Markets
Understanding the Disconnect Between Consumers and the Stock Market
The Disconnect Between Consumers and Stock Markets
Consumer sentiment indices are relatively accurate indicators for the outlook of an economy. They rise during periods of growth as consumers become more financially confident, and fall during recessions as consumers cut back on discretionary spending.
Since the direction of the overall economy also affects stock markets, measures of consumer sentiment have historically moved in tandem with major indices like the S&P 500. Since the COVID-19 pandemic began, however, consumers and stock markets have become noticeably disjointed from one another.
To help us understand why this may be the case, this infographic charts the University of Michiganโs Index of Consumer Sentiment against the S&P 500, before diving into potential underlying factors for their divergence.
A Tale of Two Indices
Before we compare these two indices, itโs helpful to first understand how theyโre comprised.
The Index of Consumer Sentiment
The University of Michiganโs Index of Consumer Sentiment (ICS) is derived from a monthly survey of consumers that aims to get a snapshot of personal finances, business conditions, and buying conditions in the market.
The survey consists of five questions (paraphrased):
- Are you better or worse off financially compared to a year ago?
- Will you be better or worse off financially a year in the future?
- Will business conditions during the next year be good, bad, or other?
- Will business conditions over the next five years be good, bad, or other?
- Is it a good time to make large purchases such as major household appliances?
A score for each of these questions is calculated based on the percent of favorable and nonfavorable replies. The scores are then aggregated to arrive at the final index value, relative to 6.8โthe 1966 base period value.
The S&P 500
The S&P 500 is a market capitalization-weighted index of the 500 largest publicly traded U.S. companies. A companyโs market capitalization is calculated as its current stock price multiplied by its total number of outstanding shares.
Market caps change over time, with movements determined by daily stock price fluctuations, the issuance of new stock, or the repurchase of existing shares (also known as share buybacks).
The COVID-19 Divergence
Throughout past market cycles, these two indices have displayed some degree of correlation.
During the bull market of the โ90s, the S&P 500 generated an astonishing 417% return, and was accompanied by a 75% increase in consumer sentiment. Critically, both indices also peaked at roughly the same time. The ICS began to decline after reaching its record high of 112.0 in January 2000, while the S&P 500 began to falter in August that same year.
Fast forwarding to 2020, we can see that these indices have responded quite differently during the pandemic so far:
Index | Jan 2020ย | Feb 2020ย | Mar 2020ย | Apr 2020ย | May 2020ย | June 2020ย | July 17, 2020ย |
---|---|---|---|---|---|---|---|
ICS Value | 99.8 | 101 | 89.1 | 71.8 | 72.3 | 78.1 | 73.2 |
ICS YTD | 0.5% | 1.7% | -10.3% | -27.7% | -27.2% | -21.4% | -26.3% |
S&P 500 Value | 3225.5 | 2954.2 | 2584.6 | 2912.4 | 3044.3 | 3100.3 | 3224.7 |
S&P 500 YTD | -0.2% | -8.6% | -20.0% | -9.9% | -5.8% | -4.0% | -0.2% |
All figures as of month end unless otherwise specified. Source: Yahoo Finance
The ICS has not yet recovered from its initial decline beginning in March, whereas the S&P 500 has seemingly bounced back during the same time frame.
Examining the Disconnect
Why are stock markets failing to recognize the hardships that consumers are feeling? Letโs examine two central factors behind this disconnect.
Reason 1: Techโs Dominance of the S&P 500
Recall that a companyโs weight in the S&P 500 is determined by its market cap. This means that certain sectors can form a larger part of the index than others. Hereโs how each sector sizes up:
S&P 500 Sector | Index weight as of June 30, 2020 (%) |
---|---|
Information technologyย | 27.5% |
Health care | 14.6% |
Consumer discretionary | 10.8% |
Communication services | 10.8%ย |
Financials | 10.1% |
Industrials | 8.0% |
Consumer staples | 7.0% |
Utilities | 3.1% |
Real estate | 2.8% |
Energy | 2.8% |
Materials | 2.5% |
Source: S&P Global
Based on this breakdown, we can see that the information technology (IT) sector accounts for over a quarter of the S&P 500. With a weighting of 27.5%, the sector alone is bigger than the bottom six combined (Industrials to Materials).
This inequality means the performance of the IT sector has a stronger relative impact on the indexโs overall returns. Within IT, we can highlight the FAANGM subset of stocks, which include some of Americaโs biggest names in tech:
Stock | Market Cap as of June 30, 2020 ($) |
---|---|
Apple | $1.6 trillion |
Microsoft | $1.5 trillion |
Amazon | $1.4 trillion |
$930 billion | |
$668 billion | |
Netflix | $200 billion |
S&P 500 average | $53 billion |
Source: Yahoo Finance
These companies have grown rapidly over the past decade, and continue to perform strongly during the pandemic. If this trend continues, the S&P 500 could skew even further towards the IT sector, and become less representative of Americaโs overall economy.
