{"id":13232,"date":"2024-06-24T15:44:52","date_gmt":"2024-06-24T15:44:52","guid":{"rendered":"https:\/\/zacksim.com\/blog\/?p=13232"},"modified":"2024-06-24T15:44:53","modified_gmt":"2024-06-24T15:44:53","slug":"u-s-households-still-sour-on-the-economy-thats-bullish","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/u-s-households-still-sour-on-the-economy-thats-bullish\/","title":{"rendered":"U.S. Households Still Sour On The Economy\u2014That’s Bullish"},"content":{"rendered":"\n

U.S. Households Remain Pessimistic About the Economy \u2013 That\u2019s Bullish<\/strong><\/p>\n\n\n\n

A handful of surveys released over the past few weeks reveal a common theme: American households remain skeptical about the overall health of the economy.<\/em><\/p>\n\n\n\n

One such survey was released last week by the credit-reporting firm TransUnion, which showed that Americans are more concerned about inflation and interest rates today than they have been in over two years. About 50% of TransUnion\u2019s survey respondents said that high interest rates were among their top three financial concerns, with 84% saying that higher prices for gas, groceries, and other everyday goods were impacting household budgets negatively.1<\/sup><\/p>\n\n\n\n

We know from the consumer price index (CPI) and personal consumption expenditures (PCE) that inflation peaked in June 2022 and has been steadily improving since. But consumers don\u2019t see it that way. Many households do not differentiate between price and inflation, which means that many continue to see inflation as a problem that keeps getting worse\u2014not better.2<\/sup><\/p>\n\n\n\n

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Another survey conducted by business intelligence company Morning Consult supports this point. They found that less than half of Americans identified inflation as the rate of change of rising prices for goods and services. Instead, inflation just means \u2018higher prices,\u2019 which is why 69% of respondents to Morning Consult\u2019s survey said that inflation was higher today than it was a year ago. We know from the data that this is not factually correct.<\/p>\n\n\n\n

Misunderstanding inflation is a key reason why investor and consumer sentiment remain relatively low. Nearly half of Americans think that inflation is outpacing income growth, which as seen in the chart below, has not been the case (in aggregate across the economy) in recent months:<\/p>\n\n\n\n

Median Year-over-Year (%) Wage Growth (blue line) has Outpaced Inflation Since 2023<\/em><\/strong><\/p>\n\n\n\n

\"\"
Source: Federal Reserve Bank of St. Louis4<\/sup><\/em><\/strong><\/figcaption><\/figure>\n\n\n\n

All told, only about a quarter of Americans define inflation as the rise in prices over the past year. Most households experience inflation as presented in the chart below\u2014they see the blue line, which shows consumer prices moving ever higher on a nominal basis, even though the rate of change has been improving. The chart below looks at the same data\u2014consumer price index for all items in the U.S.\u2014in different terms. The blue line shows prices indexed to levels from 40 years ago, while the red line shows the year-over-year percentage change. Economists and the Federal Reserve focus on the red line when making projections and setting policy. Consumers tend to experience the blue line.<\/p>\n\n\n\n

Consumer Price Index (CPI) for All Items in the U.S.<\/em><\/strong><\/p>\n\n\n\n

\"\"
Source: Federal Reserve Bank of St. Louis5<\/sup><\/em><\/strong><\/figcaption><\/figure>\n\n\n\n

Then there\u2019s consumer sentiment as measured by the University of Michigan\u2019s popular index. In a preliminary estimate from early June, the University of Michigan\u2019s consumer sentiment index fell to 65.6 from May\u2019s 69.1 reading, which was well below economist expectations for sentiment to improve to 72.0. A separate gauge of consumer sentiment surrounding personal finance also fell to its lowest level since October 2023, and consumers also expressed concern about broad economic conditions. These concerns seem to be growing alongside the growing economy.<\/p>\n\n\n\n

In my view, the picture that emerges of concerned, largely skeptical U.S. households is bullish for equity markets. It highlights a disconnect between economic fundamentals and sentiment about the economy, which over time I\u2019ve tended to identify as part of the \u2018wall of worry\u2019 that stocks like to climb.<\/p>\n\n\n\n

A case-in-point comes from the TransUnion survey. U.S. households expressed high levels of concern about interest rates and inflation, but they also reported optimism about personal finances given the stable jobs market and wage increases over the past year. It is almost as if to say, \u201cthe economy is in trouble, but our personal situation has been improving.\u201d<\/p>\n\n\n\n

The reality\u2014as evidenced by the economic data we track closely\u2014is that the economy and household balance sheets are both getting better at the same time, which is also why I think the stock market has been rallying this year.<\/p>\n\n\n\n

Bottom Line for Investors<\/strong><\/p>\n\n\n\n

John Templeton famously said that \u201cbull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.<\/em>\u201d Measures of consumer and investor sentiment, as detailed above, indicate that there\u2019s still plenty of skepticism about the economy and markets\u2014even as fundamentals tell a different story. This disconnect, which is also an indication that the U.S. economy and corporate profitability are being underappreciated, keeps me optimistic about this bull market having more room to run.<\/p>\n\n\n\n

If you\u2019re also wondering how the upcoming election will impact the market\u2019s direction, I recommend downloading our free Stock Market Outlook Report6<\/sup><\/a><\/span><\/em><\/strong>. This report focuses on current election insights and includes expert analysis, detailed forecasts, and more including:<\/p>\n\n\n\n

\u2022 Expert Market Strategy Commentary
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\u2022 Zacks S&P 500 Earnings Insights<\/p>\n\n\n\n

If you have $500,000 or more to invest, request our free Stock Market Outlook Special Report6<\/sup> today!<\/p>\n","protected":false},"excerpt":{"rendered":"

Surveys show that Americans are still skeptical about the economy, especially inflation. Mitch argues that’s a good thing for the market. <\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-13232","post","type-post","status-publish","format-standard","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13232","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=13232"}],"version-history":[{"count":2,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13232\/revisions"}],"predecessor-version":[{"id":13236,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13232\/revisions\/13236"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=13232"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=13232"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=13232"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}