The 2020 pandemic prompted panicked policymakers to implement extreme restrictions on societies around the world.  These regulations resulted in plummeting consumer sentiment about the economy that reverberated with historic stock market volatility.   US politicians attempted to “save” consumers and businesses from their own government regulations by unleashing trillions of dollars in subsidies that flooded the economy in cash like a tsunami.  When nearly everyone and businesses were receiving some financial subsidy from the government, the result was hyperinflation. 

By 2022, the Federal Reserve needed to slow down what was becoming a 1970s type of hyperinflation with an aggressive campaign of interest rate hikes.  Eventually, the volatility of economic swings and inflation settled down in 2024, just as the water will return to normal days after a tsunami hits the shores.  

However, the whirlwind of events has caused wild swings of emotions and anxiety among consumers.  Even though US businesses are employing more people in history and the stock market is in its third year of a robust rally, people are still expressing high levels of concern about the future of their finances.

On Friday, the University of Michigan released its monthly consumer confidence report indicating the index rose to 67.8 for August, up from 66.4 in July (readings below 70 are typically indicative of a bearish sentiment and above 90 a bullish sentiment).

In January, the index jumped to the mid-70s for the first time since August 2021.  However, instead of consumer sentiment continuing to improve, the index declined and is now reading below the 70’s.

The irony of low consumer sentiment since 2020, is the stock market has been in a roaring bull market since 2020. The chart below illustrates the S&P 500 rallying since 2020 increasing 73.5% through yesterday while the consumer confidence index has plummeted to the lowest level since 1978 when the University of Michigan first began publishing these reports.

This is an excellent example of why people can’t build wealth or invest successfully. 

Why the disconnect with historic low consumer sentiment while the economy and stock market in steadily grow? 

At the start of the pandemic, coronavirus and healthcare were the non-stop headlines with projections of 6% of the world’s population dying (the actual result was around 1% or equal to a normal flu season).  Then in 2021 were stories on supply chain issues and challenges for businesses to get materials. Cars prices soared to as much as 100% over MSRP (manufacturer’s suggested retail price) as people panicked on reports of factories unable to build cars and 6-month waiting lists. In 2022, the Federal Reserve started raising interest rates and the media was quick to report the negative impact on households, businesses, and real estate. In late 2022, “recession fears” blared with the media stating the interest rate hikes by the Federal Reserve will close businesses and cause significant financial burdens on households.  Investors panicked and sold stocks, driving stock prices down for 10 months.  The selloff provided our clients with a new buying opportunity that has resulted in excellent investment returns. 

It is understandable how difficult it would be to invest if the media were one’s primary source of information.

From 2020, based on the news reports one would anticipate that corporate earnings and stock gains would be modest at best.  However, quite the opposite has transpired.  Since January 1, 2020, the S&P 500 has rallied a cumulative 73.2% and NASDAQ has soared 98.7%, almost doubling in less than 48 months!  These returns include the 10-month selloff in 2022.  This is not a mild rally but gains at near historic levels.  Yet there are few articles of a robust economy and soaring stock market.

It is understandable for consumers to be indicating the worst sentiment readings since 1978 based on media reporting.  The irony is their worry is misplaced because they should really be upset about missing record-level gains in their investment accounts.  

What Does This Mean to Me?

While media reporting may be driven by gaining its readership, our objective is to review the facts and provide you with strategies that we believe have a high probability of success. 

At some point, the economy will slow down, and the stock market will begin a contraction cycle. Unfortunately, just as the media misleads during a growth cycle, they will be just as poor a resource in preparing you for the next contraction cycle.  It is like the boy crying wolf multiple times until no one is responding.  

Since we started writing to our clients in 2001, we have guided our clients and readers through growth and contraction cycles.  When conditions start to change, we will report to you the data that indicates the changes and what you should consider for your investments.  The US is a multi-trillion-dollar economy and evidence of changes in direction and momentum are the result of many factors and typically don’t happen overnight. 

We first began writing about the risks of a pending 2008 Great Recession in our March 2006 newsletter and how our clients and readers should prepare.  The pandemic caught everyone off guard, but we reported in this Weekly Update the significant evidence the US economy and stock market would rebound and for investors to see it as a buying opportunity.  For our clients and readers who followed our advice, 2020 was a successful year of double-digit account gains that have continued to this day.

We maintain our favorable view of the US stock market and economy.  Give us a call if you have any comments about this Weekly Update or questions about your financial and investing goals.  We welcome the opportunity to assist you and your family.