Record-high U.S. stocks vs. record-low consumer confidence
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An unprecedented divergence is unfolding between the US stock market and the everyday experiences of ordinary people.
The S&P 500 Index has risen for eight consecutive weeks, with the Dow Jones Industrial Average setting historic closing highs for two days in a row. Meanwhile, the University of Michigan Consumer Sentiment Index has dropped to its lowest point in over 70 years of survey history. Creative Planning Chief Market Strategist Charlie Bilello bluntly stated: "We have never seen such a wide gap between Wall Street and ordinary people."
Analysts believe that this rift is not just a matter of sentiment, but also reflects multiple structural contradictions including inflationary pressure, soaring debt, and the AI wave reshaping the labor market. Notably, the collapse of consumer confidence is not merely pessimism, but is substantiated by real bills:
Gasoline prices are above $4 per gallon, annual inflation is close to 4%, credit card and auto loan debt are near historical peaks, and the financial stress index has remained above 6.3 (out of 10) since the end of 2024.
Consumer Confidence Falls to Historic Lows
Joanne Hsu, Director of the University of Michigan Consumer Survey, said the decline in the sentiment index is not surprising. Sentiment was already low at the beginning of the year, followed by the outbreak of war in Iran at the end of February, and a sharp rise in oil prices, further hitting consumer confidence.
The previous historic low occurred in June 2022—when inflation was surging at the fastest pace in decades. The latest reading is 10% lower than that low point.
"Prices remain extremely high, the labor market has clearly weakened over the past four years, and now we are in a war. Our data is lower than June 2022. This should not surprise anyone."
Notably, even Americans holding large stock portfolios are only relatively more optimistic than their peers. Historically, when stock valuations are similarly high, this group usually displays much greater optimism—this is itself an anomaly at present.
Stock Market Valuations Near Dot-Com Peak
In stark contrast to historic lows in consumer confidence are historic highs in stock market valuations.
Measured by the cyclically adjusted price-to-earnings ratio (CAPE) popularized by Yale economist Robert Shiller, the current S&P 500 valuation stands at 40.8 times. In Shiller’s 145-year data series, this index has only surpassed 40 once—right before and after the peak of the dot-com bubble in 2000.
Coincidentally, 2000 was also the historical peak of the Michigan Consumer Sentiment Index; since then, it has never approached that level again.
Robert Barbera, Director of the Center for Financial Economics at Johns Hopkins University, points out that the prosperity of 2000 had a common basis: strong economic growth, sustained job gains, mild inflation, and U.S. government fiscal surpluses. Optimism from both the stock market and consumers pointed to the same reality.
Today, both point to the same reality, but have drawn diametrically opposed conclusions on sentiment.
Barbera offers three possible frameworks for explaining the current divergence.
First, the stock market has detached from the fundamentals of the U.S. economy and faces significant downside risk—the pessimism of consumers is the correct forecast.Second, the stock market is pricing in a future that has yet to arrive: an end to the Iran war, falling inflation, and a revitalized economy—stock market optimism will be proven prescient.Third, and the most structurally significant explanation: the core narrative driving recent stock market enthusiasm is artificial intelligence. AI helps companies cut labor costs and expand profit margins, which is favorable for shareholders; but for ordinary workers worried about job displacement, the same story implies a completely different outlook.
"The stock market is flying to the moon while households are sinking into ever deepening gloom. In reality, both are staring at the same thing," Barbera said.
Inflation and Debt: The Double Burden Crushing Consumers
The divergence between the stock market and consumer confidence is more directly reflected in the balance sheets of ordinary households.
According to CNBC, the National Foundation for Credit Counseling (NFCC) quarterly Financial Stress forecasting shows that Americans' level of financial stress is expected to rise again in the second quarter of this year, with a predicted score of 6.7 before the end of June. This score has remained at 6.3 or above since the end of 2024, whereas the post-pandemic low in 2021 was only 3.5.
Bruce McClary, NFCC Senior Vice President, said Americans are "deeply trapped in financial stress," rooted in persistently high prices combined with near-record credit card and auto loan debt. The foundation reports a "significant surge" in the number of consumers seeking credit counseling, possibly warning of deteriorating economic health in overall consumer spending.
NFCC CEO Mike Croxson stated:
"The stress caused by persistent reliance on credit and affordability challenges has reached a critical point. Consumers want to responsibly fulfill debt obligations, but under current market conditions, their traditional ability to repay is disappearing."
McClary said more consumers are relying on credit to cover daily expenses, but debt has become unsustainable for many. "People are slipping toward the edge. Their credit card repayments are starting to falter," he said. "They not only want to get back on track, but are also seeking answers on how to make their budgets and incomes match again."
Consumer spending is the core engine of the U.S. economy. Consumer confidence falling to historic lows, combined with rising debt pressure and eroded real purchasing power, means downward risks are building up on the consumption side. If this pressure finally transmits to corporate profits, the currently highly valued stock market will face repricing pressure.
Conversely, if the stock market’s optimistic forecast comes true—war cools off, inflation falls, and the AI dividend gradually benefits a wider labor market—consumer confidence may have room for recovery. Analysts note that long-term divergence between the two is extremely rare in history, and every rare occurrence warrants extra caution.
Risk Warning and DisclaimerThe market carries risks, and investments should be made cautiously. This article does not constitute personal investment advice and does not take into account the individual investment goals, financial circumstances, or needs of specific users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular situation. Investments made based on this article are at your own risk. ```