Consumer Sentiment Stings

As a professional money manager, I'm often asked about the importance of consumer sentiment. This chart, dating back to 1952, illustrates the fluctuations in consumer confidence over time. While the index has varied, it generally hovers around a historical average (represented by the red line). Understanding this sentiment can provide insight into the economy's overall health and potential investment trends.

The Treasury Yield Curve tells a story that those who pay attention may begin to understand a broader narrative.

Take a look with me across time intervals of our economy's pulse, from 2019 through 2024, and consider how the stories of fear, recovery, and uncertainty might have unfolded. These curves suggest shifts in investor confidence, economic concerns, and the influence of central bank policy decisions, all condensed into a simple yet profound line.

12/31/2019: The calm before the storm. A steady, rising yield curve that suggests an optimistic market. Rates appear balanced and expectations align with typical growth. Then Covid hit!

4/23/2020: Fed intervention and market adaptation. As rates go lower to zero-bound, the curve retains an upward slope but becomes compressed, meaning the spread between short term and long-term rates narrow. The COVID Crisis is still influencing markets, with stimulus measures attempting to stabilize the economic fallout. Fiscal (legislation) and monetary (federal reserve) interventions may have steadied things somewhat, but uncertainty remains.

10/19/2023: Inversion—a concerning sign. Short-term yields are higher than long-term rates. What might this indicate? The Federal Reserve raised short rates to over 5% to stem consumer demand for goods and services. The Inflation Inferno that has taken hold is causing concern, with recession fears growing as markets brace for a potential economic downturn. Recession fears, perhaps, with the economy possibly heading for a slowdown. This could be seen as the market's warning signal, similar to a canary in the coal mine.

11/6/2024: The yield curve inversion persists, signaling continued uncertainty in financial markets. Volatility is increasing as central banks navigate the delicate balance of containing inflation, maximizing employment, sustaining economic growth, and avoiding recession. Consumer sentiment has shown dramatic swings, reflecting the dour mood and concern among the public in response to economic and political developments. Sentiment played a crucial role in the Democrats' landslide election loss.

In the political arena, the electorate delivered a decisive outcome in the presidential election, reinstating Donald Trump in the Oval Office with an electoral vote lead of 301 to 226 over Kamala Harris. Trump secured approximately 74.2 million votes (50.5%), while Harris received around 70.3 million votes (47.9%). This election also granted the GOP a strengthened position in Congress, securing the majority in the Senate by flipping three seats. This shift in political power could influence economic policy directions in the coming term, with potential impacts on fiscal spending, regulatory frameworks, and market sentiment.

Each yield curve represents a moment in time, a chapter in the ongoing story of economic cycles. As a working-class millionaire, I view these curves not with fear, but with a readiness to adapt and find opportunities. The market shifts—likely always has, likely always will. The yield curve can be seen as a dance partner, not an opponent.

What say you?

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