The University of Michigan published consumer sentiment index indicated a 13% increase in how people felt about the economy. Few expected the reversal, from three straight months of pessimism to positive sentiment.
The report cited the favorable direction of lower inflation as a reason for the positive consumer. Those in the 55-plus age group expressed the biggest increase in optimism. After the Federal Reserve stopped raising interest rates, the public expects credit conditions to loosen at best and stay the same at worst.
Ahead of the report, household and personal product stocks are already up. Clorox (CLX) is 23.4% above its 52-week low set in November. Kellanova (K) and General Mills (GIS) both rebounded. P&G (PG), however, slumped after writing down its Gillette investment. Johnson & Johnson (JNJ) peaked at its 200-day moving average and fell by 2.5% last week.
When the Fed meets on Tuesday and announces its rate policy on Wednesday at 2 p.m. expect it to hold rates again. This is yet another positive development that helps lower inflation. The higher the disposable income, the happier consumers will get.
Since inflation will take time to fall, investors should avoid companies that do not have pricing power. EV companies may no longer sell vehicles for over $100,000. Auto firms will need to slash prices, offer incentives, and remove any market price adjustment they enjoyed during the pandemic. That will hurt GM, Stellantis, and Ford’s profits.