Back From the Brink

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There is probably no better litmus test for the confidence of American consumers than their willingness to spend a healthy chunk of their hard-earned income on holiday gifts at year's end. Now, as retailers across the country are busy handling returns and tallying revenues, one thing is certain: spending for 1998's holiday season easily surpassed the downbeat projections that were prevalent in September.

As millions of thank-you notes flood the mail, more than a few messages of gratitude may be wending their way to the bankers at the Federal Reserve. Why not? It's the Fed that deserves the credit for bringing us back from the brink, at least as far as investors are concerned.

Seeking to limit the scope of an ever-widening global financial crisis, Fed chairman Alan Greenspan and his crew engineered three rapid-fire cuts in key interest rates in the fall, spurring a number of other central banks around the world to follow suit and make credit more plentiful.

The resulting surge in stock prices underscored an important boost to consumers' attitudes, which had been deteriorating markedly as the crisis infected the U.S. capital markets.

Expectations regarding future economic conditions also rebounded smartly in November, according to the Conference Board, which polls 5,000 households each month for information regarding spending plans. And for the third month running, the American Demographics Consumer SentiMeter Index anticipated the conclusions of the survey about shifting consumer attitudes (see chart, below).

It's clear that the market is living up to its potential as a sensitive barometer of changing conditions. Watching the stocks then, as opposed to just monitoring the traditional surveys, can help marketers make better business decisions.

Two SentiMeter companies whose shares have performed nicely after some rough going during the late summer are Masco and Maytag. The fact that companies like these (each is involved in providing housing-related fixtures and appliances) have virtually recovered their own all-time highs is evidence of renewed confidence in the Fed's ability-and willingness-to protect the U.S. economy from the worst effects of the global financial storm.

Of course, there's little chance that it's only smooth sailing ahead for the economy and markets. Still, it's important to note that most investors did not lose faith during the last summer's free-fall. In fact, in a recent survey by Charles Schwab & Company, nearly half of all respondents indicated they were not overly disturbed by heightened market volatility and intend to ride out future market swings. And, while most admit that their portfolios have underperformed their expectations, almost 40 percent recognized the third-quarter drop as a buying opportunity, and anticipate above-average returns as the market continues to recover.

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