The Correlation Between Consumer Sentiment and the S&P 500

The University of Michigan reported a recent plunge in its Consumer Sentiment Index. Contrary to what you might logically expect, this is actually a positive for the stock market.

Analyst Mark Hulbert notes that the American consumer is a fairly reliable contrarian stock market indicator, and calculated the data in the chart below. More often than not, large declines in consumer confidence have been followed by above-average stock market returns.

As Warren Buffett says - it is wise for investors to be “fearful when others are greedy, and greedy when others are fearful.”