Reason 2: The U.S. Federal Reserve
Stock prices typically reflect a companyโs future earnings prospects, meaning they are influenced, to a degree, by the outlook for the broader economy.
With an ongoing pandemic and steep decline in consumer sentiment, itโs reasonable to believe that many company prospects would look bleak. This is especially true for consumer cyclicalsโcompanies like automobile manufacturers that rely on discretionary spending.
In a somewhat controversial move, the U.S. Federal Reserve has stepped in to counter these effects by creating the Secondary Market Corporate Credit Facility (SMCCF). This facility operates two programs which ensure businesses have access to funding during the pandemic.
Corporate Bond Purchase Program
The SMCCF is currently buying corporate bonds from an index of nearly 800 companies. Of the ten largest recipients of this program, five are categorized as consumer cyclical:
Issuer | Category | Index Weight (%) |
---|---|---|
Toyota Motor Credit Corp | Consumer cyclical | 1.74% |
Volkswagen Group America | Consumer cyclical | 1.74% |
Daimler Finance NA LLC | Consumer cyclical | 1.72% |
AT&T Inc | Communications | 1.60% |
Apple Inc | Technology | 1.60% |
Verizon Communications | Communications | 1.60% |
General Electric | Capital goods | 1.48% |
Ford Motor Credit Co LLC | Consumer cyclical | 1.34% |
Comcast Corp | Communications | 1.32% |
BMW US Capital LLC | Consumer cyclical | 1.25% |
Source: Investopedia
This program is intended to support the flow of credit, but its announcement in June also gave stock markets a boost in confidence. With the Fed directly supporting corporations, shareholders are being shielded from risks related to declining sales and bankruptcy.
By the end of June, the SMCCF had purchased $429 million in corporate bonds.
ETF Purchase Program
The SMCCF is also authorized to purchase corporate bond ETFs, a historic first for the Fed. The facilityโs five largest ETF purchases as of June 18, 2020, are detailed below:
ETF Nameย | Purchase size ($) | ETF Description |
---|---|---|
iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) | $1.7 billion | Tracks an index composed of USD-denominated, investment grade corporate bonds. |
Vanguard Short-Term Corporate Bond ETF (VCSH) | $1.3 billion | Invests primarily in investment grade corporate bonds, maintaining an average maturity of 1 to 5 years. |
Vanguard Intermediate-Term Corporate Bond ETF (VCIT) | $1.0 billion | Invests primarily in investment grade corporate bonds, maintaining an average maturity of 5 to 10 years. |
iShares Short-Term Corporate Bond ETF (IGSB) | $608 million | Tracks an index composed of USD-denominated investment-grade corporate bonds with maturities between 1 and 5 years. |
SPDR Barclays High Yield Bond ETF (JNK) | $412 million | Seeks to provide a diversified exposure to USD-denominated high yield corporate bonds. |
Source: Investopedia
Although the SMCCFโs purchase of ETFs outsize those of corporate bonds, the Fed has signaled its intention to make direct bond purchases its primary focus going forward.
Will Markets and Consumers Reconnect Anytime Soon?
Itโs hard to see the S&P 500 moving towards a more balanced sector composition in the near future. Americaโs big tech stocks have been resilient during the pandemic, with some even reaching new highs.
The Fed also remains committed to providing corporations with credit, thereby enabling them to “borrow” their way out of the pandemic. These commitments have propped up stock markets by reducing bankruptcy risk and potentially speeding up the economic recovery.
Consumer sentiment, on the other hand, has yet to show signs of recovery. Surveys released in early July may shed some light on whyโ63% of Americans believe it will take a year or more for the economy to fully recover, while 82% are hoping for an extension of COVID-19 relief programs.
With both sides moving in opposite directions, itโs possible the disconnect could grow even larger before it starts to shrink.
Markets
Mapped: GDP Growth Forecasts by Country, in 2023
The global economy faces an uncertain future in 2023. This year, GDP growth is projected to be 2.9%โdown from 3.2% in 2022.

Mapped: GDP Growth Forecasts by Country, in 2023
This was originally posted on Advisor Channel. Sign up to the free mailing list to get beautiful visualizations on financial markets that help advisors and their clients.
Since Russiaโs invasion of Ukraine early last year, talk of global recession has dominated the outlook for 2023.
