COTD - Investor Sentiment vs Economic Sentiment

A familiar pattern is emerging...

Economy vs Stockmarket: Back in 2022 investor sentiment was first to collapse, trough, then turn up… now economic sentiment is running a similar pattern. Is this a sort of green shoots to the non-recessionary recession, or a waiting trap?

• Technical notes: the chart shows an equal weighted average of various measures of surveyed economic confidence in the black line (consumer, small business, services, manufacturing, housing, etc), while the red line shows surveyed sentiment on the stock market (bulls vs bears, using AAII + Investors Intelligence surveys). Z-scores are taken of each input to make them comparable/like-for-like.

• There are a couple of interesting things going on in this chart, first is the way that they mostly travel a similar path across history. Second is how investor sentiment tends to be a little more manic and dramatic.

• But one thing this chart made me ponder is how just as investor sentiment turned up and peaked (July) — was basically about the same time as the stock market peaked and moved into a more volatile/consolidation phase. Taking that parallel to economic confidence, maybe economic sentiment surges and recovers just as the long and variable lags of monetary tightening (and energy cost pressure resurgence) weighs-in and confounds the no-landing/soft-landing consensus… interesting chart and interesting possibility.

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