REPORT: Consumer Confidence Jumped to 91.7, Far Above Forecasts. Here's Why the Fed and the Bond Market Shrugged.
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| By Al Qureiyeh |
If you saw "consumer confidence surges" on Tuesday and wondered whether to buy the consumer stocks, we'd slow down.
The Conference Board's index, a monthly survey of how households see jobs and business conditions, jumped to 91.7 in October.
Economists had expected about 81, so this was a large beat, even after September was revised up.
The University of Michigan's survey, released Oct. 23, which weights prices and personal finances, came in at 48.0, its second-lowest reading on record.
One survey says people feel better about business, the other says they cannot afford more. The place to be is the retailer that wins when both are true.
What Happened
The Conference Board said the rise was driven by how people see current and expected business conditions, alongside lower gasoline prices.
The same survey showed plans to buy cars and homes slipped, and planned spending on big-ticket goods fell across the board.
Its households expect 5.8% inflation over the next year, and Michigan's expect 4.7%. Both surveys still put expected inflation near 5%.
Bond traders shrugged off the number. Treasury yields, the interest rates the government pays to borrow, barely moved. The odds that traders who bet on Fed rates put on a Wednesday rate change did not rise.
On Wednesday the Fed held its rate, with two voters wanting another increase, and the 10-year Treasury yield stayed above 5%.
Traders who bet on Fed rates still put the odds of a December increase above eight in ten.
Even TJX and Ross Stores, the discount chains that should like a confident shopper, fell on the day, after a bank's warning about freight costs.
On our scorecard, if you bought Morgan Stanley (MS) on our Oct. 27 report, you're ahead of the S&P 500 by 1.3 points.
We're behind on Valero (VLO), our Oct. 14 pick, which is down 15% since. We're also behind, so far, on the SPDR S&P Insurance fund (KIE) from Monday.
Why the Skeptics Have a Point
First, the jump itself. Each of the last three rises this large, in 2023, 2024 and 2025, reversed within two months.
Second, the base. September was revised up, and we cannot tell whether forecasters saw that coming, so part of the beat may be arithmetic rather than surprise.
Third, the squeeze. Wages are growing far more slowly than households expect prices to rise.
We grant all three. They are the reason we would not buy big-ticket names such as Ford, Boeing and Whirlpool on this number.
What Weiss Is Saying
Weiss rates Ross Stores (ROST) A, a BUY, with Reward rated A+ and Risk rated B.
The TJX Companies (TJX) is B, a BUY, and Costco (COST) is B, a BUY.
The big-ticket sellers rate lower. Home Depot (HD) is C, a HOLD, and Best Buy (BBY) is C+, a HOLD.
The Oct. 25 Weiss piece "Consumer Sentiment Stuck Near Lows: Why TJX Wins When Shoppers Wait" made the case for the stores where waiting shoppers still spend.
We agree with the idea. Where we read it differently is the name.
TJX's Marmaxx chain, T.J. Maxx and Marshalls, grew sales at existing stores by only 1% last quarter, while Ross grew 10%.
Then there's Ford (F), rated D+, a SELL, Boeing (BA), rated D, a SELL, and Whirlpool (WHR), rated D, a SELL.
These are the big-ticket names a confidence headline makes tempting. Avoid all three.
Related story: Consumer Sentiment Stuck Near Lows: Why TJX Wins When Shoppers Wait
What the Crowd May Be Missing
The two surveys are not in conflict. Together they describe a shopper who feels better about work and still cannot afford the big purchase.
The whole drop in Michigan's measure of current conditions came from buying conditions for big-ticket items, which it tied to interest rates.
With mortgage rates near 7.3% and enough unsold new homes to cover 8.4 months of sales, that is not a mood, it is arithmetic.
We checked the last three times the two surveys split this widely, in 2022 and 2023.
In two of the three, Ross and TJX beat the market over the next six months. In 2022, Ross gained 1.6% while the S&P 500 lost 19.5%.
The test that fails is the one the crowd is running: buying discount chains like Ross and TJX because confidence jumped. After the last three big beats, Ross lagged a rising market more often than not.
Where the Squeezed Shopper Still Spends
Buy Ross Stores (ROST), rated A, a BUY, which closed Tuesday at $230.09, at the next close.
Ross sells brand-name clothing and home goods at discounts, so a shopper who feels better but watches every dollar is its customer.
Last quarter its sales at existing stores grew 10%, driven by customer traffic, and it raised its outlook for the year.
In the sell-offs we checked, it fell a third as much as the market in the April 2025 tariff crash and recovered faster.
What could work against it: investors pay far more for each dollar of its profits than their ten-year average, and freight costs are rising.
Tuesday's close is about $42 below the average Wall Street target compiled by StockAnalysis as of Oct. 28. That is a potential gain of about 18%.
The stock slipped further on Wednesday afternoon, after the same bank trimmed its profit estimates for freight costs. That is the risk we named, not a change in the case.
It pays $0.445 a share each quarter while you wait. On Tuesday's close that is under 1% a year, so the case is price, not income.
Our time frame runs through the holiday season and the company's late-November report, with the first check at the early-November confidence reading.
TJX, rated B, a BUY, stays on our watch list until its Marmaxx chain shows sales growth of 3% or more. Avoid Ford (F), Boeing (BA) and Whirlpool (WHR), all rated SELL.
What We're Watching
First, Thursday's inflation report. If September's personal consumption expenditures price index, the Fed's preferred inflation gauge, comes in near 3.6% overall, the squeeze holds and so does our case.
Second, the November confidence readings. If the Conference Board gives back most of October's jump, the big-ticket names stay on the avoid list.
Third, the late-November reports from Ross and TJX. If Ross's sales growth at existing stores slows below 6%, the stock's higher price is not earned and we'd say so.
Fourth, the Fed's December meeting. If it skips the increase traders expect and mortgage rates fall, big-ticket buying revives and every call here weakens, the cautions and Ross alike.
Bottom Line
Tuesday's confidence jump was about how people feel about business, not about what they can afford. Both surveys still show inflation near 5%, big-ticket plans fell, and the Fed held on Wednesday with two voters wanting a higher rate.
So, if you saw "consumer confidence surges" and wondered whether to buy the consumer stocks, buy the one built for a squeezed shopper.
Buy Ross Stores (ROST), rated A, a BUY, which closed Tuesday at $230.09, at the next close. Avoid Ford, Boeing and Whirlpool.
Take care,
AL Qureiyeh