High inflation, spurred by rising energy costs, has tested GDP growth. Tightening monetary policy in the U.S., with interest rates jumping from roughly 0% to over 4% in 2022, has historically preceded a downturn about one to two years later.
For European economies, energy prices are critical. The good news is that prices have fallen recently since March highs, but the continent remains on shaky ground.
The above infographic maps GDP growth forecasts by country for the year ahead, based on projections from the International Monetary Fund (IMF) October 2022 Outlook and January 2023 update.
2023 GDP Growth Outlook
The world economy is projected to see just 2.9% GDP growth in 2023, down from 3.2% projected for 2022.
This is a 0.2% increase since the October 2022 Outlook thanks in part to Chinaโs reopening, higher global demand, and slowing inflation projected across certain countries in the year ahead.
With this in mind, we show GDP growth forecasts for 191 jurisdictions given multiple economic headwindsโand a few emerging bright spots in 2023.
Country / Region | 2023 Real GDP % Change (Projected) |
---|---|
๐ฆ๐ฑ Albania | 2.5% |
๐ฉ๐ฟ Algeria | 2.6% |
๐ฆ๐ด Angola | 3.4% |
๐ฆ๐ฌ Antigua and Barbuda | 5.6% |
๐ฆ๐ท Argentina* | 2.0% |
๐ฆ๐ฒ Armenia | 3.5% |
๐ฆ๐ผ Aruba | 2.0% |
๐ฆ๐บ Australia* | 1.6% |
๐ฆ๐น Austria | 1.0% |
๐ฆ๐ฟ Azerbaijan | 2.5% |
๐ง๐ญ Bahrain | 3.0% |
๐ง๐ฉ Bangladesh | 6.0% |
๐ง๐ง Barbados | 5.0% |
๐ง๐พ Belarus | 0.2% |
๐ง๐ช Belgium | 0.4% |
๐ง๐ฟ Belize | 2.0% |
๐ง๐ฏ Benin | 6.2% |
๐ง๐น Bhutan | 4.3% |
๐ง๐ด Bolivia | 3.2% |
๐ง๐ฆ Bosnia and Herzegovina | 2.0% |
๐ง๐ผ Botswana | 4.0% |
๐ง๐ท Brazil* | 1.2% |
๐ง๐ณ Brunei Darussalam | 3.3% |
๐ง๐ฌ Bulgaria | 3.0% |
๐ง๐ซ Burkina Faso | 4.8% |
๐ง๐ฎ Burundi | 4.1% |
๐จ๐ป Cabo Verde | 4.8% |
๐จ๐ฒ Cameroon | 4.6% |
๐ฐ๐ญ Cambodia | 6.2% |
๐จ๐ฆ Canada* | 1.5% |
๐จ๐ซ Central African Republic | 3.0% |
๐น๐ฉ Chad | 3.4% |
๐จ๐ฑ Chile | -1.0% |
๐จ๐ณ China* | 5.3% |
๐จ๐ด Colombia | 2.2% |
๐ฐ๐ฒ Comoros | 3.4% |
๐จ๐ท Costa Rica | 2.9% |
๐จ๐ฎ Cรดte d'Ivoire | 6.5% |
๐ญ๐ท Croatia | 3.5% |
๐จ๐พ Cyprus | 2.5% |
๐จ๐ฟ Czech Republic | 1.5% |
๐จ๐ฉ Democratic Republic of the Congo | 6.7% |
๐ฉ๐ฐ Denmark | 0.6% |
๐ฉ๐ฏ Djibouti | 5.0% |
๐ฉ๐ฒ Dominica | 4.9% |
๐ฉ๐ด Dominican Republic | 4.5% |
๐ช๐จ Ecuador | 2.7% |
๐ช๐ฌ Egypt* | 4.0% |
๐ธ๐ป El Salvador | 1.7% |
๐ฌ๐ถ Equatorial Guinea | -3.1% |
๐ช๐ท Eritrea | 2.9% |
๐ช๐ช Estonia | 1.8% |
๐ธ๐ฟ Eswatini | 1.8% |
๐ช๐น Ethiopia | 5.3% |
๐ซ๐ฏ Fiji | 6.9% |
๐ซ๐ฎ Finland | 0.5% |
๐ซ๐ท France* | 0.7% |
๐ฒ๐ฐ North Macedonia | 3.0% |
๐ฌ๐ฆ Gabon | 3.7% |
Georgia | 4.0% |
Germany* | 0.1% |
Ghana | 2.8% |
Greece | 1.8% |
Grenada | 3.6% |
Guatemala | 3.2% |
Guinea | 5.1% |
Guinea-Bissau | 4.5% |
Guyana | 25.2% |
Haiti | 0.5% |
Honduras | 3.5% |
Hong Kong SAR | 3.9% |
Hungary | 1.8% |
Iceland | 2.9% |
India* | 6.1% |
Indonesia* | 4.8% |
