“Resilient while cautious”
Given feedback loops and human psychology, it’s no surprise that markets can, from time to time, provide examples of “self-fulfilling prophesies”. Naturally, there are often contributory factors, such as self-help gurus (“ditch those self-limiting beliefs!”), but with or without such gurus, the madness of crowds is a well-documented phenomenon. Fed officials often talk of how mentalities can become “engrained”, such as in the well-worn example of the long-feared “inflation doom loop” aka wage-price spiral. But while aphorisms such as “there’s nothing to fear but fear itself” (speak for yourself – we are married men) suggest a mere change of perspective is sometimes all that is needed, the latest economic data suggest an outlook too gloomy to be dispelled by a witty saying (which proves nothing!).
As usual, it’s the US consumer (>60% of GDP) which is taking center stage. Previously indomitable, the latest readings are suggestive of a new fragility, with Walmart’s latest earnings call including the admission that they expected profits per share to miss analyst estimates by more than 25 cents. Sticking to the positive, the CFO noted that the company’s “top line is healthy” and that the retailer was gaining market share, but admitted there was significant uncertainty and shoppers were “resilient while cautious”. Walmart isn’t the only retailer noticing some apparent softening in consumer sentiment. As this Morningstar article explains, consumer cyclical companies, have “lagged behind the broader market and their defensive counterparts in 2025.”
This recent poor performance is admittedly thanks in part to the less-than-stellar report from Tesla, “the most heavily weighted stock in the Consumer Cyclical Index”. As this article notes, whether due to increasing competition, Musk’s forays into the political arena, or some combination thereof, Tesla’s car sales in Europe were down more than 40% YoY in January. Although perhaps that tells us more about Europe than it does Tesla.
The negative outlook of consumers is further borne out in the latest consumer confidence surveys. As noted in this article on the Conference Board’s readings, the latest survey saw consumer confidence drop to 98.3, “the lowest reading since June 2024 and the largest monthly drop since August 2021”. Uncertainty around tariffs was cited as a cause for weakening in consumers’ outlook, and the “Expectations Index tumbled 9.3 points to a 72.9 reading, the first time since June 2024 that the measure has fallen below the level consistent with recession.” Is this pessimism well founded? We know that Treasury Secretaries are supposed to be members in good standing of their administration, i.e., yay us, boo them, but it might be a potential problem if Scott Bessent’s latest soundbite was on the money: “The previous administration’s over-reliance on excessive government spending and overbearing regulation left us with an economy that may have exhibited some reasonable metrics but ultimately was brittle underneath, and heading for an unstable equilibrium”. Naturally, we agree, but its unnerving to hear the world’s biggest bond salesman say it. Looking at the latest bond market moves (the sun is always shining somewhere?) there appears to be more than a few people who believe that the US economy is headed for a slowdown. We’d be the first to admit that hyperbole, “the economy is about to have the rug pulled out from under it” is likely more of a PR move than an actual forecast, but Trump and Bessent’s focus on bringing 10-year yields down may bring with it some unintended consequences. (The Simpsons version)
