Consumer confidence for May was much stronger than expected on optimism for trade deals

The Conference Board's Consumer Confidence Index surged to 98.0 in May, a 12.3-point increase attributed to optimism surrounding U.S.-China trade relations, specifically President Trump's halting of severe tariffs on May 12. This rebound follows five months of decline, with improvements seen across various sentiment indicators, including expectations for the labor market and stock market performance over the next 12 months. Investor optimism also rose, with 44% expecting higher stock prices, up 6.4 percentage points from April.

Analysis

May's Consumer Confidence Index from the Conference Board registered a significant rebound, surging 12.3 points to 98.0, substantially exceeding the Dow Jones consensus estimate of 86.0 and reversing five consecutive months of declines. This marked improvement is primarily attributed to renewed optimism surrounding U.S.-China trade relations, particularly following President Trump's decision on May 12 to halt the most severe tariffs, with the rebound reportedly gaining momentum after this development. The positive sentiment was broad-based, with the present situation index climbing 4.8 points to 135.9 and the expectations index showing a substantial 17.4-point gain to 72.8. Concurrently, investor sentiment improved, with 44% of respondents now anticipating higher stock prices over the next 12 months, an increase of 6.4 percentage points from April. Perceptions of the labor market also strengthened, as indicated by 19.2% of consumers expecting more job availability in the coming six months, up from 13.9%, while those anticipating fewer jobs decreased to 26.6% from 32.4%. While the improved sentiment was observed across various demographics including age, income, and political affiliation, it was noted to be strongest among Republicans.

Key Decisions for Investors

• The pronounced increase in consumer and investor confidence, largely fueled by positive signals in U.S.-China trade discussions, could bolster equity markets and consumer-driven sectors in the near term.
• Given that the optimistic sentiment is heavily dependent on the fluid nature of trade negotiations and policy decisions, investors should remain vigilant for potential volatility arising from any renewed trade tensions or setbacks.
• It is advisable to closely monitor upcoming economic indicators, particularly further consumer sentiment readings and labor market data, alongside any developments in international trade relations to gauge the sustainability of this positive trend and to inform portfolio adjustments.