All Time Lows on the Consumer Sentiment Index
3min video
The Consumer Sentiment Index hits an all-time low. What does this mean?
Video Transcript:
The Consumer Sentiment Index hit an all-time low in June. And has improved only slightly since then. What does this mean?
So the University of Michigan has published its Consumer Sentiment index for the last close to 50 years, which is a gauge that measures what consumers think about their own financial situation and the current health of the economy.
This, struck me as odd because that would suggest that people “feel” worse about the economy right now than they did during all of the events I covered during this previous video.
This annotated chart from the St. Louis Federal Reserve shows respective lows.
Does it make sense that current sentiment readings are worse than: (see video)
So, what inspired me to create this particular post is not necessarily that data point but rather something I saw someone else say on social media, they said, “ I don’t like how financial advisors tell you the same thing when the market is up, as they tell you when the market is down- just keep buying & stay the course”… So this chart from JPM is a great example of why there is a disconnect between that statement and consumer sentiment.
So this graph is a representation of consumer sentiment over time, with each blue dot reflecting each respective peak and trough. So here is what is super interesting to me, when there is relative peak pessimism, and we reach a trough, on average the S&P 500 rallies 24.9% over the next 12/mos. And that’s just based on price, not including any dividends. So we all know the famous Warren Buffett quote, be greedy when others are fearful and fearful when others are greedy. But here is where this indicator might surprise you. Even at peak optimism, or when the gauge reaches a top, the average return of the S&P 500 12/mos later is still 4.1% higher, not including dividends.
So, why do advisors tell investors to keep buying when the average consumer perceives times to be good and especially when times are bad? Because if you are a long-term investor, then it is better to stay the course because how people “feel” about the economy is not a good investment strategy. Investing decisions should be made with your head, not your gut. So as a public service announcement, please try to tune out the noise because how your neighbor feels about the economy might not be the best leading indicator of future stock market performance.
As always stay on point and stay the course.
