Despite widespread economic pessimism among consumers, the underlying data points to continued resilience in the U.S. economy—an ongoing divergence that presents both risks and opportunities for financial professionals.
This growing disconnect between perception and reality is playing out in two distinct streams of data: “soft” data, which captures sentiment and expectations, and “hard” data, which reflects tangible economic performance. While consumer and CEO confidence measures have weakened notably in recent months, actual metrics such as employment, inflation, and economic output have remained strong, suggesting that Main Street’s economic anxiety may be out of step with Wall Street’s more constructive outlook.
This disparity was underscored again this week. The University of Michigan’s preliminary consumer sentiment index fell to 50.8 in May, down from 52.2 the prior month and marking the second-lowest reading ever recorded. The decline surprised economists and comes despite several positive macroeconomic developments—including declining inflation, easing trade tensions with China, and a sustained rally in equities that has erased earlier 2025 losses.
Joanne Hsu, director of the University of Michigan's consumer surveys, pointed to persistent skepticism among consumers that recent good news will hold. “Consumers do not believe that just because the most recent CPI print came in relatively tame, that will necessarily be the case through the remainder of the year,” she said. “They’re bracing for the other shoe to drop.”
This sentiment gap is mirrored in corporate leadership as well. The Conference Board’s CEO Confidence Index fell in April, a signal that business leaders are increasingly uncertain about the next 12 months despite strong current operating conditions.
Yet for all the negative sentiment, the hard data continues to reflect an economy in solid shape. April’s consumer price index rose just 2.3% year-over-year, down from 2.4% in March and the lowest inflation pace since early 2021. Core producer prices also moderated, supporting the notion that inflationary pressures are easing. At the same time, weekly jobless claims held steady at 229,000, and the unemployment rate, while slightly higher than earlier in the year, remains near historic lows at 4.2%.
Bank of America analysts noted this week that the divergence between soft and hard data is now the widest on record—a dynamic that has historically carried bullish implications for equity markets. According to the firm’s analysis, when sentiment data weakens without an accompanying recession, U.S. stocks have historically returned an average of 17% over the following 12 months.
That backdrop is helping drive the current market rally. The S&P 500 was on track to close its fifth consecutive winning session on Friday, up roughly 5% for the week amid rising optimism around renewed U.S.-China trade negotiations and the strengthening macro backdrop.
In a Friday note to clients, Bank of America strategists argued that persistent pessimism in sentiment indicators—absent deterioration in hard data—could serve as a contrarian buy signal. “Unless the hard data cracks, we suggest investors take advantage of relative value trades in each asset class,” they wrote. “We remain bullish on equities and credit, cautious on government bonds, and opportunistic on commodities.”
That stance echoes growing bullishness across Wall Street. Goldman Sachs recently revised its outlook, reducing its forecasted probability of a U.S. recession to 35%, down from 45%, and raising its year-end S&P 500 target. The firm cited strong payroll growth, healthy corporate balance sheets, and a cooling inflation trend as reasons for increased confidence.
Similarly, Barclays abandoned its earlier call for a mild recession in the second half of 2025. The firm now sees enough strength in labor markets, corporate earnings, and inflation data to remove a downturn from its base-case scenario.
For RIAs and wealth managers, this environment presents a set of nuanced challenges. Clients are hearing relentless headlines about recession risks and economic strain, even as their portfolios recover and economic indicators stabilize. Bridging that perception gap will require advisors to contextualize the sentiment data and emphasize the strength of the underlying fundamentals.
Moreover, portfolio positioning remains critical. With inflation moderating and the labor market resilient, risk assets may continue to benefit—particularly if pessimism in soft data metrics persists without a downturn. While caution remains warranted given ongoing geopolitical risks and policy uncertainty, the historical record supports maintaining exposure to equities in this type of sentiment-driven divergence.
Advisors should also be prepared for volatility triggered by changes in the data narrative. If hard data begins to deteriorate meaningfully, market expectations—and allocations—will need to adjust. But absent that shift, advisors may find opportunities in areas that have been unduly discounted due to recession fears, including cyclicals, select small caps, and credit-sensitive sectors.
The disconnect between economic “vibes” and economic reality is not new, but its intensity this year is striking. For financial professionals, the key lies in cutting through the noise, grounding investment decisions in fundamentals, and helping clients remain focused on long-term objectives—especially when headlines and sentiment say otherwise.
