By Teresa Rivas

Stocks are at fresh highs, but consumers aren't feeling quite as optimistic. They keep spending anyway.

The S&P 500 index just had its best month since 2020, and it and the Nasdaq Composite just recorded five straight weeks of gains through Friday's close, when both reached new records. Both indexes have been bolstered recently by strong corporate results and fading concern about the still-shaky geopolitical backdrop.

Investors are likely feeling fairly upbeat. Iran's missile barrage on the United Arab Emirates on Monday was the first time in weeks that the Iran War has moved markets. Instead, markets are much more focused on what's likely to be another quarter of double-digit earnings growth, businesses are still spending, and artificial-intelligence investment is still fueling gross domestic product growth.

Consumers, however, may be feeling somewhat less cheerful. Although spending has remained solid, slowing wage growth and dwindling savings are a concern, particularly as gasoline prices have pushed up inflation and continue to rise. Moreover, confidence levels have been stable, but not at particularly great levels.

Less than a third of consumers expect the economy to get better in the next six months, while nearly half expect it to get worse, according to the latest Morgan Stanley poll. Analyst Michelle Weaver notes that that level is relatively in line with the reading from last month and in April 2025.

Inflation remains the top issue for Americans, with 57% of respondents citing it as a concern, though that's down slightly from last year's 62%; only the highest earners ranked the current U.S. political situation as high as inflation. "Lower-income consumers are more focused on their ability to cover rent or mortgage payments and manage debt, while higher-income consumers over-index on concerns related to their investments," Weaver writes.

Those who are worried about geopolitics declined to 29% from 33% the prior month, but that's still well above last year's 19%.

Morgan Stanley's consumer sentiment reading isn't as dire as the University of Michigan's consumer sentiment survey, whose readings have never bounced back to prepandemic levels nd reached an all-time low in April. Nonetheless, it does appear that higher gas prices are causing people to make trade-offs.

"Essential categories -- such as groceries, gas, and household items -- continue to show net positive spending intentions, while discretionary categories like consumer electronics, computers, and alcohol exhibit comparatively weaker spending outlooks," Weaver writes. As gas prices go up, that's commanding more share of people's wallets, while electronics are the first to get cut.

The technicals tell a similar story. Over the weekend, Oppenheimer analyst Ari Wald reiterated an underweight rating on the consumer discretionary sector, noting that on an equal-weight basis, the sector has fallen to a new multi-year low versus the S&P 500. He warns that's a sell signal for stocks like lululemon athletica, Home Depot, NVR, Best Buy, Carnival, Chipotle Mexican Grill, Norwegian Cruise Line Holdings, and Aptiv.

Even those observers who are optimistic about consumers' resilience warn that gas prices are a wildcard.

Yardeni Research President Ed Yardeni thinks that spending should stay strong for the rest of 2026, with baby boomers leading the charge, aided by widely available credit and the recent larger-than-average tax refunds. "The principal risk is a sustained period of triple-digit oil prices," he writes. "If Brent crude remains above $100 a barrel for long, the tax-refund buffer will eventually be exhausted, real income growth will compress further, and aggregate demand will slow."

He still thinks that baby boomers, who are doing much better than other generations financially and aren't willing to wait to splurge on fun, regardless of the macroeconomic backdrop, will put a floor under spending.

However, on days like Monday, when oil prices are once more in the spotlight, it's a reminder of how far Wall Street's gains can feel from Main Street's worries.

Write to Teresa Rivas at teresa.rivas@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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May 04, 2026 16:21 ET (20:21 GMT)

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