Stock Market Highs vs. Low Sentiment: What Gives?

Fast forward 438 years later, and a similar body of water to the English Channel, this time the Strait of Hormuz, continues to remain the global focus for markets with energy prices still elevated from the Iran conflict.

While markets found optimism last week as Iran-U.S. negotiations toward a ceasefire extension showed tentative progress, gasoline prices in the U.S. remain near $4.50 a gallon. And despite the optimism in equity markets, with the S&P 500 hitting new all-time highs last week, U.S. consumers remain pessimistic with consumer sentiment sitting at record lows (see chart of the week below).

As strong corporate earnings and AI-related spending continue to drive equity markets higher, the impact of changing geopolitics, trade, and higher energy prices are starting to be felt in other regions of the world as Canada entered its first technical recession (defined as two consecutive quarters of negative GDP growth) since 2020. While some countries are feeling the impact, the US remains on solid economic footing with the Atlanta Federal Reserve GDPNow estimate for Q2 sitting at 3.8%.

With nearly 70% of GDP growth coming from consumer spending in the U.S., this week will bring the latest data related to the U.S. labor market between job openings, layoff announcements, and non-farm payrolls. Given the recent stabilization in labor, investors will look for a further pickup in demand to confirm that the U.S. consumer retains the capacity to keep spending. And in turn, hopefully be a catalyst to start lifting consumer sentiment and confidence from all-time lows.

What Happened

U.S. Inflation – Core PCE comes in at 3.3% on a year over year basis, in line with estimates for the month of April, while Core PCE month over month comes in at 0.2% vs estimates of 0.3% (Source: Bloomberg Economic Calendar).

Consumer Confidence – U.S. Consumer Confidence for the month of May comes in at 93.1 vs estimates of 92.0 and April’s reading of 92.8 (Source: Bloomberg Economic Calendar).

Canada Recession – Canada dipped into its first technical recession since 2020 after two consecutive quarters of negative GDP growth (Source: Bloomberg.com).