Record Low Consumer Sentiment Isn’t What Many Investors Think
Ken Fisher argues that consumer sentiment is not a useful predictor of stock market performance. Instead, he explains that consumer sentiment is a coincident indicator, meaning it moves alongside the market rather than ahead of it. Investors should not make stock decisions based on consumer sentiment readings.
Summary
In this short video, Ken Fisher addresses a common misconception about consumer sentiment data and its relationship to stock market performance. He begins by noting that media outlets tend to report on consumer sentiment more frequently when it is pessimistic, due to the greater attention that negative news attracts. This creates a skewed perception of its importance among investors.
Fisher draws on research he conducted years ago, which has since been updated, to make the case that consumer sentiment is a coincident indicator rather than a predictive one. This means sentiment moves in tandem with the stock market — rising when the market rises and falling when the market falls — with only minor, largely insignificant time lags. He is emphatic that it has zero predictive value for future stock market direction.
Fisher also notes a recent trend where the relationship has become somewhat asymmetric: in the last couple of years, as the global mood has soured, consumer sentiment has shown smaller upticks when markets rise and larger drops when markets fall. Despite this nuance, the fundamental characteristic of sentiment as a coincident indicator remains intact.
His conclusion is clear: investors should not get excited or alarmed about consumer sentiment readings — whether optimistic or pessimistic — when making stock market decisions, because the data simply does not tell you where stocks are headed.
Key Insights
- Fisher claims that consumer sentiment has zero predictive value for stock market performance, directly contradicting the common media narrative that low sentiment signals future market trouble.
- Fisher states that his own research, conducted years ago and subsequently updated, demonstrates that consumer sentiment is a coincident indicator — it moves with the market, not ahead of it.
- Fisher draws a distinction between consumer sentiment and investor sentiment, implying they are separate forces, with consumer sentiment being the less market-relevant of the two.
- Fisher observes that in recent years, the sentiment-market relationship has become asymmetric — consumer sentiment rises less when the market goes up, but falls more sharply when the market declines.
- Fisher argues that because consumer sentiment is a coincident indicator, investors should not adjust their stock strategies in response to sentiment readings regardless of whether they are high or low.
Topics
Transcript
[0:05] So, media will often give you consumer sentiment readings and usually more often when consumer sentiment is pessimistic than when it's optimistic, because, as we all know, negative news seems to get headlines. But is it—and people ask—somehow a useful predictor for the stock market? The answer is no, zero. Nada. Isn't. Let me help you with that. [0:37] Years and years ago I did studies— and we've updated those studies—that show that consumer sentiment actually is a coincident indicator with the stock market. Sentiment is an important force on the stock market. But consumer sentiment, as opposed to investor sentiment, is just moving along with the market with very minor time lags that are almost insignificant. Market rises;…
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