Split Screen
There is something fascinating about this moment in markets – not in the performance, but in the widening gap between how markets are behaving and how people are feeling.
Last week, the S&P 500 climbed back from recent lows to near flat performance for year-to-date, at the same time as the University of Michigan Consumer Sentiment Index fell to its lowest level in the survey’s 74-year history.
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It is a striking contrast and a topic of conversation in nearly every client meeting.
At a dollars-and-cents level, market underpinnings remain solid. S&P 500 earnings grew by more than 10% last year, with estimates pointing to continued double digit growth for 2026, led by the Technology sector and sustained, massive, investment in AI infrastructure buildout.(2) Materials and Financials sectors are also seeing improved growth prospects.
Corporate profit margins are at record highs, boosting the bottom-line.
(Source: EY-Parthenon. April 9, 2026)
Expectations for stronger earnings have made valuation more attractive. The forward multiple on the S&P 500 has decreased from roughly 22x at the start of the year, to just over 20x today. In effect, the market is ~7% cheaper than it was on Jan 1st, even as the index itself has gone essentially nowhere.
More broadly, while economic momentum is moderating, it remains positive. Labor markets have cooled, but the unemployment rate is still low by historical measure.
Yet against this backdrop, consumer outlook tells a wildly different story. An all-time low in the sentiment reading is quite something, considering the breadth of history it spans. Is today’s environment more severe than the 2008 Financial Crisis or the COVID pandemic? I fully appreciate that the news flow and policy backdrop, particularly around Iran, is abrupt and unpredictable, but as much as there is voiced criticism of current policy, we are far from the kind of heated domestic unrest seen during the Vietnam War era. So what is driving sentiment to such depressed levels?
As best as I can tell, it is a cocktail of issues – a mix of affordability pressures, heightened geopolitical risk, and growing uncertainty around how quickly the world is changing.
The affordability squeeze is front and center, felt with every trip to the grocery store or a visit from a local repair tech (HVAC in my case, who I’ve gotten to know really well in the last few weeks!). The pace of inflation has moderated from red-hot levels of 2021-2022, but smaller increases on top of a higher base still bite.
Market dynamics are also contributing to the unsettled feeling. Beneath the headline performance, many of the most well-known and widely held stocks have declined more sharply than the broader S&P 500 in recent months.
The Magnificent Seven are a good example: each one has pulled back more from its all-time highs than the index itself. If you’ve held these names for a while, and grown accustomed to persistent gains, the price reversal has made the recent period feel worse than the index would suggest.
(Source: FactSet. April 10, 2026)
At the same time, the market’s resilience is not without a certain logic and muscle memory.
Recent experience has conditioned investors to expect policy moderation following initial shocks. The clearest example was just over a year ago, when the S&P surged 9.5% in a single trading session, after the announcement of a 90-day pause on tariffs. The lesson was clear: positioning for worst-case outcomes based on early policy signals can be costly.
That experience continues to shape how markets process headlines today. Concerns show up clearly and loudly in sentiment surveys, but far less so in actual portfolio positioning.
If you step back, this is actually a healthy dynamic. As surprising as it is to see sentiment at all-time lows, the fact that it hasn’t coincided with a broader market selloff suggests a degree of investor discipline, and a growing recognition that markets have navigated plenty of geopolitical shocks, policy shifts and periods of domestic tension before.
The challenge isn’t to predict each outcome with precision, but to manage risk and stay invested through the uncertainty. That’s not always easy to do, given that we’re naturally wired to react, but over time, it has been a consistent and durable approach.
Lastly, since I managed to write a market note without mentioning it once, I’ll say it now: Strait of Hormuz. Now it is a “proper investment letter”.
Be well,
Alex
