1 key stock market indicator to watch this week

The US Index of Consumer Sentiment is a key leading stock market indicator. And UK investors might want to pay careful attention to this week’s update.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

There’s always uncertainty when it comes to the stock market. But there are some things investors can do to try and demystify movements in share prices.

One of these is paying attention to key leading economic indicators. And there’s an important one coming from the US this week.

Consumer sentiment

On Wednesday, the latest update from the Michigan Consumer Sentiment Index is due. It should give investors a key insight into how US consumers are thinking about their finances.

Should you invest £1,000 in J D Wetherspoon Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if J D Wetherspoon Plc made the list?

See the 6 stocks

Michigan Consumer Sentiment Index 2020-2025


Created at TradingView

The index is made up of the survey results from 500 households and is published monthly. As important as the overall number is the direction in which it is moving.

In general, when consumers are feeling more positive, they’re likely to spend more. And when they’re more cautious, the reverse is true. 

Based on the results, investors like me can get a feel for what might happen in the near future. But the reading needs to be handled with care. 

Finding stocks to buy

There are two reasons the consumer sentiment reading is important. One is that a weak outlook can cause share prices to fall, which can create buying opportunities in a couple of different ways. 

If a decline in spending is likely to be temporary, long-term investors might consider buying shares in companies that will be able to endure short-term challenges before emerging stronger. This is one idea.

Alternatively, if a stock falls because the market overestimates how willing consumers are to cut back on its products, it might be undervalued. This could generate an opportunity for investors to consider.

The other reason the reading is significant is it can help predict when companies in a cyclical downturn are likely to turn around. And this doesn’t just apply to US stocks.

Dr Martens

Dr Martens (LSE:DOCS) is UK stock. It’s had a difficult time over the last few years and a lot (though not all) of this is due to weak consumer spending in the US, which accounts for 37% of sales.

Created with Highcharts 11.4.3Dr. Martens Plc PriceZoom1M3M6MYTD1Y5Y10YALL12 Jan 202012 Jan 2025Zoom ▾Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '24Jan '2520212021202220222023202320242024www.fool.co.uk

The share price has started to bounce back, recovering 50% from its 52-week lows set in September. But unless things start to pick up with the underlying business, there’s a real risk this will be short-lived. 

The firm has made progress in fixing its own mistakes, in terms of its inventory and distribution. And while it has rebooted its marketing to try and boost demand, there are some things it can’t control.

That’s why I’m keeping a close eye on the US consumer sentiment data. It could be a good indication of whether the business is heading towards recovery, or whether the stock has further to fall.

Finding stocks to buy

I’m not saying a strong consumer sentiment update by itself is a reason to buy Dr Martens – or any other stock. But I do think being aware of what’s going on can be useful for understanding the stock market.

That’s why I’ll be paying attention this week when the latest data comes out. With around 68% of the US economy coming from consumer spending, I’ll be looking at it for much more than just Dr Martens.

But there may be an even bigger investment opportunity that’s caught my eye:

Investing in AI: 3 Stocks with Huge Potential!

🤖 Are you fascinated by the potential of AI? 🤖

Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.

If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…

Then you won't want to miss this special report inside Motley Fool Share Advisor – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And today, we're giving you exclusive access to ONE of these top AI stock picks, absolutely free!

Get your free AI stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More on Investing Articles

Investing Articles

Prediction: 12 months from now, £5,000 invested in Tesla stock could be worth…

Tesla stock has endured a miserable year so far, falling by 29%. Muhammad Cheema takes a look at how it…

Read more »

Investing Articles

See what £10,000 invested in Tesla shares at their mid-December peak is worth today 

As the world absorbs the full scale of Donald Trump's tariffs, Tesla shares are reeling. Investors who bought the stock…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Dividend Shares

2 ‘safe’ LSE dividend stocks to consider as global markets sell off

As global markets experience high levels of volatility due to economic uncertainty, investors are piling into these ‘safe-haven’ dividend stocks.

Read more »

Investing Articles

US stock market rout: an unmissable opportunity for investors?

His tech-heavy portfolio has been smashed by Trump’s tariffs. However, Dr James Fox believes there could be some opportunities in…

Read more »

Investing Articles

After a 13% ‘Trump tariff’ fall, is the Barclays share price too cheap to miss?

Does the Barclays share price fall mean we should all panic and run screaming from the stock market? Nah, of…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

2 investment trusts to consider for a Stocks and Shares ISA

These two investment trusts have a different focus -- but our writer sees both as worth considering, one more for…

Read more »

Investing Articles

Deutsche Bank reiterates Buy rating on 9.6% yielding FTSE 250 stock that was “most shorted in UK”

Our writer investigates why a major broker remains optimistic about a FTSE 250 stock that was once the most shorted…

Read more »

Investing Articles

2 things to remember when stock markets are turbulent

US trade policy has rattled the stock markets in New York, London and elsewhere. Our writer outlines a couple of…

Read more »