Chart of the Week: How Low Will Sentiment Sink?

Jeffrey DeMaso

Portfolio Manager

It feels like everyone’s got a frown on their face lately.

The University of Michigan has been asking consumers how they feel about the economy for decades. The response this month was the most pessimistic ever recorded. You read that right: Consumers are more concerned today than they have been at any point since the 1970s. And that period includes some episodes of major turmoil, such as the bursting of the tech bubble, the 9/11 attacks, the global financial crisis and the COVID-19 pandemic—to name but a few.

It’s not just consumers, though. Small business owners are also worried about the road ahead. According to the National Federation of Independent Business, which has also been running a survey since the 1970s, business owners are more concerned about the next six months than they’ve ever been!

On the one hand, these negative views could be self-fulfilling, impacting our behavior and resulting in the very recession that people fear is coming.

On the other hand, it means that expectations are really low—it wouldn’t take much in the way of good news to turn sentiment. I’d argue that things don’t necessarily have to improve by much to see public opinion shift for the better.

Sentiment is often a noisy indicator, but at extremes it can signal the economy or the markets may be near a turning point. Businesses and consumers think conditions are worse than they’ve ever been…maybe that’s reason for some optimism?