One factor that contributed to the market's decline on Friday was the decline in the University of Michigan's Sentiment Index. The preliminary results came in at 66.5 versus expectations of 74.5. In prior posts I have noted how this index tends to lag the market's return by about 2-3 months. The recent market correction began in April and the consumer confidence index peaked in June.
It's not that the government can create jobs, but it can create an environment that translates into more confidence by consumers. The uncertainty created by the recent passage of a number of new policies and regulations is certainly negatively impacting consumer and business confidence. If the mid term elections result in a change in the party that has power in Congress, the market may view this as a positive and begin advancing prior to November. This is one factor that could lead to a more confident consumer.
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