Dow Reverses Some of Its 200-Point Drop as Surging Consumer Confidence Provides False Sense of Security
The Dow pared heavy losses Friday, while the broader U.S. stock market continued lower after a closely-watched indicator of consumer confidence surged unexpectedly. But according to perma-bear Peter Schiff, U.S. consumers are in for a rude awakening if they think the Trump economy will increase their purchasing power.
Dow Pares Losses; S&P 500, Nasdaq Fall
The U.S. stock market faced resistance on Friday following three consecutive daily advances. All three benchmark indexes finished lower, with the Dow Jones Industrial Average closing down 98.68 points, or 0.4%, at 25,764.00. The blue-chip index was off more than 200 points earlier in the day.
The broad S&P 500 Index of large-cap stocks fell 0.6% to close at 2,859.53. Ten of 11 primary sectors finished lower, with energy and industrials closing off more than 1% each.
Meanwhile, the technology-focused Nasdaq Composite Index declined 1% to finish at 7,816.28.
Consumer Confidence Spikes
Consumer sentiment surged in May to the highest level in 15 years as Americans gave a favorable assessment of the economy’s future, underscoring growing optimism in President Trump’s recovery.
The University of Michigan’s preliminary consumer sentiment index rocketed to 102.4 in May from 97.2 the month before. Analysts in a median estimate called for a slight improvement to 97.5.
From the official report:
“Consumers viewed prospects for the overall economy much more favorably, with the economic outlook for the near and longer term reaching their highest levels since 2004 …To be sure, negative references to tariffs rose in the past week and are likely to rise further in late May and June.”
Peter Schiff of SchiffGold.com believes consumers have a false sense of security and that the ongoing trade war with China will undermine American 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 believes that China has been subsidizing the U.S. economy for decades and that the end of the current trading relationship will undermine the world’s largest economy by zapping consumer spending.
Negotiations between the two superpowers have reached a stalemate after China reneged on a previous trade deal that included adjusting industrial policy regarding U.S. intellectual property. The two sides will try to get a deal in place ahead of the G20 summit in Japan at the end of June. That’s when presidents Trump and Xi are expected to hold their next face-to-face meetings.
Bitcoin Holds $7,000
The bitcoin bulls have finally run out of gas – at least for now. The largest and most influential cryptocurrency crashed by nearly $2,000 late Thursday, according to TradingView data, before bouncing back above the $7,000 handle. Bitcoin’s average price is down some 9% over the last 24 hours and was last spotted around 7,128.
Read more: Stellar Week for Bitcoin, Altcoins Ends in Ruin.
Despite the sharp pullback, bitcoin and the rest of its altcoin peers are on track for double-digit percentage gains, which reflects the intensity of the recent rally.
The sudden reversal was widely expected and could be seen days in advance given the extreme overbought conditions.
At the time of writing, the total cryptocurrency market was worth $224.4 billion, down more than $40 billion from its recent six-month peak. With the exception of Cosmos, all cryptocurrencies in the top 20 were reporting losses.
Disclaimer: The author owns Bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock. Charts via Stockcharts.com and CoinMarketCap.