With Households Feeling Pressure, why is the Stock Market Booming?
According to the widely watched University of Michigan Consumer Sentiment Index, Americans are not feeling good about the economy.
The index fell to 44.8 in May, down from 49.8 in April, marking the lowest reading in the survey’s history dating back to 1952. That means consumer attitudes are now weaker than they were during the 2008 financial crisis, the pandemic recession, the inflation surge of 2022, and the recessions of the 1970s.
And yet the stock market is trading near all-time highs, having rallied off the lows at the start of the Iran conflict. For many investors, it can be puzzling to understand how a disconnect so large can exist.
The answer, in my view, is simple and has been consistent throughout history: how consumers feel is not always the same as what consumers do.
Even as consumers report having negative feelings about the economy and financial situations, spending has remained quite firm. Retail sales rose 0.5% in April to $757.1 billion—in line with expectations—and following a stronger 1.6% gain in March. Some of the March increase was tied to higher gasoline prices, and there were signs of cooling in categories like furniture, where sales fell 2% in April after rising 2.6% in March. The detailed read on the data does not suggest consumers are retrenching. It suggests they are becoming more selective.
There’s also the matter of the “K-shaped economy “readers may hear about a lot in the news. The premise is that higher-income households continue spending at a healthy pace, supported by wages, asset values, and stronger balance sheets, while lower income households are under more pressure from higher prices.
Data from the New York Fed helps illustrate the split. Since early 2023, real retail spending among households earning more than $125,000 has risen about 7.6%, compared with roughly 3% for middle-income households and just over 1% for lower income households. That is a meaningful gap, and it explains why some retailers and service providers continue reporting strong demand while others see consumers becoming more cautious. Even still, however, we’re observing that consumers at all income levels are not pulling back entirely. They are trading down, choosing cheaper brands, prioritizing essentials, and looking for value.
The “K-shaped” argument has some merit, but I think its actual impact can be overstated at times. Higher-income households have always represented a large share of total spending, and lower-income consumers have not disappeared from the economy. The story is less about two completely separate economies and more about different degrees of pressure. As for consumer sentiment surveys, it’s important for investors to remember that these indicators often reflect what households have already experienced, which in this case involves higher prices from 2022-2023, market volatility, political uncertainty, and more recently, gas price spikes. Markets, by contrast, tend to focus on whether economic reality is better or worse than expectations. When expectations are very low, as they are now, the bar for a positive surprise is also very low. It’s an easy hurdle for markets to overcome.
Not only is consumer spending holding up better than the sentiment surveys suggest, we’re also seeing solid business investment activity and of course, near-record earnings growth.
With nearly all S&P500 companies reporting first-quarter results as I write, about 83% have beaten earnings expectations, which is the highest beat rate since 2021. Earnings strength has also broadened beyond the AI-related technology complex, with Energy, Materials, Industrials, Communication Services, and Consumer Discretionary companies contributing to better-than-expected results. In this context, negative consumer sentiment may actually be a key component of the constructive setup for markets. It’s part of the wall of worry markets love to climb.
Bottom Line for Investors
To be fair, the U.S. consumer is under pressure, especially from high prices in everyday categories. But pressure has not been resulting in retrenchment, at least not to date. Spending remains positive, higher-income households continue to support aggregate demand, and lower-income consumers appear to be adjusting rather than retreating entirely.
For markets, the key question is not whether consumers feel good. It is whether spending, earnings, and investment hold up better than today’s low expectations imply. So far, they have.
