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Americans are feeling better about the path forward for inflation.
The latest University of Michigan consumer sentiment survey released Friday showed pessimism over the inflation outlook lessened in June, as one-year inflation expectations plunged to 5.1% from the more than four-decade high of 6.6% reached in May. Long-run inflation expectations, which track expectations over the next five to 10 years, also fell, hitting 4.1% in June, down from 4.2% in May.
The broader consumer sentiment index rebounded as well, rising to 60.5 in June, above the 52.2 seen in May, which had been one of the lowest readings on record.
“Consumers appear to have settled somewhat from the shock of the extremely high tariffs announced in April and the policy volatility seen in the weeks that followed,” Survey of Consumers director Joanne Hsu wrote in the release.
Our Chart of the Week shows inflation expectations coming off the boil. Put simply, expectations for price increases are more tempered than they were a month ago, but they are still not as optimistic as they were six months ago.
But this framing — “better than feared” — is the story of what’s brought the S&P 500 (^GSPC) back near all-time highs.
Like consumers, investors made peace with these disappointments and welcomed the improvements that followed.
Tariffs are still higher than Wall Street expected coming into the year, but not as high as the peak fears seen in April. The Federal Reserve is expected to cut interest rates later this year, but not by as much as hoped last year.
Strategists are growing more bullish on stocks, though the median S&P 500 target among strategists sits at 6,100, well below the 6,500 seen in December. However, no fewer than 11 Wall Street firms cut their S&P 500 targets as markets sold off in April; at least eight of these firms have since raised their outlooks again.
Both groups, consumers and investors, ultimately ask themselves the same two-part question: Are things going well now? And are they getting better or worse? It’s the latter that usually moves the needle.
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