Consumer Sentiment Plummets

...yet equity allocation at historical highs

If you were forwarded this email: The DumbWealth newsletter is a daily (almost) bite-sized summary of select economic and market developments in a highly visual format.

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1: US consumers are not happy. University of Michigan released its update on consumer sentiment for November 2021. Overall sentiment is down 6.8% month over month, and down 13.1% year over year. The index is at 66.8, which is comparable to only a handful of historical troughs. The cause: inflation.

Meanwhile, US households are taking on more risk than ever. Despite consumer pessimism, household allocation to equities (risky assets) is near record highs (second chart).

Both of these metrics are often viewed as contrarian indicators for forward market returns. However the indicators completely contradict each other at the moment.

Sentiment often becomes euphoric as markets peak (and vice versa), but the message these indicators send today is muddied. As Yogi Berra said: “It's tough to make predictions, especially about the future.”

2: Electric car maker Rivian went public on Wednesday and closed Friday with a market cap over $100b. This is a bold valuation for a company with minimal revenues. Perhaps this is an example of investor euphoria?

3: Goldman Sachs is forecasting US GDP growth to weaken during the second half of 2022, ultimately ending up at about 0%. A convergence of higher prices, Fed tightening and the end of government stimulus could create the conditions for slower growth.