The U.S. stock market has continued to set new all-time highs in recent weeks, buoyed by strong corporate earnings, optimism about 2026 tax policy, less trepidation about the ongoing impact of tariffs, and expectations that the Federal Reserve will begin a sustained path of easing interest rates this year. Yet behind this optimistic market backdrop, measures of consumer sentiment show Americans feel far more cautious about their finances and the broader economy.
The University of Michigan’s latest consumer sentiment reading for the U.S. dropped to 55.4 in September 2025, down from 58.2 in August and well below market expectations of 58, according to preliminary estimates. It was the second consecutive monthly decrease and the lowest reading since May. The overall Index of Consumer Sentiment fell 21.0% from a year ago, and the Index of Consumer Expectations declined 30.4% over the same period.
TABLE 1: PRELIMINARY CONSUMER SENTIMENT RESULTS FOR SEPTEMBER 2025
Source: University of Michigan
Surveys of Consumers director Joanne Hsu noted,
“Consumer sentiment moved down less than three index points in early September. This month’s easing in economic views was particularly strong among lower and middle income consumers. Buying conditions for durables improved, while all other index components fell. Consumers continue to note multiple vulnerabilities in the economy, with rising risks to business conditions, labor markets, and inflation. Likewise, consumers perceive risks to their pocketbooks as well; current and expected personal finances both eased about 8% this month. Trade policy remains highly salient to consumers, with about 60% of consumers providing unprompted comments about tariffs during interviews, little changed from last month. Still, sentiment remains above April and May 2025 readings, immediately after the initial announcement of reciprocal tariffs.
“Year-ahead inflation expectations held steady at 4.8%, unchanged from August. Long-run inflation expectations moved up for the second straight month to 3.9% in September. This current reading is considerably lower than the 4.4% seen in April.”
One area of significant concern is a weakening jobs outlook. The University of Michigan highlighted growing worries about employment and job security (Figure 1).
FIGURE 1: CONSUMER OUTLOOK FOR UNEMPLOYMENT AND JOB SECURITY (THREE-MONTH MOVING AVERAGES)
Source: University of Michigan
Related Article: A new behavioral challenge for advisors: Political bias amid economic uncertainty
The disconnect between Wall Street and Main Street
The contrast between Wall Street’s optimism and Main Street’s wariness has been a recurring theme throughout the post-pandemic recovery. Equity investors, particularly those focused on large-cap technology companies, have pushed valuations higher on the assumption of continued growth and profitability. After lowering estimates earlier this year amid tariff uncertainty, several analysts have recently raised their year-end forecasts for the S&P 500.
Meanwhile, households remain more focused on the immediate realities of higher food, rent, and energy costs, which have cut into disposable income even as wage growth has shown signs of improvement.
Other surveys echo these findings. The Conference Board reported that its Consumer Confidence Index slipped in August:
“The Conference Board Consumer Confidence Index fell by 1.3 points in August to 97.4 (1985=100), down from 98.7 in July (revised up by 1.5 points). The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—fell by 1.6 points to 131.2. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—decreased by 1.2 points to 74.8. Expectations remained below the threshold of 80 that typically signals a recession ahead. …
“‘Consumer confidence dipped slightly in August but remained at a level similar to those of the past three months,’ said Stephanie Guichard, Senior Economist, Global Indicators at The Conference Board. ‘The present situation and the expectation components both weakened. Notably, consumers’ appraisal of current job availability declined for the eighth consecutive month, but stronger views of current business conditions mitigated the retreat in the Present Situation Index. Meanwhile, pessimism about future job availability inched up and optimism about future income faded slightly. However, these were partly offset by stronger expectations for future business conditions.’”
FIGURE 2: CONFERENCE BOARD CONSUMER CONFIDENCE INDEX (AS OF 8/26/2025)
Sources: Conference Board, NBER
Many analysts argue that consumer sentiment is more closely tied to inflation trends than to the performance of financial markets. Inflation has eased significantly from its 2022 peaks, but prices remain well above pre-pandemic levels, particularly for housing and essential services. This has created a perception gap between what consumers experience and what investors expect.
FIGURE 3: UNIVERSITY OF MICHIGAN CONSUMER SENTIMENT VERSUS S&P 500 (LAST 12 MONTHS)
Sources: Proactive Advisor Magazine, University of Michigan, Yahoo Finance
Another factor weighing on sentiment is the cost of credit. Interest rates on credit cards, auto loans, and mortgages remain at multidecade highs, reflecting the Federal Reserve’s restrictive policy stance. Even if a rate-cutting cycle begins in September 2025, the lagged effect of higher borrowing costs has already limited consumer demand for big-ticket items such as homes and cars. This dynamic adds to the sense of financial strain, particularly among middle- and lower-income households that rely more heavily on credit.
The contrast between soaring stock indexes and weakening consumer confidence raises important questions about the sustainability of the market rally. Historically, extended bull markets have been supported by both investor enthusiasm and resilient consumer spending. If sentiment continues to weaken, it may eventually translate into reduced consumption, which accounts for roughly two-thirds of U.S. GDP. That could weigh on corporate earnings growth, which has been one of the key drivers of equity gains in 2025.
Still, not all analysts see the sentiment declines as troubling. Some suggest that consumer confidence measures tend to be volatile and can lag actual spending behavior. For example, retail sales data for July and August showed modest but steady growth, suggesting that despite expressing caution, households are still opening their wallets. In addition, the wealth effect from rising home values and stock portfolios may continue to provide a cushion for upper-income consumers, supporting aggregate spending levels and the longer-term outlook for the economy.
RECENT POSTS
