The stock market is soaring but Americans are in a bad mood

Americans are in a bad mood and have never been so pessimistic for 70 years, while the stock market is not at all. The University of Michigan’s US consumer confidence index fell to a historic low, while theS&P 500 and the Dow Jones they travel to record levels. This was highlighted by the Wall Street Journal, according to which Americans’ mood was already low at the beginning of this year, but dropped sharply after the start of the war with Iran at the end of February, which caused gas prices to soar.

Only in June 2022, when inflation had reached the highest level in decades due to Covid, had there been as much concern but, as Joanne Hsu, director of consumer surveys at the University of Michigan, comments, “now prices remain extremely high, the labor market has unequivocally weakened in the last four years and we find ourselves in the middle of a war”. However, if you look at the stock market, no one would imagine such low sentiment: shares have reached record levels and are very expensive. The S&P 500 index records a rating of 40.8measured by the price/earnings ratio adjusted for the economic cycle. This is an indicator popularized by Yale University economist Robert Shiller, winner of the Nobel Prize in 2013 for his work on asset prices.

The S&P 500 index has never been so high. The precedent from 2000

AGI – The only other time the value of this index was above 40 in the 145 years of data collected by Shiller was in the years immediately before and after the peak of the dot-com bubble at the beginning of 2000.

2000 was also the year Michigan’s confidence index reached an all-time high. Since then he has never approached those levels again. So what makes today’s situation so anomalous compared to the normal course of things? Economists, explains the WSJ, have several hypotheses. In 2000 the economy was growing and creating jobs, and inflation was low. The Cold War was over, China was opening up, and the US government was running a surplus. Just like today with artificial intelligence, a revolutionary new technology was emerging: the Internet, that is, a new technology that would connect the world and improve lives.

The reasons for this mistrust

AI is not viewed as positively. Robert Barberadirector of the Center for Financial Economics at Johns Hopkins University, identifies three different factors that could explain the current disconnect. First, stock prices may be out of sync with the fundamentals of the U.S. economy and could decline sharply. In other words, consumers are right to be dissatisfied. Second, stock markets may be foreshadowing a future that many Americans have not yet fully understood—a future, for example, in which the war with Iran ends, inflation subsides, and growth resumes. In other words, the euphoric performance of the stock markets is justified. The third factor brings together euphoria and fear. The factor that has fueled excitement in stock markets more than any other lately has been artificial intelligence, which is also a source of growing concern to many Americans. A world where companies can use AI to reduce labor costs and dramatically expand profit margins is a positive for stocks. But it could also be a world where more people struggle to find work. “The stock market surge and the growing pessimism of families reflect the same thing,” Barbera said.