Consumer Confidence Index II

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     The stock market tends to move in response to the release of the U.S. consumer confidence index (CCI) each month, signaling that individuals make investment decisions on the basis of this information. Such a behavior is mostly irrational. The CCI is generally agreed to be a lagging indicator; by the time the CCI has been released, the stock market should have already reflected the latest adjustments to its prices based on consumer sentiment. Furthermore, the CCI, to the degree that it reflects on the stock market, reflects only on the stock market as a whole, not on individual stocks. The questions that make up the CCI, indeed, gauge individual levels of confidence about factors, such as employment rates, that should have little direct bearing on most individual stocks relative to other factors. To dampen the influence of the CCI on the stock market, the Conference Board, the nonprofit group that reveals the information each month, should adjust its timetable in order to publish the CCI outside of stock market hours. In that case, the impact of the CCI on stock market prices will be smoothed and is more likely to reflect individual investors' business estimates and not their animal whims.

According to the passage, which of the following is true of the consumer confidence index?

Review: Consumer Confidence Index II


Explanation

Suppose we skim the answer choices and we're at a loss. We'll do another pass, looking for an objective error in each one. Choice (A) has multiple flaws. We aren't told that the people using the CCI for stock decisions are experts. Moreover, the author doesn't say that the CCI is flawed, just that it does something else. So (A) is out. Choice (B) is in line with the author's main point. The author does grant that there might be some bearing on some individual stocks, but (B) accommodates for that with "little to no information." So we can keep (B) for now. Choice (C) is flawed in saying that "individuals consider it a leading indicator," because the author says "the CCI is generally agreed to be a lagging indicator." The investors who are using the CCI are apparently using it despite knowing that it's a lagging indicator. So (C) is out. In Choice (D), "confidence of individuals in the market" is exactly what the CCI is designed to measure, and the author hasn't attacked that function of the CCI, so (D) is out. Choice (E) is out because it's not the CCI's objective to inform stock decisions.

The correct answer is (B).                


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