Trevor Jennewine, The Motley Fool
5 min read
The U.S. stock market has overcome economic headwinds to deliver solid returns this year. The S&P 500 (SNPINDEX:^GSPC) and the Nasdaq Composite (NASDAQINDEX:^IXIC) have advanced 14% and 18%, respectively. But investors recently got bad news about the economy, and the blame lies with inflationary pressure created by President Trump’s tariffs and his decision to launch military operations in Iran.
Consumer sentiment continued to decline in October, reaching its second-lowest level in history. Meanwhile, the S&P 500 is sounding an alarm for the first time since the dot-com crash in 2000. Here’s what it means for the stock market.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
President Donald J. Trump speaks from a podium. Image source: Official White House Photo.
Consumer sentiment continued to fall in October, reaching its second-lowest level on record
Each month, the University of Michigan publishes the Index of Consumer Sentiment (ICS), a metric based on a 50-question survey covering personal finances, business conditions, and buying conditions. Higher scores indicate that consumers are more confident in their financial situation and the overall economy, while lower scores indicate a more pessimistic outlook.
Consumer sentiment fell to 46.3 in October 2026, the second-lowest reading since the University of Michigan began collecting data in 1952. Persistent inflation was the primary reason for the drop. The latest survey results show consumers think inflation will reach 4.7% in the next year. Year-ahead inflation expectations have risen substantially from 3.4% in February because the Iran war has disrupted global oil supplies.
Low consumer sentiment is bad news for investors because consumer spending accounts for two-thirds of gross domestic product (GDP), making it the primary engine of economic growth. The stock market is forward-looking, meaning share prices reflect expectations concerning future corporate financial results. A decline in consumer sentiment can pressure stocks by raising concerns about slower economic growth and weaker corporate earnings.
Historically, weakening consumer sentiment has often been a precursor to stock market losses. Here are two recent examples:
-
Consumer sentiment peaked at 96.9 in January 2007, then fell to 55.3 by November 2008. Meanwhile, the S&P 500 peaked in October 2007, then dropped 57% by March 2009.
-
Consumer sentiment peaked at 88.3 in April 2021, then fell sharply to 50 by June 2022. Meanwhile, the S&P 500 peaked in January 2022, then dropped 25% by October 2022.
