As Stock Market Hits Four-Year High, So Does Confidence

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The Dow Jones Industrial Average has reached a four-year high and has started to close in on its highest level ever. The index would only have to rise at its current rate to breach that level before the end of this quarter. The market’s rise coincides with a sharp increase in economic confidence among Americans, although the two may not be directly related. Fewer Americans hold stocks as the trading and holding of shares have moved to institutions. So, maybe it is the headlines about the markets that have helped confidence more than direct stock ownership has.

New data from Gallup show:

Gallup’s Economic Confidence Index averaged -20 in April, identical to confidence in March and slightly improved over -22 in February and -27 in January. Although this is the first month since last September that monthly confidence did not improve to any extent, it remains steady at the highest level Gallup has recorded since initiating Daily tracking at the start of 2008.

The results are not entirely supported by some economic trends. Almost all recent information shows that housing continues to undermine the recovery. There are no signs that will change. The rise in employment has slowed recently. So has gross domestic product. The jobs and GDP trends are relatively new, so they may not be reflected in confidence numbers for some time.

Headlines do have an effect on public perception, whether that is about politics, the economy or sports. One of yesterday’s most prominent headlines said the DJIA has returned to its 2007 glory days. Tens of millions of Americans must have read those headlines and, for a moment, it must have made them feel secure that there are signs the recovery has taken hold and will continue.

Methodology: Results are based on telephone interviews conducted as part of Gallup Daily tracking April 1 to 30, 2012, with a random sample of 13,642 adults, aged 18 and older, living in all 50 U.S. states and the District of Columbia.

Douglas A. McIntyre