Market Performance: Consumer Sentiment Doesn’t Tell the Whole Story

As we approach 2025, headlines about consumer sentiment continue to dominate financial news cycles. While November’s University of Michigan Consumer Sentiment Index reading of 71.8 was up from October’s reading, it was still significantly below its long-run average of 85.  So, is this a sign of a strong equity market or a weak one?  Historical data reveals a surprising truth: consumer sentiment has proven to be a poor predictor of market performance. 

The chart below, which plots the Consumer Sentiment Index against market returns over the next 12 months, shows no clear pattern other than that stocks tend to go up more often than they tend to go down. 

It isn’t that consumer sentiment doesn’t matter.  Like the impact of elections that we discussed in our November newsletter, consumer sentiment is just one of many pieces of information that the market synthesizes.

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