CONSUMER SENTIMENT & SPENDING
Consumers say one thing. The stock market does another.
Since the COVID rebound, the University of Michigan Consumer Sentiment Index has crashed from around 100 to near record lows — while the S&P 500 has more than doubled. Two things that used to move together have completely decoupled. This page looks at that divergence, then at what the market itself is saying through the Consumer Discretionary vs Staples ratio — the classic "risk-on within the consumer economy" gauge.
Where consumers stand today
Sentiment vs the S&P 500
Blue is the U-Michigan Consumer Sentiment Index (left axis, monthly). Red is the S&P 500 (right axis, monthly close). Historically they moved roughly together — both up in expansions, both down in recessions. Since 2021 they’ve pulled sharply apart.
The market's own read: Consumer Discretionary vs Staples (XLY / XLP)
When investors are confident, they own Amazon, Tesla, Home Depot, Nike — the discretionary side (XLY). When they get nervous, they rotate into Walmart, Procter & Gamble, Coca-Cola — the staples side (XLP). This ratio has historically led the equity market at inflection points because sector rotation happens before broad risk-off. Rising = confident, falling = defensive.
What the data actually says
The divergence is unprecedented in the modern data.
From 1978 through 2020 the correlation between Consumer Sentiment and the level of the S&P 500 was strong — both climbed in expansions, both fell in recessions. The post-COVID split is the widest sentiment-vs-price gap in the entire 47-year U-Mich history, and it has now persisted for over three years.
Takeaway: The stock market is not the economy for most people. Concentration in a handful of megacap tech stocks masks how the median household actually feels about their financial situation.
Extreme low sentiment has historically been bullish for stocks.
When U-Mich sentiment has been at extreme lows (bottom 10% of readings historically — roughly below 60), forward 12-month S&P 500 returns have averaged double-digit gains. Fear at the household level has been a solid contrarian buy signal — because it usually coincides with recessions that the market has already priced in.
Takeaway: Sentiment prints in the 40s and 50s are historically near bottoms, not tops. That’s exactly what the BATS Score captures on the main dashboard.
Watch the XLY/XLP ratio for a real early warning.
The Consumer Discretionary / Staples ratio has historically led the S&P 500 at major turning points — it peaked in early 2000 (before the dot-com top), late 2007 (before the GFC), and in early 2022 (before the bear market). When Discretionary starts underperforming Staples for weeks in a row, institutional money is quietly rotating defensive.
Takeaway: The consumer sentiment index tells you what households feel. The XLY/XLP ratio tells you what portfolio managers are actually doing about it. The second signal moves first.
Reminder: None of this is investment advice. Historical patterns are not guarantees. Always do your own research or talk to a financial professional.