EDITOR NOTE: There are generally two forces that drive markets: market sentiment and fundamentals. Although both don’t move in lockstep, they generally fluctuate in a correlated manner. When the two are at odds, market opportunities arise. The charts in this article show in real time how the social unrest has been impacting consumer confidence, one critical aspect of market sentiment. Although sentiment may at times be at odds “economic reality,” we also have to understand that perception can drive the underlying fundamentals, especially when the economy is in an unprecedented and fragile state...such as the one we’re in now.
To those Wall Street strategists saying the social unrest currently sweeping the country isn’t enough to derail the market’s shocking rally from the March lows, we present new charts from Goldman Sachs.
In the charts — which you could see below — it’s clear that social unrest as measured by real-time user comments about the economy on Twitter is beginning to weigh on consumer confidence.
Consumer sentiment (left chart) had begun to stabilize in early to mid-May with states reopening and people returning to work after months of COVID-19 lockdowns. But then came the senseless killing of George Floyd by Minnesota police in late May and rampant protests and looting, and a plunge in consumer sentiment per Twitter data analyzed by Goldman.
Meanwhile, negative sentiment on the economy (right chart) as measured by tweets not mentioning coronavirus has spiked over the past week. Some strategists have pushed back on a chart like this one, noting it’s part of a larger issue holding the economy back.
Ultimately it’s hard to determine if weakening consumer confidence over the past two weeks has seriously derailed a U.S. economy already in a sharp recession due to COVID-19. But for those on the Street betting for a V-shaped economic recovery later this year (stat: the S&P 500 is only 7.8% below its February record highs), the data presented by Goldman hints that is far from a sure bet as social unrest is sustained, weighs on consumer psyche and spending decisions.
Originally posted on Yahoo! Finance