For much of the past two years, consumer sentiment has been trending worse. The combination of high inflation, high interest rates, and a K-shaped economic trajectory that has left many households struggling to keep up has done significant damage to consumer confidence.
Now, that confidence level is reaching new lows.
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The University of Michigan’s Consumer Sentiment Index, which has tracked how Americans feel about the U.S. economy since 1978, fell to 44.8 last month. That’s the lowest reading ever since the survey was first produced.
It’s lower than June 2022’s then-record low reading of 50, which arrived while the S&P 500 was well into a 25% bear market.
It’s lower than the worst months of the 2008 financial crisis, when unemployment was touching 10%, banks were failing, and the S&P 500 was falling by more than 50%.
It’s lower than May 1980, when interest rates were 20% and the stagflation of the 1970s kept the economy struggling for a decade.
In every one of those prior instances, poor consumer sentiment and sharp stock market declines correlated. When people felt miserable about their situations, falling stock prices usually followed.
This time, however, the Vanguard S&P 500 ETF (NYSEMKT: VOO) just set a series of new all-time highs. The index is on pace for its fourth consecutive year of double-digit gains.
That divergence — the most pessimistic consumers have been in nearly 50 years while stocks are hitting record highs — has no historical precedent.
For investors, it’s important to understand what this dichotomy could signal for stocks.
Historically, poor consumer sentiment and poor stock market performance are highly correlated
To put May 2026’s reading in context, consider every prior period where consumer sentiment fell below 60. In total, there are four major instances going back to 1978:
May 1980: 51.7. The economy was in recession and interest rates were soaring. The S&P 500 (SNPINDEX: ^GSPC) was still recovering from a deep bear market in the early 1970s and down 17% from its prior peak.
November 2008: 55.3. Lehman Brothers had just collapsed and the financial crisis was deepening. The S&P 500 was down more than 40% and still falling.
August 2011: 55.8. The U.S. debt ceiling fight scared investors and the S&P 500 fell roughly 19% in a matter of weeks. Sentiment was already falling, but both recovered by the first half of 2012.
