{"id":37500,"date":"2023-07-18T23:34:37","date_gmt":"2023-07-19T03:34:37","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/that-stock-market-rally-youd-expect-from-soaring-consumer-sentiment-its-already-happened\/"},"modified":"2023-07-18T23:34:40","modified_gmt":"2023-07-19T03:34:40","slug":"that-stock-market-rally-youd-expect-from-soaring-consumer-sentiment-its-already-happened","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=37500","title":{"rendered":"That stock market rally you\u2019d expect from soaring consumer sentiment? It\u2019s already happened."},"content":{"rendered":"
\n

The University of Michigan\u2019s Consumer Sentiment survey provides yet another reason to worry about U.S. stocks and the economy.<\/p>\n

Consumer sentiment is a contrarian indicator, and the latest University of Michigan (UMI) gauge shows consumer sentiment to have spiked in recent months. The increase from June to the (preliminary) July level is the largest since December 2005. Over the last year the sentiment measure has jumped 21.1 percentage points, which is one of the biggest 12-month jumps since this monthly survey began in 1978.<\/p>\n

\n

Past jumps as big as this were followed by below-average performance, as you can see from the accompanying table. The cutoff for being among the 5% of months with the biggest trailing-12-month increases was 17 percentage points, so the jump represented by July\u2019s preliminary reading is well within this subset. The S&P 500
\n SPX,
\n +0.71%<\/bg-quote>
\n performance numbers reflect inflation-adjusted total return.<\/p>\n\n\n\n\n
\n <\/td>\n\n S&P 500 average performance over subsequent month<\/strong><\/p>\n<\/td>\n\n S&P 500 average performance over subsequent 3 months<\/strong><\/p>\n<\/td>\n\n S&P 500 average performance over subsequent 12 months<\/strong><\/p>\n<\/td>\n<\/tr>\n
\n All months since 1978<\/strong><\/p>\n<\/td>\n\n 2.2%<\/p>\n<\/td>\n\n 4.4%<\/p>\n<\/td>\n\n 9.1%<\/p>\n<\/td>\n<\/tr>\n
\n Following the 5% of months with the largest 12-month increases in the University of Michigan Consumer Sentiment gauge<\/strong><\/p>\n<\/td>\n\n 0.9%<\/p>\n<\/td>\n\n 1.4%<\/p>\n<\/td>\n\n 4.4%<\/p>\n<\/td>\n<\/tr>\n<\/table>\n

While you might be surprised that soaring consumer sentiment isn\u2019t consistently followed by above-average stock market returns, you shouldn\u2019t be. Consumer sentiment is more of a coincident than a leading indicator. This has been well-illustrated by this past year, as investors simultaneously became more upbeat and bought equities \u2014 which, in turn, propelled the market higher. Therefore, the higher stock market you\u2019d expect from soaring consumer sentiment has already happened.<\/p>\n

The reason that this soaring sentiment leads to below-average subsequent returns is that we tend to overreact. When we become upbeat, we have a tendency to become exuberant. When we become less optimistic, we often become despondent. These overreactions typically are followed by at least some correction, as contrarian analysis teaches us.<\/p>\n

Consider one year ago: The UMI sentiment index at that time was plunging; its 12-month decline from June 2021 to June 2022 was the worst of any since 1978. Yet here we are today, with the S&P 500 on a total-return basis 20% higher.<\/p>\n

Today\u2019s sentiment picture is almost the mirror opposite of where it was then. Bulls take note.<\/p>\n

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at <\/em>mark@hulbertratings.com<\/em><\/p>\n

More: <\/strong>U.S. stocks benefiting from \u2018sense of urgency\u2019 as investors rush into equity mutual funds<\/p>\n

Plus: <\/strong>Fund managers remain mostly bearish despite rising bets on a soft landing for the economy, BofA\u2019s survey shows<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The University of Michigan\u2019s Consumer Sentiment survey provides yet another reason to worry about U.S. stocks and the economy. Consumer sentiment is a contrarian indicator, and the latest University of Michigan (UMI) gauge shows consumer sentiment to have spiked in recent months. The increase from June to the (preliminary) July level is the largest since […]<\/p>\n","protected":false},"author":1,"featured_media":37501,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"video","meta":{"footnotes":""},"categories":[239],"tags":[83],"class_list":["post-37500","post","type-post","status-publish","format-video","has-post-thumbnail","hentry","category-investing","tag-featured","post_format-post-format-video"],"yoast_head":"\nThat stock market rally you\u2019d expect from soaring consumer sentiment? 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