The Dow Jones Industrial Average rebounded by approximately 520 points on Friday after a prior decline of 3,373 points, or -7.66%, over two weeks. However, this recovery coincided with a marked drop in consumer sentiment, as the University of Michigan’s Consumer Sentiment Index fell to 57.9, its lowest in over two years.
March’s consumer inflation outlook increased sharply, with the five-year estimate rising to 3.9%. One-year inflation expectations also reached a two-year high of 4.9%, indicating heightened concerns regarding inflation, exceeding the Federal Reserve’s target.
Consumer Confidence And Interest Rate Expectations
Consumer confidence is seen as essential for economic activity, as spending constitutes two-thirds of the US economy. The FedWatch Tool indicates an 80% likelihood of a quarter-point rate cut from the Fed in June, although rates are expected to remain unchanged during upcoming meetings.
The Dow Jones experienced an uptick in tech stocks, with Nvidia regaining 4.5% to surpass $120 per share. Despite Friday’s gains, the index remains below its 200-day Exponential Moving Average and is still in a bearish trend, struggling to reach previous highs.
The Michigan Consumer Sentiment Index serves as an essential indicator of consumer financial conditions, influencing spending decisions and economic growth. A higher reading generally supports a stronger US Dollar, while a lower reading suggests economic weakness.
The sharp increase in the Dow, roughly 520 points, signals a rebound following its broader slump over the past fortnight. Despite this, sentiment among consumers has deteriorated, with confidence reaching levels not seen in more than two years. Consumers are becoming more unsettled, which may affect spending habits in the coming weeks.
Inflation expectations have surged. The data from the University of Michigan highlights that the longer-term outlook for inflation has climbed to 3.9%, well above the target that policymakers aim for. The short-term view has also worsened, hitting 4.9%, the highest in two years. This suggests consumers foresee persistent price pressures, which could make interest rate cuts more uncertain than the likelihood currently indicated by market tools.
Tech Stocks And Market Performance
Consumer spending fuels much of the economy, so a drop in confidence could have ripple effects. However, projections still show an 80% chance of a rate cut by June. The next meetings, meanwhile, are unlikely to see any shift in rates. If expectations shift further based on inflation readings, traders should remain watchful of any statements from the central bank, as they will be dissected for indications of policy direction.
Tech stocks provided some relief to the Dow, with one of the strongest performers recovering 4.5% and crossing $120 per share again. Yet, the index itself lingers in bearish territory and remains beneath its 200-day Exponential Moving Average. It has not been able to reclaim prior highs, meaning any short-term rally should be approached with some caution.
Since sentiment readings serve as a barometer for spending power and future economic strength, traders should consider how these figures influence broader financial markets. A resilient reading often strengthens the dollar, whereas weakness can suggest trouble ahead. If confidence remains low while inflation expectations rise, volatility is likely to remain elevated.
