Consumer Sentiment Ends 4 Months of Consecutive Declines

The University of Michigan’s Index of Consumer Sentiment’s final reading for May tallied in at 52.2, down by 24.5% year-over-year and beating the expectation for 51.0. The reading remained unchanged from April, ending a streak of four months of consecutive declines.

Preliminary consumer sentiment for May was much lower at 50.8, which was the second-lowest reading on record. The announcement of a U.S.-China tariff reduction pause was the catalyst that sent the index higher.

“However, these positive changes were offset by declines in current personal finances stemming from stagnating incomes throughout May,” said Survey of Consumers Director Joanne Hsu.

Year-Ahead Inflation Expectations Inch Higher

UMich’s year-ahead inflation expectations increased by 0.1% month-over-month (Mom) to 6.6%, marking the slowest rise since the election. That’s much higher than April’s consumer price index (CPI) inflation rate of 2.3%, which was the lowest rate since February 2021. That implies that surveyed participants believe that inflation could make a comeback from the effects of the Trump administration’s tariffs, posing an extremely negative catalyst for stocks.

“Given that consumers generally expect tariffs to pass through to consumer prices, it is no surprise that trade policy has influenced consumers’ views of the economy,” added Hsu.

The S&P 500 (SPX) is reacting positively to the higher-than-expected sentiment, as well as an easing personal consumption expenditures (PCE) index report, and has staged a comeback from its morning lows.