US Consumer Sentiment vs European Consumer Confidence

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In the chart above I have plotted the European Consumer Confidence Index against the US Consumer Sentiment Index from 1985 until today. The July readings of both indexes have just been released recently. Note the sharp drop in the index for US and the rise in the index for Europe.

This is not uncommon. I have highlighted with black boxes the behaviour of these series at three major economic turning points in the past. The series for the US consumer usually leads the one for the European consumer. In all three instances, the top in the S&P 500 arrived after the series for the European consumers started to move down.

This suggests the stock market will top after the European Consumer Confidence Index will start falling again. I would guess intuitively that this series will make another marginal high before falling. Meanwhile the series for the US will be weak. All this can last for a few months, during which the market can even make new highs.

Indicating a turning point for the European confidence index is the chart below:

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The European Index of Major Purchases is obtained by me by crunching two data series from the European Economic Sentiment Index release. Note that at the same turning points (black circles) this series turned before the confidence index, suggesting economic weakness ahead. The same is happening nowadays. The Index for Major Purchases topped in late 09.

All of the above portends economic weakness and falling stock prices in the context of the current state of the economy and of the stock market.