The Stock Market And Consumer Sentiment Are Telling Two Different Stories
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To investors,
The most perplexing chart in finance has been consumer sentiment overlaid with the US stock market. As stocks have hit new all-time highs almost every day, consumer sentiment has continued falling to the lowest level on record.
How could both of these be true at the same time?
First, the quality of the Michigan Consumer Sentiment Survey has degraded substantially. They used to survey 50% Republicans and 50% Democrats, but that changed over the last three years. The survey methodology changed with a shift to digital surveying, which has led to respondents being approximately 2/3rd Democrats and 1/3 Republicans.
Given Democrats have a much more pessimistic view on the economy right now, this over-sampling of one side of the political aisle is exaggerating the negative survey results more than normal.
With that said, I personally believe a large part of the country has a negative outlook on the economy and their personal finances. They are feeling the pain from currency debasement and the last few years of high inflation. The grocery and gas bills are piling up, while their wages can’t keep pace.
Second, the people holding stocks are happy when the stock market goes up, but the people without investment assets feel further left behind when stocks run away higher. Thankfully, about 60% of Americans directly or indirectly own stocks, so a large portion of the country is benefitting from the surge in asset prices.
But 40% of the country is not benefitting. These people are usually not on national television, posting their thoughts to X or Substack, nor are they usually able to articulate the financial pain in terms that economists or investors would recognize.
This is where you get the widening gap between stock market performance and consumer sentiment.
One counter-argument to this situation is that consumers say one thing, but they do another thing with their spending habits. That is true to a degree because consumer spending has continued to rise in America. The nuance is that the top 10% of consumers are now responsible for 50% of all consumer spending in the country.
As my friend SightBringer wrote: “The U.S. consumer economy is increasingly a luxury-top-heavy demand engine with a fragile mass-market shell underneath. That chart is brutal because it shows the spending base hollowing out. The top 10% now carries nearly half of consumer spending while the bottom 80% has lost share.
That means the headline consumer can look resilient even while most households are weakening. Aggregate spending survives because asset owners, high earners, and wealthy retirees keep spending.”
If you dig into the data, you will see an ever-widening K-shaped economy in consumer spending. This makes the situation complex and confusing, but it makes sense when you tie it back to the collapsing consumer sentiment.
But I come with some good news for investors. Creative Planning CEO Peter Mallouk shows a very low consumer sentiment survey result has been a “great contrarian indicator.” He says “the worse people feel about the future, the better the stock market has performed.”
When the Michigan Consumer Sentiment Survey reports a result in the bottom 3% of all readings, the S&P 500 has delivered 19.6% over the next 12 months. That should give investors comfort because of how much the stock market and consumer sentiment has diverted, but continued strength in the US economy is unlikely to help the bottom 40% of Americans who have no investments and continue to get hit with higher consumer prices.
This is the great dichotomy of our time.
The rich get richer, while everyone else falls further behind. The same things that make asset prices go up, punish the people who need the most relief. And if you want to know what decisions will be made at the Federal Reserve, the Treasury, or in Washington DC, you just have to look at the type of person who is in charge of making the decision.
Wealthy, powerful people are doing their best to navigate the situation with the tools they have been given. They will try to be empathetic. They will look at as much data as they can. And I genuinely believe these people want to do the right thing and help as many people as possible.
The problem is they can’t serve two masters at the same time. So the wealthy asset owners will continue winning, while everyone else drowns. The only thing you can do is make sure you are in the right group as time continues to expire, asset prices go higher, and inflation claims more victims.
Hope you have a great day. I will talk to everyone next time.
- Anthony J. Pompliano
Founder & CEO, ProCap Financial (Nasdaq: BRR)
Bitcoin & The Great Financial Reset | Porter Stansberry
Porter Stansberry is the founder of Stansberry Research and the author of “2029: The End of America.”
In this conversation, we discuss why Porter believes America is heading toward a great financial reset by 2029, the Social Security collapse, currency debasement, Warren Buffett's struggles over the last 20 years, and how to build a portfolio to survive what's coming — including gold, bitcoin, Timber, and his Honeycomb Portfolio strategy.
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Capex is the only leg this market has left, agreed, but it's concentrated. Roughly six names captured most of last year's AI revenue. If consumer sentiment finally cracks SaaS and ad demand, capex slows and the index loses its load-bearing wall. The interesting question is who's paying the bill 18 months out.