Author: David I. Templeton, CFA, Principal and Chief Investment Officer
Consumers account for approximately 70% of economic activity; therefore, some say so goes the consumer, so goes the economy. From a consumer sentiment perspective, sentiment measures are fairly weak as measured by the Conference Board's Consumer Confidence Index. The June reading of 91.2 is near the level reached during the depths of the COVID recession period. The Present Situation Index continued its downward trend in June while the Expectations index rose by 3.0 points. In other words, the consumer is seeing a better environment ahead. Also showing weakness is the Conference Board's CEO Confidence Index with a recent reading of 47.0.
These sentiment measures are contrarian ones and at their lows, turning points tend to be reached. In JP Morgan's Guide to the Market chartbook, a chart of the University of Michigan Consumer Confidence Index is included with the subsequent 12-month return of the S&P 500 Index. As seen below, the chart shows strong market returns that average 24.1% at sentiment troughs.
Just to keep things in perspective, The Conference Board includes a question about consumers' expectation of stock returns over the subsequent 12-months. As the below chart shows, the reading for the expectations that stock prices will be higher over the next 12-months is near a high. From a contrarian perspective, this would not be a favorable metric for stock returns.
One tailwind for stocks has been the growth in corporate earnings. Second quarter earnings season gets into full swing the week of July 13 with 32 companies reporting. For Q2 2026 LSEG I/B/E/S projects year over year earnings growth to equal 23.7%. If earlier quarters are any indication, this growth rate could trend higher over the course of the reporting season. In summary, earnings growth has been strongly supportive of higher stock prices.
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