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Q1 Was a Hit — What About Q2?

The economy and consumer confidence may tell the tale

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Challenge #3: A Near-Term Peak in Confidence. Higher gas prices will ultimately impact consumers. We will reach a point where people will have to make choices about their spending as goods become more expensive and transportation expenses take up more of the family budget. Let’s look at the numbers:

Every month, the Conference Board surveys 5,000 households to get their take on current conditions as well as their expectations for the future. The report is interesting as it may predict shifts in consumption patterns and is a further indication of how consumers are feeling about the overall economic picture.

Specifically, in February, consumer confidence held at 70.2. This is near the highest level in the past 12 months and fell in line with economists’ expectations. What got U.S. consumers excited in February were the improvements on the jobs front as well as stock-market gains.

What’s interesting is that this measure of consumer confidence has been on a tear since October, when the index bottomed out around 40. The index has also improved by leaps and bounds since the low point of the recession. The fact that the current reading was flat from last month may be the first signs of the near-term peak in consumer confidence that I’m expecting.

Does that mean it’s time to sell your retail and consumer stocks and head for the bunker? No way.

Although gas prices may impede significant improvements in consumer confidence near-term, there are plenty of consumer stocks that should continue to thrive. Ross Stores (NASDAQ:ROST) and Dollar General (NYSE:DG) are both discount blue-chip retailers that have been on a tear.

Be a Bull for the Crème de la Crème of Stocks

The truth is that even with high oil prices and flattening consumer confidence, there are still many positives that will drive stocks.

The jobs market has made significant strides, GDP is on the rise and hedge fund managers are jumping back into stocks in a major way. These things are going to bring a fresh wave of buying pressure that will lift growth stocks with stellar fundamentals.

So get ready. This is the time when sticking close to the right stocks will pay off big-time, while investing in the wrong stocks could cause some real disappointment.

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