Market Direction and Stock Trends

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Consumers are buying stuff, but not stocks
By: SentimenTrader | March 3, 2021

Despite a record monthly close in the S&P 500 and most other broad indexes in February, the average U.S. consumer isn't all that optimistic.

There are definite signs of speculative froth, even unbridled euphoria, among investors, but "investors" don't necessarily overlap with "consumers." The latest survey from the Conference Board shows that explicitly, with barely more consumers expecting stocks to rally this year than decline.

This is unusual. The closer the S&P is to a high, the more that consumers have expected it to keep going. Recent months are showing some of the least optimistic readings in more than 30 years.



This is supposed to be a good sign of the proverbial Wall of Worry.

When we look at forward returns in the S&P 500 when it closed at a 3-year high while consumers were the least optimistic on the market's prospects going forward, it proved to be a modest positive, thanks in large part to a cluster of readings since 2013-14. If we take out those two years, then the medium-term returns suffer quite a bit.

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