April 2, 2025: Consumer Confidence and Market Performance
As we’ve covered in this space recently, consumer sentiment measures have been in focus to begin 2025, as a few particular data points are currently marking multi-year lows (or highs). The two most widely followed monthly sentiment releases are provided by the Conference Board and the University of Michigan, and both feature subcategories within the broader category. While the releases have historically shown divergences relative to one another, both broadly reflect similar underlying trends among shared subcategories – particularly present economic conditions and future economic expectations. Currently, the economic expectations levels of both data sets are at multi-year lows, with the Conference Board Consumer Confidence Expectations Index at a 12-year low, while the University of Michigan Consumer Expectations Index finds itself at a 32-month low. Also of concern is the pronounced rise in the 1-year and the 5-10 year ahead inflation expectations captured in the March University of Michigan data, with the 4.1% reading at the five to 10-year tenor marking the highest level within the subcategory since 1993. Expectations among survey participants in both data sets have been predominantly dragged asunder by – you guessed it – uncertainty surrounding US reciprocal tariffs and the corresponding hit to the economy.
Bearing this in mind, you may be surprised to learn we find a measure of comfort in the current feeble sentiment data. For one, the pronounced rise in the “UMich” five to 10-year inflation expectations was posited as a question in Fed Chair Jerome Powell’s post-FOMC announcement press conference, with Powell largely characterizing the elevated spike in the March release as an outlier (or “noise,” as he would define it). Secondly, as denoted in the chart below and as proxied by the S&P 500, domestic equity markets tend to perform decidedly better in the twelve months following sentiment troughs, rather than sentiment peaks…and by a significant amount, no less – averaging +24.1% to +3.5%, respectively. While we here at JWM are not in the business of “calling bottoms” or predicting when both the Conference Board and University of Michigan expectation readings will set their new trough points, we are nonetheless reasonably confident these measures should find a level of stability before turning as more details eventually emerge regarding the size and scope of US reciprocal tariffs (or the selective omission of some aspects). Bottom line: if history is any guide, we just might see a run of healthy returns once the sentiment nadir has been reached.
