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Rekenthaler Report

Does Consumer Sentiment Predict Stock Prices?

Zigging when other investors are zagging.

Last week, William Blair published a brief note from Brian Singer, the head of its asset-allocation team. Striking a contrarian theme, Singer warned that if things seem too good to be true, they probably are. It has now been nearly a decade since anything resembling a global bear market, a situation that has comforted investors into believing that securities carry only "minor risks." Compliant government policies, such as ultralow interest rates, enhance the mirage.

Singer has my sympathies. Six months ago, I penned my own forewarning, "Is the Contrarian Bell Clanging for Stocks?" As with Singer, my contrarian sensibilities were offended by investor sentiment--specifically, the so-called "Trump Bump." Prior to the election, stocks gained when Hillary Clinton's fortunes rose; investors, it appeared, favored the status quo. After the election, stocks advanced again, because (we were told) investors favored change. Heads stocks win, tails stocks win. That felt like euphoria to me.