The stock market and consumer sentiment are headed in opposite directions despite the natural inclination to think they would move in lockstep.
Consumer sentiment continues to hover near record lows while the stock market continues to march higher despite lingering doubts about how the long-term economic and financial effects of the coronavirus pandemic.
The spread between the monthly percentage change of the S&P 500 and the University of Michigan’s consumer sentiment survey climbed to 32 percentage points last month, the widest-ever gulf in data going back to 1978, the Wall Street Journal recently reported, citing Dow Jones Market Data.
The coronavirus pandemic, seemingly overnight, has plunged the economy into deep contraction from a lengthy run of expansion. Unemployment rose to record highs from record lows. Personal incomes in March suffered the steepest drop since 2013, and consumer spending fell at the fastest rate since 1959, the Journal explained.
Yet stocks have continued to rise. The S&P 500 has surged 34% since bottoming March 23, cutting its losses for the year to 7.4%, the Journal said.
“The current situation is quite unique,” said Richard Curtin, a research professor who is the chief economist of the University of Michigan’s sentiment surveys. “Consumers are very negative about the current economy. It’s about as bad as we’ve ever recorded.”
Although the University of Michigan’s consumer sentiment reading suffered its biggest plunge on record in April, falling 19%, there were also signals that respondents expect the downturn will be short-lived, the Journal explained. The index of current conditions drove the decline, while the fall in the expectations index was much more modest.
The divergence between stocks and sentiment reflects two different vantage points within a business cycle, said Lakshman Achuthan, co-founder of the Economic Cycle Research Institute. The stock market is already betting on the recession’s end, he told the Journal. Sentiment, meanwhile, is more closely connected to the jobs market, “which is taking it on the chin right now.”
Near midday Wednesday, U.S. stocks were mixed, with investors shying away from high-flying tech shares in favor of equities most beaten down by the coronavirus pandemic. Rising tensions with China also added to pressure on multinational companies.
The S&P 500 was virtually flat, though three shares gained for every two that fell. The gauge had topped 3,000 points and its average price for the past 200 days, technical levels considered key by chart watchers, before the advance faded. It also failed to hold those levels into the close on Tuesday, Bloomberg reported.
For his part, Wharton School professor Jeremy Siegel predicted that new stock market highs is “a real possibility” sometime this year.
“In fact, given no serious second wave, which could mean just effective therapeutics without even a universal vaccine, my feeling is it’s even a likelihood that we will reach” fresh record highs, Siegel said on CNBC. “One of the unfortunate things about the lockdown is we’ve actually improved the prospects of the very companies in the stock market,” Siegel added.
“I think there’s going to be a recovery all the way around and we’re going to all be thankful for the recovery that we’ve had,” he said.
However, most fund managers in a recent Bank of America Corp. survey remain skeptical that the gains can last and aren’t expecting a quick economic recovery from the coronavirus crisis, Bloomberg said.
In the May 7-14 poll, 68% of investors called the rebound in equities a bear-market rally, or a short-term and fast bounce in stocks before they fall to new lows.
Only a quarter believe that equities have entered a new bull market. Just 10% of the surveyed fund managers expect the economic recovery to be V-shaped, or quick and sharp, in contrast with 75% who predict a U- or W-shaped rebound that will take longer.
© 2025 Newsmax Finance. All rights reserved.