Americans are definitely in a bad mood. The stock market definitely is not. That’s usually not how it works. On the contrary, historically high stock prices have been associated with happy consumers, and vice versa. Here’s a look at what’s happening.
How negative is the sentiment?
American attitudes have just reached a sort of milestone. On Friday, the University of Michigan reported that its consumer sentiment index fell to the lowest level ever recorded in about 70 years of surveys.
Sentiment was already low at the beginning of this year, but it plummeted sharply after the start of the war in Iran, at the end of February, which sent gasoline prices soaring.
Until this year, the previous low was reached in June 2022, when inflation was at its highest levels in decades. Friday’s sentiment figure was 10% lower even than that number.
“Prices remain extremely high, labor markets have unequivocally weakened over the past four years, and now we are in the middle of a war,” said Joanne Hsu, director of consumer surveys at the University of Michigan. “I don’t think anyone should be surprised that we are below June 2022.”
How well are stocks doing?
But if you look at the stock market, you would never imagine sentiment is this low. Also on Friday, the S&P 500 recorded its eighth consecutive week of gains, and the Dow Jones Industrial Average hit a record close for the second day in a row. And it’s not just that stocks are high. They also appear really expensive.
The S&P 500 has a valuation of 40.8, measured by its cyclically adjusted price-to-earnings ratio (CAPE). This is a metric popularized by Yale University economist Robert Shiller, who won the Nobel Prize in Economics in 2013 for his studies on asset prices.
The only other time it was above 40 in Shiller’s 145 years of data was in the years immediately before and after the peak of the dot-com bubble, in the early 2000s. 2000 was also the year when the Michigan sentiment index reached historic highs. Since then, it has never come close to those levels again.
Americans with substantial stock portfolios feel on average better than their peers, according to the Michigan survey. But unlike past periods when stock valuations were high, they are still relatively unhappy.
So what makes today’s situation such an anomaly compared to how things usually go? Economists have some ideas.
In 2000
Take the year 2000 as an example, when the typical pattern of strong stock markets and happy consumers proved correct.
Robert Barbera, director of the Center for Financial Economics at Johns Hopkins University, notes that at the time the stock market and Americans were responding to shared optimism. The economy was growing and creating jobs, and inflation was contained. The Cold War was over, China was opening up, and the U.S. government was running a budget surplus.
Just like today with artificial intelligence, a new transformative technology was emerging. But the general sentiment around the Internet was that it would connect the world and improve lives. AI is not viewed as positively.
How people feel in 2026
Barbera points to three factors that could explain today’s gap, none of which are mutually exclusive.
First, stock prices might be disconnected from the fundamentals of where the U.S. economy is heading and risk a sharp drop. In other words, consumers are right to be unhappy.
Second, stocks might be anticipating a future that many Americans have not yet realized, a future in which, for example, the war with Iran ends, inflation eases, and growth accelerates. In other words, stocks are right to be exuberant.
And third? The main factor driving recent stock market enthusiasm has been AI, which has also been a source of growing anxiety among many Americans. A world where companies can use AI to reduce labor costs and dramatically expand their profit margins is good for stocks. But it could also be a world where more people struggle to find jobs.
“The stock market on the moon and families in growing darkness reflect the exact same thing,” Barbera said.
(Excerpt from the press review by eprcomunicazione)
