Why I Can’t Put Away My Bear Market Worries #4: Consumer Sentiment Is Becoming More Negative

Most of the recent sentiment surveys show the same result: While sentiment about current conditions–AKA the present–remains strong, sentiment about conditions 6 to 12 months out is sliding in a pessimistic direction.

The recent Bloomberg Consumer Comfort index, released on January 17, broke that pattern. According to this survey, U.S. consumers in January were the most pessimistic about the economy since November 2016. The monthly redid fell for a third month to 44.5 in January. Bloomberg Consumer Comfort Index’s monthly expectations gauge fell for a third month to 44.5 in January The weekly comfort measure declined to a four-month low of 58.1 as sentiment on the buying climate fell to its lowest since November.

The partial shutdown of the U.S. government undoubtedly played a part in this trend. But the shift in sentiment is extreme and the negative trend pre-dates the shutdown. This is the third straight monthly drop after expectations reached a 16-year high just three months ago.

I find this big of a shift in consumer sentiment worrying because while economists don’t have a good explanation for what causes recessions, they are linked to shifts in consumer sentiment. For reasons that remain murky, consumers start to feel uncertain about the future, and decide to save more and spend less, or to put less on their credit and and spend less.

I don’t think the U.S. economy is headed into a recession in either 2019 or 2020 but I do remember that one cause of the bear market that we ended up with in 2018 was Wall Street conviction that we were headed into a such a downturn. We may have nothing to fear but fear itself–but fear itself can do a job on the stock market.