Consumer Confidence Index IV

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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.

The passage suggests which of the following about individual stocks?

Review: Consumer Confidence Index IV


Explanation

In the last couple of questions, we have answered by finding objective defect with every question other than our chosen answer. A way to drive to a conclusive answer more swiftly is to confirm that must be the answer, because otherwise we would have a contradiction with the facts of the passage. We can proceed that way in this question. If answer choice (E) were not true, then individual stocks would always move in the direction of the market as a whole, and this would remove one of the author's reasons why investing based on the CCI is irrational--namely, that the CCI reflects on the market as a whole to the degree that it reflects on the market at all. I still suggest reviewing the other choices, but we can do so more quickly now. In each case, you can imagine that the statement is true or false and see that the author's argument is not impacted.

The correct answer is (E).


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