On Friday, the University of Michigan reported that the Consumer Sentiment Index for the U.S. fell to the second-lowest reading on record, with the mid-May level falling to 50.8 from April’s 52.2.
“Tariffs were spontaneously mentioned by nearly three-quarters of consumers, up from almost 60% in April; uncertainty over trade policy continues to dominate consumers’ thinking about the economy,” the Director of the Survey said.
But the survey was conducted before the White House and China agreed to a 90-day reduction in many tariffs. Late Sunday’s announcement fueled a sharp rally in stocks on Monday.
Does the slide in consumer confidence foreshadow an impending recession? Soaring inflation was responsible for the record-low reading of 50 in June 2022. Yet, the economy didn’t slide into a recession.
Nonetheless, it can’t be overstated how much John and Jane Doe despise inflation. They hate it, and it’s reflected in the University of Michigan’s survey.
Yet, the market has rallied considerably from its recent low. According to CNBC and FactSet, the S&P 500 Index rose over 18% in 25 trading days (through May 14). There have been only six such rallies of at least 18% over 25 trading days since 1970. And it’s tied to lower trade tensions.
So far, few companies have lifted prices in response to tariffs. But that could quickly change. In a CNBC interview last week, Walmart’s CFO (WMT $98) said that higher prices are forthcoming.
“We’re trying to navigate this the best that we can,” he said. “But this is a little bit unprecedented in terms of the speed and magnitude in which the price increases are coming.” Companies prioritize shareholder interests, often choosing to sustain price hikes if they can rather than let profit margins shrink.
While consumers resent rising costs and current price levels, investors are more concerned with whether tariff-driven increases will be longer lasting or a one-time adjustment.
Uncertainty persists, as import duties remain significantly higher than they were early in the year. However, recent reductions in tariffs are helping to ease concerns about disruptive price increases. We see that reflected in the market’s recovery.