Iraq | 4.0% |
Ireland | 4.0% |
Iran* | 2.0% |
Israel | 3.0% |
Italy* | 0.6% |
Jamaica | 3.0% |
Japan* | 1.8% |
Jordan | 2.7% |
Kazakhstan* | 4.3% |
Kenya | 5.1% |
Kiribati | 2.4% |
South Korea* | 1.7% |
Kosovo | 3.5% |
Kuwait | 2.6% |
Kyrgyz Republic | 3.2% |
Lao P.D.R. | 3.1% |
Latvia | 1.6% |
Lesotho | 1.6% |
Liberia | 4.2% |
Libya | 17.9% |
Lithuania | 1.1% |
Luxembourg | 1.1% |
Macao SAR | 56.7% |
Madagascar | 5.2% |
๐ฒ๐ผ Malawi | 2.5% |
๐ฒ๐พ Malaysia* | 4.4% |
๐ฒ๐ป Maldives | 6.1% |
๐ฒ๐ฑ Mali | 5.3% |
๐ฒ๐น Malta | 3.3% |
๐ฒ๐ญ Marshall Islands | 3.2% |
๐ฒ๐ท Mauritania | 4.8% |
๐ฒ๐บ Mauritius | 5.4% |
๐ฒ๐ฝ Mexico* | 1.7% |
๐ซ๐ฒ Micronesia | 2.9% |
๐ฒ๐ฉ Moldova | 2.3% |
๐ฒ๐ณ Mongolia | 5.0% |
๐ฒ๐ช Montenegro | 2.5% |
๐ฒ๐ฆ Morocco | 3.1% |
๐ฒ๐ฟ Mozambique | 4.9% |
๐ฒ๐ฒ Myanmar | 3.3% |
๐ณ๐ฆ Namibia | 3.2% |
๐ณ๐ท Nauru | 2.0% |
๐ณ๐ต Nepal | 5.0% |
๐ณ๐ฑ Netherlands* | 0.6% |
๐ณ๐ฟ New Zealand | 1.9% |
๐ณ๐ฎ Nicaragua | 3.0% |
๐ณ๐ช Niger | 7.3% |
๐ณ๐ฌ Nigeria* | 3.2% |
๐ณ๐ด Norway | 2.6% |
๐ด๐ฒ Oman | 4.1% |
๐ต๐ฐ Pakistan* | 2.0% |
๐ต๐ผ Palau | 12.3% |
๐ต๐ฆ Panama | 4.0% |
๐ต๐ฌ Papua New Guinea | 5.1% |
๐ต๐พ Paraguay | 4.3% |
๐ต๐ช Peru | 2.6% |
๐ต๐ญ Philippines* | 5.0% |
๐ต๐ฑ Poland* | 0.3% |
๐ต๐น Portugal | 0.7% |
๐ต๐ท Puerto Rico | 0.4% |
๐ถ๐ฆ Qatar | 2.4% |
๐จ๐ฌ Republic of Congo | 4.6% |
๐ท๐ด Romania | 3.1% |
๐ท๐บ Russia* | 0.3% |
๐ท๐ผ Rwanda | 6.7% |
๐ผ๐ธ Samoa | 4.0% |
๐ธ๐ฒ San Marino | 0.8% |
๐ธ๐น Sรฃo Tomรฉ and Prรญncipe | 2.6% |
๐ธ๐ฆ Saudi Arabia* | 2.6% |
๐ธ๐ณ Senegal | 8.1% |
๐ท๐ธ Serbia | 2.7% |
๐ธ๐จ Seychelles | 5.2% |
๐ธ๐ฑ Sierra Leone | 3.3% |
๐ธ๐ฌ Singapore | 2.3% |
๐ธ๐ฐ Slovak Republic | 1.5% |
๐ธ๐ฎ Slovenia | 1.7% |
๐ธ๐ง Solomon Islands | 2.6% |
๐ธ๐ด Somalia | 3.1% |
๐ฟ๐ฆ South Africa* | 1.2% |
๐ธ๐ธ South Sudan | 5.6% |
๐ช๐ธ Spain* | 1.1% |
๐ฑ๐ฐ Sri Lanka | -3.0% |
๐ฐ๐ณ St. Kitts and Nevis | 4.8% |
๐ฑ๐จ St. Lucia | 5.8% |
๐ป๐จ St. Vincent and the Grenadines | 6.0% |
๐ธ๐ฉ Sudan | 2.6% |
๐ธ๐ท Suriname | 2.3% |
๐ธ๐ช Sweden | -0.1% |
๐จ๐ญ Switzerland | 0.8% |
๐น๐ผ Taiwan | 2.8% |
๐น๐ฏ Tajikistan | 4.0% |
๐น๐ฟ Tanzania | 5.2% |
๐น๐ญ Thailand* | 3.7% |
๐ง๐ธ The Bahamas | 4.1% |
๐ฌ๐ฒ The Gambia | 6.0% |
๐น๐ฑ Timor-Leste | 4.2% |
๐น๐ฌ Togo | 6.2% |
๐น๐ด Tonga | 2.9% |
๐น๐น Trinidad and Tobago | 3.5% |
๐น๐ณ Tunisia | 1.6% |
๐น๐ท Turkey* | 3.0% |
๐น๐ฒ Turkmenistan | 2.3% |
๐น๐ป Tuvalu | 3.5% |
๐บ๐ฌ Uganda | 5.9% |
๐บ๐ฆ Ukraine | N/A |
๐ฆ๐ช United Arab Emirates | 4.2% |
๐ฌ๐ง United Kingdom* | -0.6% |
๐บ๐ฒ U.S.* | 1.4% |
๐บ๐พ Uruguay | 3.6% |
๐บ๐ฟ Uzbekistan | 4.7% |
๐ป๐บ Vanuatu | 3.1% |
๐ป๐ช Venezuela | 6.5% |
๐ป๐ณ Vietnam | 6.2% |
West Bank and Gaza | 3.5% |
๐พ๐ช Yemen | 3.3% |
๐ฟ๐ฒ Zambia | 4.0% |
๐ฟ๐ผ Zimbabwe | 2.8% |
*Reflect updated figures from the January 2023 IMF Update.
The U.S. is forecast to see 1.4% GDP growth in 2023, up from 1.0% seen in the last October projection.
