Why Consumers Can't Lift the Dow Forever

Why Consumers Can't Lift the Dow Forever

Economists routinely point to the importance of consumers to the health of the overall economy; their spending activity makes up a majority of overall economic activity. Yet even when consumers appear to be happy, the results don't always translate into gains for stock investors. This morning, the University of Michigan's index of consumer sentiment climbed a point to 85.1, beating expectations and rising to its highest level in six years. Yet stock markets couldn't overcome early losses even after the data came out, and the Dow Jones Industrials remained lower by about 134 points as of 10:55 a.m. EDT.

Indeed, consumer-oriented stocks are among the weakest performers in the Dow today. Coca-Cola is down 2%, likely in response to a reduced forecast from independent bottler Coca-Cola Enterprises . The bottling company said continued trouble in the European economy combined with cold, rainy weather throughout much of the region led to volume declines of 2.5% for the quarter, confirming Coca-Cola's own 4% decline in soda sales in North America that it reported last week. Coke investors need to remember that Coke, with its global operations, is not influenced by U.S.-centric consumer figures so much as domestically focused companies.

American Express has dropped 1.7%. The financial company has historically catered to high-income customers whose spending drives not only the overall economy but also AmEx's transaction-based revenue. Even though the company said the European Commission's measures to limit fees on credit-card and debit-card transactions won't affect its business substantially, AmEx nevertheless could see similar proposals weigh on its profitability even as it tries to focus on staying competitive in the rapidly changing payment-processing business.

Finally, companies that offer products that consumers don't want to pay up for don't necessarily benefit from increased consumer confidence. TempurSealy is feeling investors' wrath today, with its stock falling more than 10% after it reported disappointing earnings last night and cut its guidance. The company had hoped that its acquisition of Sealy would give it better exposure to the lower end of the mattress industry, but poor economic conditions hurt its sales and margins. The misstep could bode ill for the company's merger if it leads customers who might otherwise have paid up for premium products to choose lower price points instead.

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The article Why Consumers Can't Lift the Dow Forever originally appeared on Fool.com.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends American Express and Coca-Cola. The Motley Fool owns shares of Tempur-Pedic International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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