REFERENCED ARTICLES:
- Wall Street Journal. May 22, 2026. https://www.wsj.com/economy/consumers/consumer-sentiment-drops-to-new-low-university-of-michigan-survey-finds-39066dfd?mod=economy_feat6_consumers_pos2
- Axios. February 26, 2026. https://www.axios.com/2026/02/26/us-economy-stock-market
- Fred EconomicData.May28, 2026.h ttps://fred.stlouisfed.org/series/ PNFIC1
U.S. Economic Growth in Q1 2026 is Revised Lower, But Profits Made Up for It
The U.S. economy grew more slowly than initially estimated in the first quarter, according to updated government data released this week. The Bureau of Economic Analysis said that U.S. GDP rose at a 1.6% annualized rate in Q1, which was a step down from the previously reported 2% growth. The downward revision was driven largely by a weaker estimate for inventory investment, a volatile category that can swing meaningfully from one GDP report to the next. Consumer spending was also revised slightly lower, with overall spending rising at a 1.4% annualized rate versus the prior estimate of 1.6%. Spending on services, including healthcare, accounted for part of the downgrade. Even with the softer headline growth figure, the report was not uniformly weak. A key measure of corporate earnings, after-tax profits excluding inventory valuation and capital consumption adjustments (see chart below), rose 3.3% from the prior quarter and 17% from a year earlier. That marked the strongest year-over-year increase in corporate profits since the fourth quarter of 2021, and it tells us explicitly that businesses are experiencing solid earnings momentum despite a modest pace of economic expansion.
A Tariff Refund Portal is Open, But Companies are Being Cautious
When the Supreme Court ruled the Trump administration tariffs were illegal, many expected there would be a flood of refund requests that could adversely impact the government’s fiscal situation. But that hasn’t happened. According to a Bloomberg analysis of the 3,000 largest publicly traded U.S. companies, only about 5% have mentioned tariff refunds in recent comments or regulatory filings. Companies face political scrutiny, uncertainty around timing, and possible legal risk from customers who argue that higher tariff related prices should be refunded to consumers. Several large companies, including Nike, Lululemon, and Amazon, have already faced lawsuits related to the issue. There are also administrative hurdles, especially for companies with more complex import entries or claims that do not qualify for the first phase of refunds. This confluence of challenges has companies taking a more cautious approach to pursuing refunds, even as Customs and Border Protection has opened are fund portal for more than 330,000 firms that paid import taxes in recent months. In our view, the argument is not whether companies ultimately pursue refunds. Many will. It’s more a matter of timing, i.e., we are not likely to see a rush of requests because of the aforementioned issues. When all is said and done, however, the potential sums are significant. Bloomberg reported that among S&P500 companies disclosing amounts, firms either paid or expect refunds tied to the tariffs totaling about $7.3 billion. More broadly, refunds could reach as much as $166 billion plus interest, with early filers already seeing billions of dollars returned. Refunds may support earnings in select sectors, yet the process involves enough legal, political, and administrative friction that investors should be careful not to treat the headline refund amount as an immediate or dollar- for dollar boost to businesses or consumers.
Is Your Teen Looking for a Summer Job? It’s a Tough Market
Summer jobs may be harder to find this year, particularly for teenagers looking for work at restaurants, camps, hotels, amusement parks, and other seasonal businesses. According to Challenger, Gray & Christmas, teens are projected to gain 790,000 jobs in May, June, and July. If that forecast proves accurate, it would mark the lowest summer hiring total for teens since the federal government began tracking the data in 1948. Last summer was already historically weak, with teen job gains falling more than 25% from the prior year to 801,000. One reason is that many of the businesses that traditionally hire teenagers are pulling back. Employers in the entertainment and leisure sector plan to fill 70%fewer roles than last year, according to Challenger. Indeed, data also shows summer camp counselor postings are down nearly 30% from a year ago, even as demand for some programs remains strong. For small businesses, the issue appears to be less about a lack of applicants and more about managing costs. Rising inflation and higher fuel prices are putting pressure on restaurants, resorts, and other seasonal employers, many of which are trying to avoid over staffing. Overall employment conditions remain stable, but younger workers are facing a tougher entry point into the job market. For teens, summer work has long served as a first step toward building skills, earning income, and gaining experience. This year, those opportunities may be harder to come by.
REFERENCED ARTICLES:
1. Wall Street Journal. May 28, 2026. https://www.wsj.com/economy/q1-gross-domestic-product-revision e1a6ff93?mod=economy_lead_story
2. Fred Economic Data.May 28,2026. https://fred.stlouisfed.org/series/CP
3. MSN. 2026. https://www.msn.com/en-us/money/savingandinvesting/us-companies-shamed-by-trump-tiptoe-into-a-tariff-refund race/ar-AA23ThNr
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