Good morning & happy Monday!
“You’ve got me feeling emotions
Deeper than I’ve ever dreamed of
You’ve got me feeling emotions
Higher than the heavens above”
– song “Emotions” by Mariah Carey
I hope today’s memo can mix a little business with a little fun; I’m going to try to incorporate some music lyrics in with my commentary. We’ll see how it goes 😉
Did you know that economists have a tool to measure how people are feeling about the economy? It’s called the Consumer Sentiment Index, and it attempts to gauge how the American public is feeling about the economy, investing, and the world as a whole.
How do you feel when the market is doing well? You might be singing, “I’m so excited and I just can’t hide it” (The Pointer Sisters, “I’m So Excited”).
What about when the market is not doing well? It’s times like this that you are more likely to sing something like “I can’t get no satisfaction, I can’t get no satisfaction, ‘cause I try and I try and I try and I try, I can’t get no, I can’t get no” (The Rolling Stones, “Satisfaction”).
Check out this chart below (I know nothing says fun like financial charts 😉)
This is a super busy chart but what it shows in the gray squiggly line is the consumer sentiment measurements from 1971 – 2023. There are 18 blue dots, 9 towards the top & 9 towards the bottom, these represent peaks and valleys in consumer sentiment readings. The dotted blue line in the middle is the consumer sentiment average score of 85. Are we having fun yet? 😉
Ok, so take a look at May 1980 (a few months after I was born), that was one of the lowest readings on the chart with a consumer sentiment reading of around 50. People were bummed, I guess the world was not too excited when I was born. Super high inflation, gas rationing, conflict around the world. It’s hard to be positive in times like this … “All the leaves are brown, and the sky is gray” (The Mamas & The Papas, “California Dreamin’”).
See that +20% in blue written just below “May 1980?” … Well, that’s the 12 month rate of return following that dismal consumer sentiment reading. Wow!
The next reading over is March 1984 where the consumer sentiment reading was right around 100. Things were going well and people were super positive. “I feel good, I knew that I would now, I feel good, I know that I would now, so good, so good, I got you.” (James Brown, “I Got You”). What happened in the next 12 months? A +13.5% market return, not too shabby, but quite a bit below the 20% from May 1980-April 1981.
Let’s go to the all-time high reading in January 2000 … the world was so excited to start a new millennium, the consumer reading was a whopping 110. “Woah yeah! I’m walking on sunshine, wooah, I’m walking on sunshine, woooah, I’m walking on sunshine, wooah, and don’t it feel good! (Katrina and the Waves, “Walking on Sunshine”).
But what happened 12 months later? A -2% market return. Not the end of the world, but the optimism most certainly had faded.
Look at the super sad reading in November 2008 … a consumer sentiment reading of around 65. It felt like the economy was on life support and our best days were behind us. “Yesterday, all my troubles seemed so far away, now it looks as though they’re here to stay, Oh, I believe in yesterday.” (The Beatles, “Yesterday”). But the 12 months that followed generated a 22.2% rate of return.
Are you noticing a trend here? When consumers tend to feel the worst that is historically when the stock market does the best. Maybe market drops aren’t “the end of the world as we know it” 😉 (R.E.M.).
If you look at the 9 low marks on this chart (the blue dots), the average 12-month return following those low consumer sentiment readings generated on average a +24.1% return. “Woo-hoo, woo-hoo, woo-hoo, woo-hoo” (Blur, “Song 2”)
If you look at the 9 high marks on the chart the average 12-month return following those high consumer sentiment readings generated an average return of +3.5%. “Be a good boy, try a little harder, you’ve got to measure up, make me prouder.” (Alanis Morissette, “Perfect”)
Down markets and cruddy feelings are not fun, but they are a part of life and most certainly part of the investing journey. When the market drops it can be stressful and exhausting and you might feel like screaming, “I can’t feel the way I did before, don’t turn your back on me, I won’t be ignored. Time won’t heal this damage anymore, don’t turn your back on me, I won’t be ignored.” (Linkin Park, “Faint”). But when these market drops happen, they are actually incredible opportunities for those who are able to recognize them as such.
So, what’s the takeaway here? When you least feel like investing that is probably the best time to invest. Don’t trust your emotions, they are not all “sweet emotion(s)” (Aerosmith) … they will oftentimes lead you to make unwise financial decisions. Stay the course and “Don’t stop believin’, hold on to that feelin’” (Journey, “Don’t Stop Believin;”) 😊
I hope you enjoy this memo as much as I enjoyed writing it 😊
Thank you for the exceptional honor of serving you and being a part of your journey.
Make it a great week ahead!