Chart of the Day: Before Trading Sentiment, Keep THIS in Mind!

The Main Street vs. Wall Street debate is heating up...again...and it’s easy to see why. Consumer confidence is falling to record lows while stocks are rising to record highs. But keep something in mind before trying to trade sentiment data.

Before I reveal it, let’s back up a bit. If you follow a lot of financial types on social media like I do, you may have come across this recent Tweet from Charlie Bilello, chief market strategist at Creative Planning.

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It has an extreme, long-term chart showing the gulf between the US Index of Consumer Sentiment from the University of Michigan and the S&P 500 Index ($SPX). The former just sank to 49.80 – its lowest EVER – while the latter just rose to 7,160 – its highest EVER.

I zoomed in on a shorter-term view for my MoneyShow Chart of the Day – and yes, it basically shows the same thing. Consumer sentiment is DOWN more than 32% since the start of 2025...while the S&P 500 is UP more than 21%.

The Main Street Vs. Wall Street Debate is Heating Up...Again

Data by YCharts

But when it comes to investing, you can’t “trade” sentiment directly. Let’s say you knew in advance that sentiment would tank – and you wanted to profit by shorting something like the State Street SPDR S&P Retail ETF (XRT) or the State Street Consumer Discretionary Select Sector SPDR ETF (XLY).

XRT has consumer-levered stocks like Carvana Co. (CVNA), Grocery Outlet Holding Corp. (GO), and The RealReal Inc. (REAL) as its top holdings. Meanwhile, XLY is top-heavy. It’s dominated by the likes of mega-cap consumer-oriented stocks Amazon.com Inc. (AMZN), Tesla Inc. (TSLA), and Home Depot Inc. (HD).

What would you have made from your hypothetical trade? Nothing. In fact, you would’ve LOST money. XLY is UP 5.8% since the start of last year, while XRT is up 7.5%.

That’s not to say you should IGNORE sentiment completely. Nor does it mean sliding sentiment doesn’t have real-world impacts (in the realm of politics, for instance). But sometimes people say one thing in surveys...and do another in real life. Case in point: Retail sales in March rose 0.7% for the “control group,” a category that excludes things like gas station sales, autos, and food services. That was a solid reading.

What’s more, earnings growth is the most important driver of stock prices. If it comes in strong – which it is these days – it can outweigh sliding sentiment. That's what to keep in mind if you’re wondering why we just hit SPX 7,160.