Still, signs of economic weakness can be seen in the growing wave of tech layoffs, foreshadowed as a white-collar or โPatagonia-vestโ recession. Last year, 88,000 tech jobs were cut and this trend has continued into 2023. Major financial firms have also followed suit. Still, unemployment remains fairly steadfast, at 3.5% as of December 2022. Going forward, concerns remain around inflation and the path of interest rate hikes, though both show signs of slowing.
Across Europe, the average projected GDP growth rate is 0.7% for 2023, a sharp decline from the 2.1% forecast for last year.
Both Germany and Italy are forecast to see slight growth, at 0.1% and 0.6%, respectively. Growth forecasts were revised upwards since the IMF’s October release. However, an ongoing energy crisis exposes the manufacturing sector to vulnerabilities, with potential spillover effects to consumers and businesses, and overall Euro Area growth.
China remains an open question. In 2023, growth is predicted to rise 5.2%, higher than many large economies. While its real estate sector has shown signs of weakness, the recent opening on January 8th, following 1,016 days of zero-Covid policy, could boost demand and economic activity.
A Long Way to Go
The IMF has stated that 2023 will feel like a recession for much of the global economy. But whether it is headed for a recovery or a sharper decline remains unknown.
Today, two factors propping up the global economy are lower-than-expected energy prices and resilient private sector balance sheets. European natural gas prices have sunk to levels seen before the war in Ukraine. During the height of energy shocks, firms showed a notable ability to withstand astronomical energy prices squeezing their finances. They are also sitting on significant cash reserves.
On the other hand, inflation is far from over. To counter this effect, many central banks will have to use measures to rein in prices. This may in turn have a dampening effect on economic growth and financial markets, with unknown consequences.
As economic data continues to be released over the year, there may be a divergence between consumer sentiment and whether things are actually changing in the economy. Where the economy is heading in 2023 will be anyone’s guess.
-
Technology2 days ago
Infographic: Generative AI Explained by AI
-
VC+2 weeks ago
Access Our Exclusive Report and Upcoming ‘2023 Global Forecast’ Webinar on VC+
-
Markets20 hours ago
Mapped: GDP Growth Forecasts by Country, in 2023
-
Money4 weeks ago
Ranked: The World’s Wealthiest Cities, by Number of Millionaires
-
Markets2 weeks ago
Charted: The Dipping Cost of Shipping
-
Technology4 weeks ago
Timeline: The Most Important Science Headlines of 2022
-
Technology1 week ago
Ranked: The Top 50 Most Visited Websites in the World
-
Money4 weeks ago
Visualizing $65 Trillion in Hidden Dollar Debt