All Time Highs – All Time Lows
The conflict between the US, Israel and Iran has been front and center for investors now for close to two months. And, initially, the S&P 500 sold off in response to spiking oil prices. The 500-stock index had been closing in on the 7,000 mark since the end of 2025, but with the beginning of military attacks in late February, the selloff took 10% off the year’s gains.
The US administration had promised a short campaign from the beginning and once a ceasefire was in place, investors gripped with buy-the-dip mentality rushed back in to push the index back to – and then beyond – the 7,000 level. Since the beginning of April, we have now seen five all-time highs, including today’s price action.
In contrast, the US Index of Consumer Sentiment published monthly since 1952 by the University of Michigan, has just hit its all-time low, as shown below in this chart courtesy of YCharts and Charlie Bilello.
Consumer sentiment is likely affected by many factors that might not be reflected in the US stock market, but it is still somewhat puzzling how the buoyant S&P 500 could be so at odds with such a pessimistic US consumer.
Certainly, inflation plays a big role. The data points we track, like the Consumer Price Index (CPI), are helpful gauges but they don’t tell us necessarily what is coming in the future. And we know that inflation expectations can often be self-fulfilling. Consumers who expect prices to rise will engage in behavior that causes prices to rise. So, the last couple of years’ higher inflation numbers and the expected effect of higher oil and gas prices from this gulf conflict could be exerting a big influence on the survey at this time. But something else may be going on.
The all-time high for this survey was set back in January of 2000. The S&P 500 was also very close to all-time highs back then and the two series have tracked somewhat closely until April of 2024 when they started moving in opposite directions.
Pocketbook issues could be complicated of late by worries that have more to do with family dynamics, political division, mental health and loneliness and myriad other factors. But we know the economy has a big influence and the survey itself focuses on consumer issues. The K-shaped economy discussed in a post earlier this year has to be part of the low level of sentiment.
As we watch the Iran conflict get sorted out, and if that happens sooner rather than later with a resolution that opens the Strait of Hormuz and brings energy prices down, the sentiment numbers could bounce back quickly. There have been a number of times when the indicator was at very low levels and subsequent rebounds have been dramatic. So, it’s not unthinkable. We expect this divergence will also eventually turn around. Timing is the question.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.