Nicholas and Savannah R. from Denver, CO ask: Hey Mitch, we’re writing to ask if you think all the excitement and enthusiasm about the economy and markets is fading somewhat. It doesn’t feel quite like it did right after the election, and we saw a stat that consumer sentiment was falling again. Interested to hear your thoughts, thanks!
Mitch’s Response:
Good observation! We have indeed seen declines in measures of consumer and investor sentiment so far in 2025, which may have just been a bit of reset following some initial excitement about pro-growth and pro-business policies.
In February, the University of Michigan Index of Consumer Sentiment fell to 67.8—the lowest level observed since the April–June period of 2023 when measured as a three‐month moving average. My advice to you and other investors is to remember this is just a single data point and may not signal a lasting downturn in consumer confidence amid economic uncertainties. It could very well represent a temporary fluctuation driven by short-term factors, which course correct in coming months or quarters.1
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There’s also investor sentiment to weigh. There’s been a significant shift in investor sentiment early in 2025 as compared to late 2024. At the end of last year, investors were largely optimistic as the uncertainty surrounding the election faded and expectations soared for a government that would favor business growth. According to an American Association of Individual Investors survey held just after the election, 49.8% were optimistic about returns in the next year while only 28.3% held a pessimistic view, with the remaining investors remaining neutral.
Fast forward to early February, and investors are starting to voice concerns over whether the new administration would meet the high expectations it had set. The most recent survey shows that bearish views have nearly doubled, with 47.3% of investors expressing caution, while bullish sentiment has dropped to just 28.4%. Basically, the inverse of what we saw just after the election.
Much like my comments regarding the shift in consumer sentiment, I think investors should be cautious not to read too much into these data points. But if I were to take any position on the rapid shift in investor sentiment to the negative, I’d say that it’s probably a good thing for equities on a forward-looking basis. History tells us that a healthy dose of pessimism could ultimately be good for markets, forming the basis for the so-called “wall of worry” that stocks love to climb.
I’d be far more concerned if the sentiment was overwhelmingly positive, as that would give way to excess risk-taking where valuation multiples no longer matter. Having skepticism in the markets about economic and earnings growth lowers overall expectations, which makes positive surprises more possible and perhaps even likely. And more often than not, that’s good news for stocks.
In times like these, when sentiment shifts and headlines can cause panic, history provides clarity. By looking at how the market has responded to past volatility, investors gain valuable insight and peace of mind. Understanding these patterns can help keep the focus on long-term potential, rather than getting swept up in short-term fluctuations.
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Disclosure