There are many reasons for the current disconnect between a positive macroeconomic environment and negative consumer sentiment. I’ll get to that topic in a minute. But first, let’s look at why the bull market remains very much alive.

Favorable and negative trends are unfolding in counterpoint, creating a context of deflationary growth. The economy is still expanding, but it’s getting restrained enough to keep inflation in check. That’s just what the Federal Reserve and Wall Street want to see.

While the Fed takes a breather from its tightening marathon, the economic ripple effects of previous actions are still emerging. Consumers are starting to feel the pinch, resembling marathoners who’ve just realized they signed up for the full 26 miles, not a 5K. This collective fatigue is the ticket to cooling inflation and giving the Fed a reason to lower rates by year’s end.

Rising stock market and housing prices have pushed household net worth to unprecedented levels, fostering a “wealth effect” that encourages spending. The solid jobs market is another bullish factor.

To be sure, this newfound wealth is not spread evenly, and low-income consumers find themselves under mounting pressure. However, as long as inflation continues to decelerate and employment remains robust, the current economic expansion and bull market are likely to persist.

Over the past three years, the U.S. consumer has been the cornerstone of economic growth, propelling both domestic and global expansion.

This resilient spending is particularly notable given the dual challenges of high inflation and elevated interest rates. A strong consumer has in turn been a major impetus behind healthy corporate earnings growth.

Accordingly, U.S. stocks continue to reach new heights, with the S&P 500 last week achieving its 31st all-time high this year (see chart).

The benchmark SPDR S&P 500 ETF (SPY) currently hovers well above its 50- and 200-day moving averages, denoting powerful momentum.

The U.S. economy has been growing at a robust 2.9% rate over the past year, outpacing the previous decade’s average. Unemployment remains remarkably low, holding steady at or below 4% for 30 consecutive months, a streak not seen since the mid-1960s.

Yet, consumer sentiment tells a different story. The University of Michigan Consumer Sentiment Index hit a seven-month low in June, reflecting pessimism about personal finances and business conditions.

This index is 30% below its pre-pandemic level, only slightly above the 2008-09 recession average. Conversely, the Conference Board’s Consumer Confidence Index, more influenced by labor market conditions, remains more upbeat but still 20% below pre-pandemic levels.

Despite inflation slowing significantly since 2022, consumers are still wary of high prices. This is especially true for low-income households, which spend a larger share of their income on essentials.

Cumulatively, prices have risen about 21% since 2020, marking the largest four-year increase in 40 years. Wage growth has only recently begun to outpace inflation, leaving many households struggling in 2021 and 2022.

Personal income, bolstered by government support and stimulus measures, has grown faster than inflation, but with excess savings dwindling, the impact of inflation is becoming more pronounced. Inflation is coming down but for millions of people it doesn’t feel that way.

Other factors affecting consumer sentiment include high mortgage rates and home prices, making homebuying unaffordable for many, and a gradually loosening labor market. Unemployment is low but rising, job openings have declined by a third from their peak, fewer workers are voluntarily quitting, and jobless claims recently hit their highest level since September 2023.

Consumer spending accounts for about 70% of U.S. gross domestic product. On that score, we’re experiencing non-inflationary growth. Retail sales in May grew, albeit at a slower rate than expected. Headline sales rose 0.1% from the previous month, missing the consensus of a 0.3% rise, while April’s data was revised downward.

The consumer’s wallet remains open. But paradoxically, opinion polls show that Americans are gloomy about the economy. A major factor in dampening the public mood is the drumbeat of negativity about the economy that’s disseminated by biased media outlets. These partisans depict the economy as a dystopian hellhole. They’re not just wrong; they’re purposely lying. Don’t fall for it.

The Week Ahead…

The following key economic data are on the docket for release in the coming days:

Consumer confidence (Tuesday); new homes sales (Wednesday); initial jobless claims, gross domestic product (second revision), durable goods orders, pending home sales (Thursday); personal income, personal consumption expenditures price index (PCE), and consumer sentiment (Friday). Throughout the week, Fed officials are scheduled to speak. Pay attention because their words have the power to move markets.

The takeaway: Consumption growth is slowing due to high borrowing costs and prices, but this seems to be a normalization rather than a cause for alarm.

With pandemic savings exhausted for many households and high interest rates curbing borrowing, consumer spending will likely rely on real income growth. However, rising stock market and housing prices create a wealth effect that supports spending even without income changes.

Household net worth rose to $160 trillion in the first quarter, an all-time high. Of this $13 trillion increase, $7 trillion came from equity holdings and $3.3 trillion from real estate.

Meanwhile, investor sentiment remains optimistic, driven by the artificial intelligence (AI) boom. Nvidia (NSDQ: NVDA) recently surpassed Microsoft (NSDQ: MSFT) as the world’s most valuable company, underscoring market concentration and the risk of a potential mania. But so far, market breadth has been healthy, as evidenced by a rising New York Stock Exchange Advance/Decline line (NYAD).

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John Persinos is the editorial director of Investing Daily.

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This article previously appeared on Investing Daily.