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The Stock Market and Consumer Sentiment Are Telling Different Stories


Stocks have rebounded dramatically off their March lows, while consumer sentiment is hovering near the lowest level in nearly a decade. The divergence is one of many realities investors are struggling to reconcile.

The spread between the monthly percentage change of the S&P 500 and the University of Michigan’s consumer sentiment survey climbed to 32 percentage points last month, the widest-ever gulf in data going back to 1978, according to Dow Jones Market Data.

The drop in sentiment reflects the wave of challenges unleashed by the coronavirus pandemic. Almost overnight, the economy swung from an expansion into a deep contraction. Unemployment rose to record highs from record lows. Personal incomes in March suffered the steepest drop since 2013, and consumer spending fell at the fastest rate since 1959. April numbers, due Friday, are expected to be worse.

Yet stocks have continued to rise.


The divergence between stocks and sentiment reflects two different vantage points within a business cycle, said Lakshman Achuthan, co-founder of the Economic Cycle Research Institute. The stock market is already betting on the recession’s end, he said. Sentiment, meanwhile, is more closely connected to the jobs market, “which is taking it on the chin right now.”

In April, U.S. employers laid off a staggering 20.5 million workers. The official unemployment rate, calculated by the Bureau of Labor Statistics, rose to 14.7%.


Although the stock market and the economic data appear to be flashing different signals, the market historically bottoms out a few months before a recession ends. So even if sentiment is sour now, it’s possible the economy has already hit its trough, Mr. Achuthan said.

In 2009, for example, the market bottomed in March, and the recession ended three months later.

“Technically, you have a recovery,” he said, “but it won’t feel like it.”



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