How Can Consumers Be Confident but Not Optimistic?

Consumers are a lot more confident than they are optimistic.

Those seem like they should be the same thing but aren't necessarily so. As measured by the Conference Board, consumer confidence was at extremely high levels as of the end of July, while Consumer Sentiment, as measured by the University of Michigan, was in the middle of its long-term range.

It makes sense that consumers would feel good about employment prospects and pay (Consumer Confidence) while also worried about a jump in prices for everyday necessities (Consumer Sentiment).

Whatever the reasons, we can see below that the spread between Confidence and Sentiment is now the widest in history.

Consumer confidence versus consumer sentiment

For the most part, stocks held up well after other peaks in the spread between surveys...for a while.

The biggest issue is that at some point - and it was an inconsistent "at some point" - stocks fell into a bear market following these divergences. Two of them triggered within months; two others took a long time to play out.

It's hard to rely on something with such inconsistent timing.

What else we're looking at

  • Returns in the S&P 500, dollar, gold, bonds, and commodities following peaks in consumer survey divergences
  • How sectors and factors performed after these signals
  • Looking at a buy signal for overseas markets once their relative performance improves
  • A trading system that combines our Macro Index Model with a simple trend-following filter

Stat box

Traders pulled more than $800 million from the HYG high-yield corporate bond fund on Tuesday, the 13th time the fund has suffered an outflow that large in the past year. Our Backtest Engine shows that 11 of the 12 prior signals preceded a rally in HYG.


[Greeced] up. The Greece Optix has seen a sharp rise in optimism, jumping from 7 to 81 in just a couple of weeks.

greece sentiment

Down under. The Aussie dollar tends to rise during June and July, yet, it has continued to drop. Its typical seasonal trend is now once again a headwind.

aussie dollar seasonalityPower outage. Not a single energy company has been trading above its 50-day moving average for 14 days straight, the longest stretch since the end of 2018.

energy stocks xle members above 50 day moving average

The post titled How Can Consumers Be Confident but Not Optimistic? was originally published as on on 2021-08-04.

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