Because it doesn’t always means what one thinks it does
Once again, the media creates the narrative and Friday’s substantial drop in the stock market had no shortage of stories to fuel this storytelling that substitutes for reporting real data and problems which create market movement.
For example, the bogeyman on Friday was the University of Michigan Consumer Inflation expectation survey. Here is a small sampling from the mainstream media of the stories:
Americans sour on economy as inflation expectations hit highest level since 1991 – Yahoo Finance
U.S. Consumer Sentiment Drops as Inflation Anxiety Soars – NY Times
Consumer sentiment worsens as inflation fears grow, University of Michigan survey shows – CNBC
Needless to say the television permabulls refused to drop the issue and blamed everything on consumer sentiment and tariffs expectations for mystery taxes on imports that will not even be declared until April 2nd at the earliest.
For the sake of discussion however, let’s take a broad look consumer inflation expectations versus the Atlanta Fed’s Sticky CPI data minus food and energy.
Based on the history of the two data points, consumer expectations of inflation are either wildly underestimating real future inflation or after the Fed bailout of 2009, overestimating the impacts of easy money. That worked of course until the post-Covid economy when Jay Powell’s monetary printing overwhelmed the projections of consumers despite technical adjustments to the measurements used by the BLS and within the formula for PCE calculations of inflation.
The sentiment calculation is a misnomer regarding inflation in this author’s opinion and should be dismissed out of hand.
The University of Michigan Survey on consumer sentiment does demonstrate a real ability to project concerns about future unemployment data and recent history, minus the pandemic, demonstrates this fact.
The differences in the two data series demonstrates and important fact when looking behind the headlines in this author’s opinion:
1. Not all data is garbage, nor is all data useless
2. Never accept the mainstream narrative do one’s own research.
But let’s look at some other sentiment indicators to see how they hold up against long term actions and trends within markets.
Bull and Bear Sentiment Indicators
The most popular graphic bouncing around on social media is courtesy of CNN Business and truly is more for shock value rather than practical investing information.
Yes Virginia, we’re still stuck in “extreme fear” even though the markets truly have offered not even a whiff of a capitulation event. Even this past Friday, despite the dramatic price action, the volume overall was considerably short of a cumulative event or indicator of the bulls surrendering the day.
When one looks at the AAII (American Association of Individual Inveestors) graphic on bearish versus bullish sentiment, it’s hardly overwhelming as of last week:
How does the “bullish” sentiment look versus the S&P 500 over the past 5 years however?
Immediately after the Congress and Fed decided the economy was in such critical condition the realization that equities would moonshot was obvious and the AAII Bullish sentiment indicator followed the S&P 500 up to new highs. Unfortunately, the AAII bulls are not so hot at understanding macroeconomic changes, and missed the rise of inflation many of us were warning about in late 2021 and impeding any true economic expansion for the middle and lower classes.
When the bulls finally realized it, the markets were already well on their way down to new lows as the era of easy money was coming to an end.
Fast forward to the 2024 election year and 2025. At this time, equity markets are sending a warning and the bulls are starting to take it seriously, but nor are the bulls capitulating and liquidating stocks to any great degree. One of the best market indicators to validate the previous statement is the McClellan Volume Summation Index and it is telling a truly spooky tale for the market due to the lack of capitulation.
If one takes the potential seriousness of the technical breakdowns one is witnessing in equities this year, thus far, then the chart above should terrify the bulls and have them fleeing on vacation until the tariff wars and Fed v. Trump conflict calms down.
The Weekly Unemployment Claims Fallacy
There is a running joke in the mainstream narrative that the low weekly unemployment claims is indicative of a “strong consumer” and thus no recession could possibly be on the horizon. For the sake of discussion, let’s look at the media’s favorite weekly “real time” data point, seasonally adjusted weekly unemployment claims within the two charts below minus the pandemic era which was truly the exception, not the rule.
The downtrend in weekly claims accelerated after Ben Bernanke’s 2012-2013 QE Infinity declaration, but prior to that era, the two major recessions which impacted the US economy before then were hardly predicted by the claims data. In fact the acceleration in the weekly seasonally adjusted unemployment claims did not occur until well after the recession had begun and impacting businesses and individuals everywhere.
But why is this important?
The evolution of the “gig” economy, or expansion of private contractors in the work force has been dismissed as important to considering the data point above. But with states like Florida which has the sixth worst benefits for unemployment insurance ($275 per week maximum) is it any wonder that it leads in the percentage of gig workers?
California is also logical as the cost of living there and in Illinois is beyond astronomical.
The statistics on independent contractors in the work force within the gig economy is absolutely mind blowing when one puts it into full consideration:
Keep in mind, the data above does not reflect illegal immigrants as a portion or percentage of the total contractor work force thus making the eligibility for unemployment insurance an even fuzzier statistic when compared against total number of US employees working full or part time.
Just based on the basic information above and the fact that the claims data indicates no useful purpose as an economic or market based predictive function, I believe that Thursday mornings can somewhat be dismissed as relative to the larger picture. By the time the claims data reaches recessionary levels the majority of those who pay attention to the employment and larger economic picture will reply with a “no duh” as the information was stale months ago.
Conclusion
Choose one’s data points wisely for all investing decisions. There are going to be a lot of people attempting to promote various indicators as the “true” warning for the upcoming disaster or a future bull predictive solution. The reality is that there is not one mainstream media data source that will provide accurate information warning of what the true future may hold.
Stay tuned to these pages and MacroEdge.net to continue reading and listening to the alternative viewpoints as this economic outcome is going to have historic impacts which could ripple through the global system for decades.
