The Stock Market Tends to Move in Response to the Release of the U.S. Consumer Confidence Index (CCI) GMAT Reading Comprehension

Reading Passage Question

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 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 stock market tends to move in response to the release of the U.S. consumer confidence index (CCI) each month.”- is a GMAT reading comprehension passage with answers. Candidates need a strong knowledge of English GMAT reading comprehension.

This GMAT Reading Comprehension consists of 7 comprehension questions. The GMAT Reading Comprehension questions are designed for the purpose of testing candidates’ abilities in understanding, analyzing, and applying information or concepts. Candidates can actively prepare with the help of GMAT Reading Comprehension Practice Questions.

Solution and Explanation

1. The primary purpose of the passage is to

1. describe a paradox and offer an explanation resolving that paradox
2. describe a recent development and criticize its eventual consequences
3. describe a phenomenon and recommend a course of action to address it
4. describe two theories about a phenomenon and argue for one of them
5. describe some new policies and advocate adopting those policies

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

1. Experts who think that it provides information suitable for stock market decisions overlook flaws in its design.
2. It provides little to no information suitable as a basis for stock market investment decisions.
3. Individuals consider it a leading indicator of market activity, whereas it is actually a lagging indicator.
4. It includes no information relevant to the confidence of individuals in the market.
5. It fails to accomplish its objective of reflecting the collective sentiments of investors about individual stocks.

3. The passage suggests which of the following about consumer sentiment about the stock market?

1. It is overly concerned with employment rates, the movement of the market as a whole, and lagging indicators.
2. It has an unwarranted trust in the Conference Board.
3. It pays insufficient attention to information about individual stocks.
4. It lags in incorporating new information into investment decisions about individual stocks.
5. It moves quickly in incorporating new information into the market prices of individual stocks.

4. The passage suggests which of the following about individual stocks?

1. In times of high consumer confidence, they will all be overpriced on the stock market.
2. Their value to individual investors is always unrelated to the health of the stock market as a whole.
3. Their movements in market value sometimes lag in response to consumer confidence.
4. Individually, they cannot influence the consumer confidence of rational investors.
5. Their value will sometimes move in a direction contrary to that of the market as a whole.

5. The passage suggests that an individual investor operating according to the animal whims mentioned in the highlighted text would be most likely to do which of the following?

1. Make a stock market decision for reasons the individual knows or suspects not to be sound
2. Make investment decisions in order to destroy competitors, even if those decisions undermined the individual's own position
3. Buy and sell individual stocks according to no clear motive or rationale
4. Reverse prior investment decisions out of a lack of confidence
5. Invest large amounts suddenly in a particular company after a piece of new information hints at the quality of that investment

6. In the context of the passage, the phrase in the highlighted text most closely corresponds to which of the following phrases?

1. Would have little bearing, if investors behave rationally
2. Would have little bearing, if the actors involved behave morally
3. Would have little bearing, if the consumer confidence index performed its objective accurately
4. Would have little bearing, if markets behaved normally
5. Would have little bearing, if the Conference Board did its job proficiently

7. The passage mentions each of the following as having an unwarranted influence on the stock market EXCEPT

1. releasing information that should not affect stock prices outside of market hours
2. basing stock market decisions on the Consumer Confidence Index
3. adjusting investments based on information that reflects market factors such as employment rates
4. informing positions about individual stocks with changes in the overall sentiment about the market as a whole
5. changing investment decisions on the basis of a lagging indicator

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