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Consumers regaining confidence in US stocks.

Byline: Jennifer Kaplan

Six years after the financial crisis erased $11 trillion from U.S. equity prices, Americans are starting to profess faith in the stock market.

People who say they expect shares to rise outnumbered their more sullen counterparts by at least 11 percentage points for the past four months, according to data from the Conference Board's consumer confidence survey. Americans haven't felt so bullish for even half that long since before the 2008 recession.

Burned by the worst economic slump since the 1930s, Americans have been slow to embrace the equity market even after it made up its losses from the financial crisis two years ago. With corporate earnings doubling, the unemployment rate at the lowest level in almost seven years and wages starting to grow, there are signs their skepticism is dissipating.

"What it could very well be is that consumers are more confident about equities because their employers, their bosses, the companies they work for are showing more confidence,'' John Lonski, chief financial markets economist at Moody's Analytics, said Friday. "You're looking at the lowest unemployment rate of the economic recovery. That has to be a positive.''

In a sampling of about 3,000 U.S. households last month, 36.7 percent said they expect stock prices to increase over the next year and 24.9 percent said stocks will fall, according to Conference Board Consumer Confidence Survey data released March 31.

Since 2009, the Standard & Poor's 500 Index has rallied more than 200 percent, roughly matching the average annualized gain in the last seven bull markets. Yet the percentage of Americans invested in the stock market fell to 48.8 percent in 2013 from 53.2 percent in 2007, according to Federal Reserve data.

Cheaper energy prices, faster job growth before March and modest wage gains over the past four months explain why consumers are feeling more inclined to trust equities, said Michael Feroli, a former Federal Reserve researcher who is now chief U.S. economist at JPMorgan Chase & Co. in New York.

"The picture for consumers, the consumer fundamentals, has been pretty strong the past couple of months,'' he said in a telephone interview.

Whether it's better for non-professional investors to be enthusiastic about stocks is a matter of debate on Wall Street, with bulls often preferring it when individuals are skeptical, on grounds they'll buy later. Bearish sentiment has done little to slow the S&P 500 from tripling since it bottomed in March 2009.

"It makes you feel a bit queasy, given the likelihood that consumers may now want to increase their exposure to equities,'' said Lonski. "If we really do begin to see a lot of money coming from consumers into equities, that might be a bit of a warning.''

Consumers could push stocks forward if optimism inspires shoppers to hit the stores. Consumer spending accounts for almost 70 percent of the U.S. economy.

"Confidence in the equity market will be a self-fulfilling prophecy if it turns out that consumer spending throughout the remainder of 2015 tops expectations,'' Lonski said.

The S&P 500 Retailing Index is up 10 percent this year, beating the S&P 500, which has gained 1.9 percent. Rising sales would bolster the economy, making a comparison with 2007 less apt than earlier periods of consumer positivity. Through April 2004, there were 11 consecutive months when bullish consumers outnumbered bearish ones by more than 14 percentage points.

"If you look back, you could probably cherry pick it and say this happens before collapses, but this thing really picked up in '95, you didn't want to sell in '95, you didn't want to sell in '03,'' Feroli said.
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Title Annotation:Business
Author:Kaplan, Jennifer
Publication:Telegram & Gazette (Worcester, MA)
Date:Apr 14, 2015
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