Morgan Stanley: Consumer Sentiment Disconnect and Spending Resilience
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Key Views
The post-pandemic erosion of the sentiment-spending correlation stems partly from a permanent price-level shock. However, the residual expectation wedge retains and has strengthened its predictive power for discretionary purchases since 2020. Housing affordability gains have stalled, keeping transaction volumes suppressed, yet aggregate home equity sits near historic highs. Home price growth is projected to accelerate from approximately 0.85% to 2% by year-end 2026. Meanwhile, consumer ABS performance is middling: auto loan delinquency improvements lag what larger tax refunds typically imply, and unsecured credit improvements partly reflect changing pool compositions rather than broad-based credit normalization.
Outlook
AlphaWise survey data indicates improving economic and household financial expectations, though inflation remains the dominant concern. This environment supports resilient but highly selective consumption. Investors should prioritize earnings revisions and reasonable valuations within consumer sectors rather than uniformly avoiding consumer stocks due to depressed macro sentiment.
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