Consumers Are Optimistic About the Market, But Cautious on the Economy

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Written By Jonathan M. Elliott, CPWA®, CRPC®, CDFA®, ChSNC®, CPFA™, RMA®
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Photo Credit: Roman Hnydin, Unsplash

Recent consumer survey data has revealed a widening gap between how consumers view the stock market and the economy. The chart below shows a dark blue line tracking the percentage of consumers who believe the stock market will rise over the next year, while the light blue line shows the University of Michigan’s Consumer Expectations Index, which measures outlooks for income, employment, and overall economic conditions.

Historically, these two series move together: when consumers feel better about the economy, they feel better about the stock market. However, that relationship has broken down this year. Nearly 60% of consumers expect the stock market to rise, while the expectations index sits near levels from the pandemic and the 2008 financial crisis. The takeaway: confidence in the stock market has rebounded, but overall sentiment remains weak.

Consumers are increasingly optimistic about the stock market. The S&P 500 has set over 20 new all-time highs since the end of May, and investors expect more gains. Corporate earnings have proven resilient, and the artificial intelligence industry is driving both economic and earnings growth as hundreds of billions are invested in AI infrastructure. Trade policy uncertainty has eased from earlier this year, and the Federal Reserve’s September rate cut reinforced expectations for a “soft landing”, where the economy slows but avoids a recession. Many households have directly benefited from the market’s gains through investment and retirement accounts, boosting confidence despite mixed economic and labor market signals.

While consumers are confident in the stock market, they are cautious about the economy. Housing affordability remains a major concern, with elevated mortgage rates and high home prices. Inflation has moderated from its peak but continues to pressure household budgets, especially for essentials like food, healthcare, and rent. Meanwhile, the labor market has cooled after a post-pandemic surge, when demand for workers outpaced supply and companies raised wages. Job growth has slowed, job openings have declined, and unemployment has risen, leaving some workers less certain about future income and employment prospects. The result is growing unease about household finances, despite record stock prices.

It is rare to see such a wide gap between consumers’ views of the stock market and the broader economy. The divergence highlights a key tension: confidence in markets is rising, but many households continue to feel pressure from housing costs, inflation, and labor market uncertainty. The gap matters because the consumer accounts for roughly 70% of all U.S. economic activity. If sentiment remains weak, it could begin to weigh on consumer spending, which has supported economic growth, and the optimism that’s powered the stock market to new highs.

US Consumer Confidence in the Stock Market Diverges from Broader Economic Expectations

Consumer Expectations vs Stock Market Forecast
 

Important Disclosures
This material is provided for general and educational purposes only and is not investment advice. Your investments should correspond to your financial needs, goals, and risk tolerance. Please consult an investment professional before making any investment or financial decisions or purchasing any financial, securities, or investment-related service or product, including any investment product or service described in these materials.

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Consumers Are Optimistic About the Market, But Cautious on the Economy
Consumers Are Optimistic About the Market, But Cautious on the Economy

Recent consumer survey data has revealed a widening gap between how consumers view the stock market and the economy. This month’s chart shows a dark blue line tracking the percentage of consumers who believe the stock market will rise over the next year, while the light blue line shows the University of Michigan’s Consumer Expectations Index, which measures outlooks for income, employment, and overall economic conditions. The takeaway: confidence in the stock market has rebounded, but overall sentiment remains weak.

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This week, markets continued to grind higher, extending their early October rally as investor optimism held firm despite the ongoing government shutdown. The S&P 500 hit another record high but mostly traded sideways, led by the Utilities and Technology sectors, which continue to benefit from AI investment. In the credit market, bonds traded lower as Treasury yields increased with the government shutdown. Meanwhile, gold and bitcoin set record highs, and the VIX drifted up toward a 3-month high but remained range-bound, signaling expectations for market volatility to remain subdued.

Government Shutdown, Labor and Mfg. Data, Tariff Rhetoric, and AI Infrastructure Spending
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This week, the markets ended higher, extending September’s momentum despite lingering macro uncertainties. The S&P 500 rose nearly +2% to another all-time high, led by health care, technology, and utilities gains, while energy and financials lagged. International equities outpaced U.S. markets as the dollar softened, with emerging markets ahead of developed. Treasuries rallied on weaker fixed-income labor data, with longer maturities outperforming as interest rates fell. Corporate bonds also trade higher, with investment-grade outperforming high yield. Commodities diverged as crude oil fell to its lowest since early May, while gold extended its record-setting rally.

Jonathan M. Elliott, CPWA®, CRPC®, CDFA®, ChSNC®, CPFA™, RMA®

I am currently the Managing Partner for our independent investment advisory firm, Optima Capital Management. Together with my business partners, Todd Bendell CFP® and Clinton Steinhoff, we founded Optima Capital in 2019 as a forward-thinking wealth management firm that serves as an investment fiduciary and family office for high-net-worth individuals and families. In addition to being the Chief Compliance Officer, my role at Optima Capital is portfolio management. I have over 22 years of experience in managing investment strategies and portfolios. I specialize in using fundamental and technical analysis to build custom portfolios that utilize individual equities, bonds, and exchange-traded funds (ETFs). I began my financial services career with Merrill Lynch in 2003. At Merrill, I served in the leadership roles of Market Sales Manager and Senior Resident Director for the Scottsdale West Valley Market in Arizona. On Wall Street Magazine recognized me as one of the Top 100 Branch Managers in 2017. I am originally from Saginaw, Michigan, and a marketing graduate from the W.P. Carey School of Business at Arizona State University. I am a Certified Private Wealth Advisor® professional. The CPWA® certification program is an advanced credential created specifically for wealth managers who work with high net worth clients, focusing on the life cycle of wealth: accumulation, preservation, and distribution. In addition, I hold the following designations - Chartered Retirement Planning Counselor (CRPC®), Certified Divorce Financial Analyst (CDFA®), Certified Plan Fiduciary Advisor (CPFA), and Retirement Management Advisor (RMA®). In the community, I am a member of the Central Arizona Estate Planning Council (CAEPC) and serve as an alumni advisor and mentor to student organizations at Arizona State University. My interests include traveling, outdoors, fitness, leadership, entrepreneurship, minimalism, and computer science.

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More AI Deals, Government Shutdown Continues, and Gold Sets a Record High