Fundstrat Head of Research, Tom Lee criticized the University of Michigan consumer sentiment survey for what he described as partisan bias, arguing that an imbalance in respondents' political affiliations was skewing the data.
Lee reposted a clip on X from last week’s Meb Faber show on Wednesday, highlighting that around 25% of Democratic respondents believe that inflation is currently running over 100%.
“The University of Michigan I think, has also become notoriously partisan,” said Lee.
He also pointed out the stark contrast in sentiment readings between Democrats and Republicans, with the former at 32 and the latter at 87. Furthermore, he noted that 51% of Democratic respondents are now below the survey’s all-time “worst ever” reading of 47.6.
He argued the survey allows significant “latitude” in interpretation, noting it is based on roughly 3,700 responses collected each month and includes broad perceptions about issues such as inflation.
“University of Michigan went to no longer doing a phone survey. So it’s online only…the response rate now is roughly 66% Democratic versus 33% Republican. That’s not a fair breakdown of the U.S. overall,” said Lee.
He argued that said Democratic responses on current conditions have remained largely unchanged since November, while Republican responses have stayed steady since the summer, arguing that the overall decline in sentiment was mainly due to a growing share of Democratic respondents in the survey.
He argued that investors relying on the University of Michigan's sentiment and inflation surveys would have misread the stock market, claiming the data have consistently sent poor signals by overstating inflation expectations and weakening sentiment.
Consumer Sentiment Hits Record Low
The University of Michigan sentiment survey is a closely watched indicator of consumer confidence. However, the latest report showed that consumer sentiment fell to a record low in May due to surging gas prices, a consequence of the ongoing Iran war. The survey posted a preliminary reading of 48.2, down 3.2% from April's record low and 7.7% lower than a year earlier, missing economists' expectations of 49.7.
The next reading is due on Friday, May 22.
Another Gallup poll found a record 55% of Americans say their finances are getting worse, surpassing levels seen during the COVID-19 pandemic and Great Recession amid persistent inflation and cost-of-living pressures.
Stocks Rally Despite Economic Fears
The declining consumer sentiment is in sharp contrast to the stock market. On a year-to-date basis, the S&P 500 Index – as tracked by the SPDR S&P 500 ETF Trust (NYSE:SPY) rose 8.50%, while the Nasdaq 100 – mirrored by the Invesco QQQ Trust (NASDAQ:QQQ) surged 16.31%.
Lee believes the stock market has already bottomed and remains confident the S&P 500 could reach 7,300 this year despite risks of an inflation shock. He pointed to the market's resilience during escalating geopolitical tensions and rising oil prices, arguing that stocks held firm even as conditions worsened, signaling a path back toward record highs.
Meanwhile, Ed Yardeni, President of Yardeni Research, has upwardly revised his year-end forecast for the S&P 500, setting a new target of 8,250.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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