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Stocks Are Up. Americans Aren’t.

The University of Michigan’s final June Consumer Sentiment reading came in at 49.5. That is a recovery from May’s all-time low of 44.8. It also remains the second-lowest reading in data going back to the 1970s, sitting below every reading during the oil crisis of that decade, the 2008 recession, and the COVID pandemic.

Sit with that for a second. Americans are more pessimistic about their finances right now than they were during the Great Financial Crisis. More pessimistic than they were in April 2020 when the economy was literally locked down.

And yet the S&P 500 is up roughly 19% over the past year.

The divergence between how people feel and how stocks trade is not new. Sentiment and market performance have decoupled before. But the scale of this particular gap is worth understanding, because the reasons behind it tell you a lot about what comes next.

The driver is mostly energy. The U.S.-Israel coalition strike against Iran launched in late February 2026 triggered a Strait of Hormuz supply disruption affecting roughly 20% of the world’s daily oil flow. Gasoline prices surged. For lower-income households, where gas represents a disproportionate share of weekly spending, the psychological damage was severe. Year-ahead inflation expectations hit 4.8% in May. They edged down to 4.6% in June but remain well above the 3.4% reading from before the conflict began.

For over half of consumers surveyed, three months running, high prices are the first thing they mention when asked about their personal finances. Not jobs. Not stocks. Prices.

Here is what makes this confusing from a portfolio perspective. The top 10% of Americans hold more than 87% of corporate equities and mutual fund shares. When the S&P 500 is up 19%, that gain is highly concentrated in a narrow slice of households. Stock market gains boosted the personal finances of about 28% of consumers in the highest tercile of stock holdings in June, the highest share since January 2025, compared with only 4% among those with the smallest holdings.

In other words: the market is not wrong, and consumers are not wrong. They are describing two different economies.

What happens next depends heavily on oil. Sentiment will remain near historic lows unless gasoline prices fall meaningfully, and that requires tankers moving freely again through the Strait of Hormuz. The June improvement snapped a three-month streak of declines, but the underlying conditions have not changed. Long-run inflation expectations came in at 3.3% in the final June reading, down from 3.9% in May but still above the 2.8% to 3.2% range seen throughout 2024.

New Fed Chair Kevin Warsh, who took over on May 15 after Senate confirmation, has limited room to maneuver. Core PCE rose to 3.4% in May, its highest reading since October 2023. Headline PCE hit 4.1%, the highest since April 2023. Year-ahead inflation expectations remain well above the Fed’s 2% target. And the labor market added 172,000 jobs in May, more than double the 80,000 consensus estimate. Following its June 16-17 meeting, the FOMC held rates steady and indicated a rate hike is now on the table. The policy path is hold, possibly tighten, through year-end.

The risk investors are underestimating is not that sentiment stays low. It is that the gap closes from the wrong direction. Not because consumers start feeling better, but because equities start reflecting what consumers already know. Breadth signals still look relatively healthy, but sector rotation is moving away from mega-cap tech and into industrials, financials, and cyclicals, which are more directly exposed to the consumer spending slowdown that sentiment data is already flagging.

Watch what consumer discretionary earnings say in Q2. That is where this gap between sentiment and stock prices will either narrow peacefully, or close uncomfortably fast.