Consumer Sentiment Rises for Third Month in a Row, Nasdaq 100 Retains Most Losses

CONSUMER SENTIMENT KEY POINTS:

• September consumer sentiment climbs to 59.5 from 58.2 in August, a touch below market expectations
• Despite this gain, the gauge of consumer attitudes remains extremely low by historical standards, a sigh that the economy is not yet out of the woods
• U.S. stocks retain losses after the survey results cross the wires, with the decline likely attributed to fears of a hard landing amid rising interest rates.

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A popular gauge of U.S. consumer attitudes rose in September for the third month in a row, climbing to its best level since April, as falling gas prices gave Americans a break at the pump, helping to take some of the bite out of inflation, which has been battering personal finances in 2022.

According to preliminary results from the University of Michigan, its September consumer sentiment index edged up to 59.5 from 58.2 in August, a small but still positive directional improvement. The median forecast of economists in a Bloomberg News poll called for a reading of 60.00.

For much of the year, inflation has been the main source of consternation for most households, as the rising cost of living has had a detrimental effect on real incomes, creating widespread public discontent with the state of the economy. Conditions have ameliorated somewhat over the summer thanks to lower energy costs, but consumers remain concerned about the future, a sign that spending could still sputter moving forward.

Drilling down into the survey’s results, the current economic conditions index inched up to 58.9 from 58.6, while the expectations indicator jumped to 59.9 from 58.00. When it comes to the inflation outlook, the one-year gauge was unchanged at 4.6%, while the five-year measure drifted lower to 2.8% from 2.9%, a welcome sign for the Federal Reserve.

U.S. stocks retained a strong bearish bias after the survey crossed the wires, but trimmed some losses on the day as seen in the Nasdaq 100’s chart below. The negative performance of risk assets can be attributed to growing fears that the U.S. economy may be headed for a recession amid tightening financial conditions aimed at curbing inflation.

NASDAQ 100 5 MINUTES CHART

Source: TradingView

Looking ahead, all eyes will be on the September FOMC decision next week. The Fed is expected to raise borrowing costs by 75 basis points to 3.00%-3.25%, but Wall Street may be more interested in the policy outlook, specifically the terminal rate.

Policymakers are likely to forecast a higher peak rate for the current tightening cycle than the projection published in the June SEP in light of stubbornly high price pressures and tight labor markets. The central bank could also indicate that monetary policy will have to stay restrictive for longer than initially anticipated to bring inflation back to the 2% target. This scenario could reinforce the stock market bearish bias in the coming days and weeks.

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—Written by Diego Colman, Market Strategist for DailyFX