Consumer sentiment steady, but for how long?

A busy week of economic data showed that the US economy continues to motor ahead. Second quarter GDP growth was double the 1.4% of the first quarter, and above the 2.0% expected, on stronger consumer spending and business investment. Inflation in June was in-line with forecasts, as the headline rate rose 2.5% over the last year, down from 2.6% growth last month. Core durable goods orders, excluding the volatile transportation (mostly aircraft) sector, rose 0.5%, well ahead of expectations. And weekly jobless claims fell from 245,000 to 235,000, still consistent with historically low layoffs. 

As measured by the University of Michigan survey, consumer sentiment has remained virtually unchanged over the last three months. Year-ahead inflation expectations fell for the second straight month, to 2.9%, into the 2.3-3.0% range for the two years prior to the pandemic. Long-run inflation expectations remained at 3.0%, still above the 2.2-2.6% pre-pandemic range. But peeling back the layers of the survey reveals the enormous contribution that the stock market run-up has given those with the largest stock holdings compared to those with none. In June 2022, when inflation was at its peak, these two groups had nearly identically low sentiment. Since then, the difference in sentiment increase is now just shy of its historic high, reached in February 2007. The obvious read-through here is what happens to consumer confidence and spending if stocks roll over?