If the US equity earnings season is hit by lower guidance from companies, a deterioration in consumer confidence could soon affect stock market investors.
Morgan StanleyLisa Shalett, chief investment officer of wealth management, said there was an "unusual" divergence of views between consumers and investors on the economy after the surge in Delta cases this summer.
"We think corporate profit forecasts are fragile, especially when consumer confidence translates into spending less and saving more," she wrote in a report to clients.
Typically, consumer confidence keeps pace with the stock market, as consumption accounts for 2/3 of U. S. GDP. But while several indicators of consumer confidence have fallen sharply since their peak in July, the s & p 500 continues to rise and is now just 4% below its all-time high.
Shalett said consumers appeared to be weighed down by a slow economic recovery, inflation concerns and political disputes, while investors focused more on positive earnings revisions and subtle changes in Fed policy.
"crucially, the Fed and investors have accepted that inflation is temporary-but consumers do not agree with it," she warned. If consumer confidence does not improve quickly, it could herald weak market performance-triggers include disappointing performance, a decline in consumer spending and a rise in the savings rate. "
'indicators that track consumers' expectations for the future show that consumers don't think their concerns about inflation and labor market recovery are temporary, 'she said. If this sentiment translates into action in the form of reduced spending and increased savings, it could put pressure on corporate earnings forecasts and eventually put pressure on the stock market.