- In 2026, the S&P 500 has hit 26 record highs while getting cheaper, with earnings contributing 20.3% of the 14% total return.
- Recent surveys have shown that consumer sentiment has weakened due to concerns about inflation, housing affordability, interest rates, and the overall economy.
- Today, consumer confidence and the stock market are telling two different stories.
- Historically, consumer confidence and the stock market have often moved in the same direction, with strong consumer confidence frequently accompanying rising stock prices.
- In 2023, multiple expansion drove nearly three-quarters of the S&P 500's total return.
Consumer confidence has weakened significantly as Americans grapple with inflation, high housing costs, and rising interest rates. Despite this, the S&P 500 has achieved 26 record highs in 2026, primarily due to earnings growth rather than valuation increases.123456
Earnings have contributed 20.3% of the index's 14% total return so far, while the price-to-earnings multiple has decreased by 7 points. This contrasts sharply with 2023, when multiple expansion accounted for nearly three-quarters of the S&P 500's total return.7
The market's performance has not only benefited mega-cap technology stocks but has also positively impacted a broader range of companies. The equal-weight S&P 500 index is outperforming the market-cap weighted index, indicating that the average stock is performing well.
However, a significant concern remains: profits are still concentrated among a few large companies.
Surveys indicate that consumer sentiment is at odds with stock market performance, as households express concerns about their financial situations while the stock market anticipates future corporate earnings and economic growth. Historically, strong consumer confidence has coincided with rising stock prices, but today, these indicators are diverging.
The rapid growth of artificial intelligence has also influenced investor sentiment, with many believing it will enhance productivity and reshape industries, leading to significant earnings growth for tech companies.
Markets have often recovered well before confidence does, as seen after the 2008 financial crisis and during the early COVID-19 pandemic.
Successful investing requires a disciplined strategy focused on long-term goals rather than reacting to short-term consumer sentiment.
“The rally is broad-based, with the equal-weight S&P 500 outperforming the market-cap weighted index, indicating average stocks are faring well. However, profits remain concentrated even as the bull market broadens, a catch highlighted by perceptive bears.”
