Daily Commentary

MarketMinder’s View: We often point out that corrections—sharp, sentiment-fueled drops of around -10% to -20%—are normal and healthy in bull markets. Why healthy? Because they help reset sentiment, which helps rebuild the bull market’s proverbial wall of worry. If this survey is any indication, the current correction is doing just that. CFOs are newly gloomy, with 60% anticipating a recession this year, up from a measly 7% in the prior quarterly survey. “In recent weeks, recession has become a more popular default setting in the market, for the first time since the Fed began aggressively raising interest rates to beat back runaway inflation in March 2022. The odds of recession are running as high as 50% at some financial firms, new ‘recession watch’ indicators are being created, and other recent CNBC surveying, among money managers and economists, shows a spike in recession fears.” About 90% think worse things lie in store for stocks. Crucially, they cite the same things splashed across headlines daily, including tariffs, resurgent inflation, higher interest rates and political uncertainty. But all have been discussed ad nauseam, sapping their surprise power over markets. They seem more to us like classic correction scare stories—bricks in the wall of worry. They can hit sentiment hard in the short term, but over time they lower the bar reality needs to clear to deliver bullish positive surprise.

MarketMinder’s View: We see some interesting nuggets in this UK consumer confidence survey, which showed 58% of respondents think the UK economy worsened in the three months through February, up from 43% in the prior reading. “Although most people reported feeling financially secure, the growing negative economic perception led more consumers to respond by cutting their spending and changing their buying habits.” These findings don’t surprise us. Not because the UK economy is actually weakening, but because of the sentiment backdrop, which headlines reflect and amplify. Consistent with improving wage growth and decent business conditions in several industries, people feel pretty good about their own situation. Living costs haven’t fallen, but faster wage growth is helping households regain lost purchasing power. But headlines continue warning things are bad and getting worse as tax hikes loom, which affects sentiment. Now, whether that actually translates to weaker spending remains to be seen. There is a long history of people telling survey takers that they plan one course of action, based on how they feel in the moment, and then acting differently than they anticipated. This is a big reason consumer confidence isn’t predictive. But the widening gloom shows the bar for results to clear to beat expectations is bullishly low.

MarketMinder’s View: This piece warns a consumer spending decline is around the corner as the high-income folks who generate the bulk of spending pull back. But it is all based on a flawed first principle: the so-called wealth effect, which this piece accepts as fact. The wealth effect posits that rising stock prices and home values help people “feel” wealthy and boost spending, while falling markets do the opposite. “When investor pessimism really takes hold, it can cause a swift hit to spending and growth.” Problem is, market history routinely demonstrates this isn’t true. The S&P 500 endured some gnarly corrections (sharp, sentiment-fueled drops of -10% to -20%) in 2015 and 2018. US consumer spending and GDP didn’t contract either time. Spending didn’t drop in 2011, either, despite stocks’ deep correction. The data overwhelmingly show spending correlates with disposable income, not market returns. Take away the flawed premise, and the entire argument here falls apart. For more on this, see our 3/6/2025 commentary, So Go the Top Earners, So Goes the Economy?