MW Stocks near all-time highs. Consumer sentiment near-record lows. So what gives?

By Mark Hulbert

Americans are upbeat on the economy but not their own finances. That's a problem.

Plunging sentiment among American consumers doesn't necessarily spell disaster for the U.S. economy.

The University of Michigan reported last week that its consumer-sentiment index has fallen to 50.3, which is, aside from one month in 2022, the lowest since this monthly survey began in 1979. (That reading in 2022 was only barely lower, at 50.0.)

Meanwhile, the consumer-sentiment indicator that we should actually focus on for recession forecasting is painting a more sanguine picture.

This alternate indicator is based on the spread between the Conference Board's Consumer Confidence Index $(CCI)$ and the University of Michigan's Index of Consumer Sentiment $(UMI)$. Historically, as you can see from the chart below, past recessions occurred whenever this spread significantly widened and then narrowed.

The first of these two preconditions was satisfied a couple of years ago, and then in 2024 the second precondition appeared to be close to doing so as well. But as you can see from the chart, the spread in late 2024 stopped declining and instead began widening - and is now, once again, at near-record levels. This widening CCI-UMI spread suggests that a recession is not as imminent as it appeared to be a year ago.

Consumers are confident - but not about themselves

The reason that the CCI-UMI spread is so wide is that the surveys on which the two indexes are based measure different things - and both need to be at low levels to signal an imminent recession. The CCI more heavily weights survey respondents' views about the economy in general, while the UMI more heavily weights respondents' confidence about their immediate personal financial prospects.

When the spread between the two is as wide as it is now, it means that consumers are more confident about the economy as a whole than they are about how they personally will fare in coming months. An imminent recession is signaled when consumers begin to have less and less confidence about both the overall economy and their personal prospects.

For the moment, at least, it seems plausible that consumers' confidence in the overall economy will stay relatively high. The Federal Reserve Bank of Atlanta's GDPNow Forecast is estimating that U.S. gross domestic product grew in the third quarter at a seasonally adjusted annual rate of 4%. If that proves accurate, it would be nearly double the average growth rate over the past 20 years.

Not all is well

This relatively upbeat takeaway from the CCI-UMI spread doesn't mean all is well. One reason the spread is so wide is that the robust GDP growth rate is being fueled by a narrower and narrower slice of the economy. While that is keeping this indicator from forecasting an imminent recession, it is nevertheless signaling longer-term trouble.

As with a healthy bull market for stocks, a healthy economy fires on all cylinders. That is not the case today, with a large share of economic growth coming from a small number of companies and industries. Their growth rates are so phenomenal that even with the rest of the economy struggling, the overall growth rate can appear to be strong. That's why the CCI can remain so buoyant even as the UMI is plunging.

This top-heaviness is very much in evidence in the stock market, where many companies are barely profitable and many others are losing money. Among the 2,000 stocks that make up the Russell 2000 Index RUT, for example, 42.3% lost money in their most recent fiscal year. The total earnings of just 34 companies are equal to the entire earnings of the remaining (more than 3,000) publicly traded U.S. companies. (These statistics are according to LSEG data.)

This is why the stock market (and the economy in general) appear, from a 35,000-foot perspective, to be so healthy, while at the same time so many individual consumers are stressed by their personal finances. It's hard to see how this situation is sustainable over the long term.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

Also read: Nearly 900,000 new homeowners are underwater on their mortgages, signaling a troubling shift in the housing market

Plus: Getting financial advice from AI could cost you thousands. Here's why.

-Mark Hulbert

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November 15, 2025 12:34 ET (17:34 GMT)

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