Digging Into the Disposition-Data Disconnect

Pop quiz: Are US stocks up or down for the year? Regular MarketMinder readers (and likely quite a few other folks) know US and global markets are up nicely five months into 2024. But according to a recent Guardian survey, one in two Americans think stocks are down this year. Moreover, nearly three in five people believe the US economy is presently in recession.

Clearly, this suggests there is a sizable disconnect between sentiment and reality, feeding a lot of similar articles pondering why. Many posit this is highly unusual. But dour moods that don’t reflect reality aren’t unique—this time isn’t different. 

According to a Harris poll conducted May 10 – 12 for The Guardian, Americans hold some major misperceptions about the US economy.^[i] Notably, 55% think the economy is contracting and 56% believe the US is in recession, even though US GDP has grown on an annualized basis the past seven quarters. Moreover, 49% said the S&P 500 is down year to date (it is up double-digits) while nearly half of those polled reckon the unemployment rate is at a 50-year high (it is near a 50-year low).

Now, we don’t have the survey’s actual questions, so perhaps poor syntax or unclear phrasing confused some respondents.^[ii] But in general, the survey’s findings aren’t far removed from reporting and common narratives elsewhere. Some experts call today’s environment a “vibecession,” a revoltingly “hip” way to say the economy is fine per data, but people still feel it is doing badly. Some argue this will weigh on Americans’ spending or investment decisions.

People saying they feel down is one thing. Understanding why is more difficult, though the news industry plays a big role in fostering a glum environment, in our view. Its incentive is (and always has been) to get attention and entertain its target audience—and the most effective way to do that is by appealing to emotion. As the late Nobel-prize winning economist and psychologist Daniel Kahneman and his colleague Amos Tversky proved, humans experience negative feelings more strongly than positive. In practice, that means a reader is more likely to click on a story about a possible, easy-to-comprehend negative event than one reporting a mundane, complex reality.

After two years of nonstop talk of a looming US recession, headlines continue to bombard readers with reasons to worry: hiring slowdowns and layoffs, tariffs, dwindling household savings, the sting of still-high prices (even if the rate of rising prices has cooled markedly) and more. No wonder people think the broader economy is in dire straits, even if their personal financial situation isn’t as constrained.

Then there is politics. This is, after all, an election year, and many view the economy through a political lens, despite the fact Washington has far less influence over growth in our private-sector-dominated economy than many think. Loads of sentiment surveys suggest respondents’ economic or market views are colored by whether the party they favor is in or out of power—a very dangerous bias for investors, in our view.

All this likely underlies the seeming disconnect between consumer sentiment and economic activity. Someone may think the majority of the country is struggling financially because of dour polls and anecdotes about struggling households and businesses. But that overlooks how a record number of 401(k) savers have a balance of over $1 million; the influx of airline travelers taking to the skies this past Memorial Day weekend; and that US businesses continue to add more jobs than subtract.^[iii] While prices haven’t fallen, wage growth has outstripped the pace of rising prices for a year, whether you use the overall average of private-sector workers or the Atlanta Fed’s gauge that tracks the same people over time.^[iv] A retired couple may worry about the Fed, war overseas and local businesses closing down—but that doesn’t seem to stop them from treating their grandkids to a summertime Disneyland trip.

Folks’ fretting the economy’s present and future while feeling ok about their own situation isn’t unique to 2024. Back in the 1980s, Japan was supposedly on its way to overtaking the US economy, leaving only “McJobs”—a grim future of low-paying, mundane work. That term was coined early in a boom that ran from 1982 through 1990’s shallow recession.

Many view the subsequent 1990s expansion with rose-colored glasses today, but that joyous hue didn’t come until very late. When employment didn’t rebound strongly when growth returned, many bemoaned a so-called “jobless recovery.”^[v] Halfway into the expansion, commentators fretted a bifurcated American economy: Yes, the economic data were bustling, but most workers weren’t reaping the gains (as evidenced by stagnant pay).^[vi]

In the 2000s, China’s soaring economy seemingly meant US primacy was over, and experts blamed America’s plodding prospects on factors like income inequality, which manifested in the “Occupy Wall Street” movement. A lack of jobs early in the recovery again spurred “jobless growth” gripes. And worries about the proliferation of part-time work echoed McJobs concerns from a generation earlier and stagnant wage growth worries in the 1990s. Yet that frustration didn’t prevent the 2010s US economic expansion and history’s longest bull market.

The past isn’t a perfect analogue to the present, nor does it reveal the future. But this not-too-distant history is worth keeping in mind, especially since time softens memories. The 1980s were great times for the US economy, to be sure. But it wasn’t a perfect golden age, and people had their concerns about the state of things then—just as they do now. Ditto for the 1990s. And the 2000s. And so on.

So, yes, of course today isn’t perfect. But stocks have never needed perfection or persistently positive vibes (sorry) to rise. And whatever the vibe of the hour is, you have to remember that how folks report feeling may not at all reflect what they actually do—or what it means for America’s economy.