Consumers Have Never Been This Scared

Plenty of things can send consumers into a tizzy...

High unemployment, low hiring rates, political uncertainty, and global conflicts are all big threats. Anything that makes folks worry about the future can slow down their purchasing.

Still, the data shows there's one thing people hate more than anything... rising prices.

We learned this lesson in 2022, during the worst bout of inflation in decades. Consumer sentiment fell to its lowest level ever – at least, the lowest at the time.

Now, it's happening again. This time, the culprit is purely energy. Gas prices jumped by more than $1 a gallon in March... one of the fastest climbs in history. And consumer confidence has cratered to a new all-time low.

The good news? This kind of sentiment low has always been a sign to buy stocks.

Consumer Confidence Has Taken a Hit

We hardly notice price increases when inflation is running at 2% to 3% per year. But no one could ignore inflation in 2022, when it peaked at 9%. Prices were rising for everything, including everyday essentials like gas.

Just about everyone purchases gas regularly. That's why it matters so much. Even when we're not filling our tanks, we're still driving by gas stations every day... so we notice when prices go up.

Inflation might be only 3.3% today. But when gas prices soar, we feel it immediately. And that kills consumer sentiment.

We can see it by looking at the most recent data from the University of Michigan Consumer Sentiment Index. This monthly survey asks folks how they feel about the economy. Then, researchers aggregate the results into a single figure.

The preliminary April data came out earlier this month. The index fell to 47.6 – the lowest level in history. Take a look...

The last all-time low was in June 2022, when inflation was at its worst in recent years. Before that, the all-time low was in 1980... when inflation topped 14%.

Here's the good news: When this survey hits a multiyear low, stocks tend to do darn well.

We've seen eight similar multiyear lows since the data begins in 1978. I've highlighted those instances in the chart above. Here's what happened after those setups...

Consumer sentiment usually falls for a good reason. Often, this means that markets are falling too.

Those conditions never last, though. So when consumer sentiment hits a major low, stocks tend to bottom. These setups prove that point clearly...

Similar instances led to gains of 3.9% in three months, 12.7% in six months, and 23.9% in a year. That's more than double the typical buy-and-hold return. Plus, stocks were higher a year later in every instance.

Clearly, folks are worried today. With high prices at the pump, that makes sense... But don't expect stocks to crash. Instead, this is an opportunity.

Stocks have already recovered their losses. We're back to new highs. And history shows this is just the start. So despite the fears, you want to own stocks now.

Good investing,

Brett Eversole