The great American confidence gap

Recent data suggests that U.S. consumers are growing increasingly pessimistic about the economic outlook, and the financial markets are starting to reflect that reality. Here’s what’s happening, and what it could mean for your portfolio. 

The latest Conference Board consumer confidence index plunged to its lowest level in four years, with the expectations index hitting a 12-year low—historically, a precursor to economic downturns. This follows similarly weak sentiment from the University of Michigan, raising concerns about future spending trends that drive 70% of US GDP. 

The primary culprit behind this confidence collapse appears to be President Donald Trump’s escalating tariff agenda. With an April 2 deadline looming for a new wave of duties, trade policy uncertainty is weighing heavily on consumer sentiment. Unlike in previous weeks, however, markets are no longer shrugging off these concerns. The S&P 500 has flirted with a 10% decline from its record high, while the Nasdaq has sunk deeper into correction territory as the Magnificent Seven lose ground. 

Bond markets have also responded to the deteriorating outlook, with U.S. Treasury yields declining after a well-received $69 billion auction of two-year notes. The yield curve steepened mildly, signaling expectations of slower growth and potential Federal Reserve intervention. Meanwhile, gold has continued its ascent above $3,000 per ounce for the seventh consecutive day as investors seek safe-haven assets. 

One key factor driving the market volatility is the divergence between soft and hard economic data. Soft data, such as the consumer confidence surveys mentioned above, indicate growing fear over the state of the economy. Hard data, such as labor market indicators and corporate earnings, has remained resilient. This discrepancy highlights the uncertainty in forecasting economic conditions, as confidence metrics often lead spending behavior, while actual economic performance lags. 

Notably, while domestic markets have faced pressure, Chinese equities have been on the right side of the recent rotation. Chinese stocks are up over 10% year to date, with investors increasingly viewing them as a relative safe haven. European equities have also started to pick up, particularly in defensive sectors. With economic uncertainties persisting, investors are shifting towards stable, income-generating stocks in industries such as healthcare and consumer staples, which have outperformed more cyclical areas of the market. 

Despite this increasingly bearish backdrop, U.S. corporate earnings forecasts remain stubbornly optimistic. Analysts still expect record-high profits, with the S&P 500’s earnings per share for 2025 projected to grow roughly 10%. However, the growing gap between these expectations and economic fundamentals suggests that revisions could be on the horizon. 

The disconnect between Wall Street’s prior confidence and the economic reality may finally be narrowing. With tariff deadlines approaching and growth forecasts under pressure, investors are beginning to reckon with the possibility that corporate profits and equity valuations may not be as resilient as once believed. If consumer sentiment continues its downward trajectory, the broader market could see further turbulence in months ahead. 

Arjun Kaushik contributed to this article. All market data from Bloomberg.