Yahoo Finance Americans haven't been this optimistic about stocks since 2021
Americans are getting good vibes from the US economy and stock market.
New data from the Conference Board released on Tuesday shows consumers haven't felt this good about the path forward for stocks in more than two years. According to the report, 37.4% of respondents see stocks increasing next year, up from 32.9% in November. That marks the highest level of optimism for stocks since July 2021.
The renewed optimism comes amid a blistering rally in the stock market in which the Dow Jones (^DJI) has set record highs. Meanwhile, as of Wednesday midday, the S&P 500 (^GSPC) was trading just below its all-time closing high of 4,797 as investors look ahead to interest rate cuts in 2024.
Broadly, the consumer confidence index reached a reading of 110.7, its highest level since the S&P 500's most recent peak in July 2023, and the second highest level in two years.
“December’s increase in consumer confidence reflected more positive ratings of current business conditions and job availability, as well as less pessimistic views of business, labor market, and personal income prospects over the next six months,” said Dana Peterson, Chief Economist at The Conference Board.
Peterson added: "December’s write-in responses revealed the top issue affecting consumers remains rising prices in general, while politics, interest rates, and global conflicts all saw downticks as top concerns."
Other key areas consumers often focus on, such as the labor market, continued to show a steady pace of job additions in November. Meanwhile, gas prices recently hit their lowest levels of 2023, contributing to the rebound in consumer optimism.
"Confidence had been waning for most of the second half of the year, which we attributed to inflation fatigue, concern that the economy would soften further next year, concern about overspending during the summer, and most recently, the outbreak of war between Israel and Hamas," Jefferies US economist Thomas Simons wrote in a note to clients on Wednesday.
"We saw these as ongoing trends, but apparently the consumer is approaching 2024 with far more optimism than we thought."
Notably, the shift comes as consumers feel increasingly confident that interest rates won't rise in the year ahead. More than 18% of consumers see interest rates falling next year, the highest level of conviction rates will fall since October 2021.
The sign from consumers matches recent market bets that the Federal Reserve's most likely next move with interest rates will be a cut, not a hike. As of Wednesday morning, markets have priced in a 77% chance the Fed will cut rates at its March meeting, per the CME FedWatch Tool. A month ago, markets had placed a roughly 28% chance the Fed would cut in March.
The ramp up in bets comes amid a pivot in messaging from the Fed. With inflation falling faster than expected and the labor market remaining on solid ground with a historically low unemployment rate, Wall Street strategists and economists believe an ideal scenario where the Fed hits 2% inflation goal without the economy tipping into recession could be in play.
Josh Schafer is a Reporter for Yahoo Finance.
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