The U.S. stock market is showing near-euphoria, while American consumer sentiment has fallen to historic lows 👀
Stocks are rising as if the economy is entering a new “golden age,” yet consumers are increasingly anxious.
The U.S. consumer sentiment index has dropped to its lowest level in over 70 years of observation. The sharpest deterioration began after the escalation of the war with Iran in late February, when fuel prices surged.
The previous record low was set in June 2022 - during the highest inflation in decades. The current reading is about 10% lower.
Americans are simultaneously facing high prices, a weakening labor market, and war. In this context, the current pessimism is not surprising.
👉 Against this backdrop, the behavior of the stock market looks almost paradoxical. The S&P 500 has closed in the green for eight consecutive weeks, while the Dow Jones Industrial Average has hit all-time highs twice in a row.
At the same time, U.S. equities appear extremely expensive. The cyclically adjusted price-to-earnings ratio (CAPE) for the S&P 500 has exceeded 40. This level was last seen only during the dot-com bubble in the late 1990s and early 2000s.
Back then, high valuations were accompanied by strong public optimism: the economy was creating jobs, inflation was low, the Cold War had ended, China was opening up to the world, and the U.S. budget was in surplus.
Today, artificial intelligence plays a similar role, but public perception is much more divided. The AI boom has become one of the main drivers of the stock market. Investors expect companies to sharply reduce labor costs and increase profitability.
The current gap between the stock market and public sentiment may be explained in three ways: either the market is overestimating economic prospects and risks a sharp correction, or investors are already pricing in a future end of the war, lower inflation, and renewed economic acceleration.
In the near term, I will be looking for new short positions in tokenized stocks.
#PostonTradFi
