Consumer Sentiment and Stock Market Returns

Business media and expert commentators sometimes cite the monthly University of Michigan Consumer Sentiment Index as an indicator of U.S. economic and stock market health, generally interpreting a jump (drop) in sentiment as good (bad) for future consumption and stocks. The release schedule for this indicator is mid-month for a preliminary reading on the current month and end-of-month for a final reading. Is this indicator predictive of U.S. stock market behavior in subsequent months? Using monthly final Consumer Sentiment Index data and monthly levels of the S&P 500 Index during January 1978 through July 2020, we find that: