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What Color Is Your Inflation? By Spencer Jakab

It's not over. Pending appeal of a ruling, President Trump's tariffs will remain in place, and he probably has other ways to impose levies on trading partners anyway. That, plus comments by Treasury Secretary Scott Bessent that trade talks with China are "a bit stalled," soured investors' mood. Stock futures point to modest losses when trading begins.

***

Bad news-prices could rise by 5.1% annually over the next five years. No, wait, reverse those digits if you're a Republican.

That was the yawning partisan difference in inflation expectations in April's University of Michigan consumer survey. Back in October, a month before the presidential election, Democrats responding to the survey said they expected inflation to average 2.7%. Meanwhile Republicans expected 3.4% over the coming five years.

In other words, the two groups' price projections swung wildly in opposite directions depending on who was in the White House.

It isn't a glitch. In April 2020, just as Covid-19 sent Americans home during Donald Trump's first term, a yawning gap emerged with Democrats expecting much quicker price gains. Their assessments flipped by the spring of 2021 when Joe Biden was president and inflation really was picking up steam as a result of pandemic stimulus and supply-chain snarls.

Survey Director Joanne Hsu notes that partisan divides were detected as long ago as the Reagan administration. But the gap has widened recently .

Obviously eggs, gas, cars and everything else cost the same regardless of political party. They will in five years, too. The differing opinions are a measure of faith in a president's ability to manage the economy.

The Michigan survey isn't useless, though. It also includes many independents and the overall data balances those extremes out to show the true public mood. But it also isn't useful-at least not in a straightforward way-if you use confidence as a stock-buying signal.

Peaks in sentiment came at times like January 2000 and January 2007, before the tech and housing bubbles burst. Lows came in the spring of 2009, near the cusp of a roaring bull market, and in the summer of 2022, shortly before stocks would go on an epic run.

When it comes to reading the economic tea leaves, the American public is notoriously wrong. Partisan blinders can make us even wronger.

If you thought that Bill Clinton or George W. Bush were economic geniuses near those two peaks then you were more likely to be fully invested and lose money in the looming bear markets. And if you were convinced Barack Obama or Joe Biden were incompetent fools then you might have missed stellar buying opportunities during the two bear-market bottoms.

For what it's worth, the preliminary May survey released two weeks ago (the final results will be published this morning) had the second-lowest sentiment reading on record . Past performance isn't necessarily indicative of future results, but you just might have been too pessimistic about the economy-especially if you're a Democrat.

Stocks I'm Watching

It's a fashion emergency: Shares in clothing retailer Gap slid 15% before the open. It forecast flat quarterly sales and up to $150 million in tariff costs after mitigation efforts this fiscal year.

Marvell : The chip maker swung to a quarterly profit and logged a jump in sales, fueled by demand for artificial intelligence. Nonetheless, shares fell more than 3% in premarket trading.

Costco : The warehouse-club chain logged higher profit and outlined measures to reduce its exposure to tariffs.

Dell : The computer and software maker raised its earnings guidance. Shares rose about 2% before the bell.

Sanofi and Regeneron : The companies said their experimental lung-disease treatment delivered mixed results in late-stage trials. Sanofi's shares fell 6% in Paris, while Regeneron's stock fell more than 12% in U.S. premarket trade.

American Eagle Outfitters : Shares fell after hours. The retailer swung to a quarterly loss and withdrew its annual outlook.

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About Me

My name is Spencer Jakab and I've been musing about money and markets for more than 30 years, including editing The Wall Street Journal's Heard on the Street column for a decade, writing two investing books and running a team of stock analysts at a global investment bank.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

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May 30, 2025 06:50 ET (10:50 GMT)

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