The "Trump Trade" may all have been based on a "mirage" one market analyst said, as high consumer confidence ebbed today to erase post-election gains.
Two closely watched surveys released Friday, June 30, indicated that consumer confidence fell to its lowest levels since President Donald Trump was elected. Gallup's daily economic confidence tracker fell 4% while the University of Michigan monthly survey of consumer confidence fell about 2%.
Another indicator of uncertainty, CBOE Volatility Index , has been spiking this month. Two of its five largest gains this year have come in June, rising more than 14% June 29 and almost 12% June 27. The yearly high came May 17, as the "fear index" climbed more than 46% on reports that former FBI director James Comey had memos that suggested Trump sought to halt an ongoing investigation.
Peter Atwater, the author of "Moods and Markets" and president of Financial Insyghts, a research firm that focuses on consumer confidence, said that current levels of consumer confidence are "pretty bad" for a market that is eight years into financial recovery. He said the post-election bump was based on a sense of certainty and control among Republicans, but that the lack of significant policy wins from the White House has stripped that sense away.
"I expect that we are going to see a significant rethinking of what the Trump presidency means for the markets," Atwater said.
Increasing flows of capital into passive funds and highly clustered stocks such as the "FAANG" tech companies -- Facebook , Amazon , Apple , Netflix , and Alphabet's Google -- are not indicative of enthusiasm in the overall market, he said, even as those same trades have driven the S&P 500 and Dow Jones Industrial Average to record highs this month.
"Normally would see people at a peak be really enthusiastic about things, but the only kind of place I've seen people be really enthusiastic about things is with the FAANGs," he said. "Markets are social networks, so you've just seen this big clustering of extreme sentiment into these couple of stocks."
At the same time, drops in consumer confidence can have outsized effect on companies that primarily work with technology. This month, the drop in consumer confidence has coincided with a particularly bad few weeks for tech stocks. Just this week stocks in S&P North American Technology Sector Index have fallen 2%, and the tech sector as a whole is sitting at a monthly low, according to FactSet data. Meanwhile, the tech-heavy NASDAQ composite index is down nearly 0.7% in June, the first monthly downturn since October 2016.
Other sectors may also be hit by a decline in consumer confidence, Atwater said. The anxiety related to economic uncertainty can lead to increases in protectionist political behavior, such as tariffs. While President Trump has not shied away from protectionist trade policies in the past, at a meeting this week he reportedly insisted on moving forward with a tariff on steel imports despite the opposition of nearly his entire cabinet.
Richard Curtin, the chief economist working on the University of Michigan's consumer confidence survey, wrote that the data released today did not suggest there would be an imminent downturn.
"Fortunately, increasing uncertainty about future prospects for the economy has thus far been offset by the resurgent strength in the personal financial situation of consumers," he wrote.
According to the Bureau of Economic Analysis, the personal savings rate has been on the upswing for months, reaching 5.5% in May from a low of 4.5% in December 2016. The unemployment rate in May was 4.3%, the lowest its has been since May 2001, according to the Bureau of Labor Statistics.