ignorance of the true nature of Sino-U.S. relations is staggering. China has been subsidizing the U.S. economy for decades by lending us money and supplying us with manufactured goods. When China withdraws the supports, our credit based service sector economy will implode!
— Peter Schiff (@PeterSchiff) May 13, 2019
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