Was Today's Horrible Consumer Sentiment Wildly Bullish For Stocks?

Lots of folks are scratching their head about today’s dismal UMich/Reuters consumer sentiment number coming in so ugly, just as retail sales for September came in so strong.

We’re not quite sure what to make of it either, except the obvious point that maybe consumers don’t always do what they say.

That being said, we wanted to look at two charts on what it might mean for markets.

First, this long-term chart at the survey shows something interesting: Historically, these dismal numbers in consumer sentiment have been associated with fantastic buying opportunities in the stock market.

This chart is from Doug Short


Photo: Doug Short

Eager to look more at the connection between consumer sentiment and stocks, we made the following chart showing UMich consumer sentiment vs. the year-over-year change in the S&P (basically, the annual growth rate of the S&P, rather than the nominal level).


Perhaps it’s not surprising, but it is interesting how tightly these two numbers have moved together, especially since the 2000. They basically jump and bottom at identical moments, and even to the same degree.

Bottom line is this: This currently depressed level of sentiment IS associated with big bull runs henceforth, and there is clearly even a short-term connection between stocks and this number.

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