Consumers are 'smelling the coffee' as sentiment on future conditions sinks. (0:16) Treasury yields hit lowest levels of the year. (2:30) Tesla Europe deliveries tumble. (2:50)Show NotesHedge fund VIP stocksLucasfilm head set to retireEpisode transcripts: seekingalpha.com/wsb Sign up for our daily newsletter here and for full access to analyst ratings, stock quant scores, dividend grades, subscribe to Seeking Alpha Premium at seekingalpha.com/subscriptions.
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Welcome to Seeking Alpha's Wall Street Lunch, our afternoon update on today's market action, news, and analysis. Good afternoon. Today is Tuesday, February 25th, and I'm your host, Kim Kahn. Our top story so far. Is it a crisis of confidence?
The Conference Board's February measure of consumer confidence saw the largest drop since August 2021 amid a broad range of concerns, including inflation, future business conditions, and the labor market. The index dropped to 98.3 from 105.3 in January, and below the forecast for a smaller drop to 103.
It was the third consecutive month-on-month decline, bringing the index to the bottom of the range that has prevailed since 2022. Of the index's five components, only consumers' view of present business conditions improved. Along with general souring of consumers' moods, their 12-month inflation expectations ramped up to 6% in February from 5.2% in January.
The present situation index declined 3.4 points to 136.5. The forward expectations index sank 9.3 points to 72.9, an eight-month low, and below the threshold of 80 that usually signals a recession. Pantheon macroeconomist Samuel Toombs says consumers are, quote, finally smelling the coffee.
The conference board survey mirrors the Michigan survey in showing that consumers' confidence has deteriorated sharply in the face of threats to impose large tariffs and a slashed federal spending and employment, he said.
While references to inflation and prices in general continue to rank high in write-in responses, there was a sharp increase in mentions of trade and tariffs, back to a level unseen since 2019, Stephanie Gichard, senior economist, global indicators at the conference board said. Most notably, comments on the current administration and its policies dominated the responses.
Toomes added, growth in real after-tax income likely will continue to slow this year, weighing strongly on spending growth now that households have mostly depleted their excess savings. Wells Fargo economists said, Perhaps if the drumbeat of government sector job displacement and corporate layoffs abates, sentiment around the labor market will improve.
For now, this pessimism about the labor market in combination with household worries about inflation led to a decline in consumer perceptions of their expected household financial situation six months out. The consumer confidence numbers are dictating trading, with gross stocks falling and bonds rallying. The Nasdaq Composite is down more than 1%, trailing the S&P 500 off more than half a percent.
The Nasdaq 100 is off more than 5% since its record low last week. In the bond market, the 10-year treasury yield is back down to 4.3%. Among active stocks, Tesla is among the biggest S&P decliners after the EV maker saw its sales in Europe decline 45% in January from a year ago. That's according to data from the European Automobile Manufacturers Association.
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