Weekly Economic Snapshot: Record Investor Risk and Near-Historic Sentiment Lows

However, despite the relatively strong hiring figures, the report still showed signs of a cooling labor market. The revised August payrolls turned negative, showing a loss of 4,000 jobs, and unemployment continued to rise. The unemployment rate reached 4.4%, its highest level in nearly four years and above the expected 4.3% reading.

It's important to note that this backward-looking data does not reflect the current state of the labor market, as the report was delayed due to the government shutdown. Furthermore, the scheduled October jobs report will not be published, with some of its data incorporated into the upcoming November release.

Michigan Consumer Sentiment

The University of Michigan Consumer Sentiment Index dropped nearly 5% from October to 51.0 this month, remaining at its lowest level since 2022 and securing the second-lowest sentiment reading of all-time. While the final figure was revised slightly higher following the end of the government shutdown and exceeded the forecast of 50.3, the reading still reflects a nearly 30% decline compared to one year ago.

The index’s deterioration can largely be attributed to significant declines in consumers’ perceptions of their current personal finances and buying conditions, though this was partially offset by improved future expectations. Notably, even consumers with the largest stock holdings, who previously reported increased sentiment, have grown pessimistic over the market’s performance the past two weeks.

On the inflation front, near-term expectations cooled for a third consecutive month, dropping from 4.6% in October to 4.5% in November. Additionally, long-term expectations cooled significantly, falling from 3.9% to 3.4% for the five year outlook.

The Consumer Discretionary Select Sector SPDR ETF (XLY) is tied to consumer sentiment.

Margin Debt

Margin debt climbed to a new high of $1.18 trillion in October, marking the sixth consecutive monthly increase and its fifth straight record. More significantly, when adjusted for inflation, the real debt level is also at its highest level in history, sitting just above the prior 2021 peak. This historic climb represents a 40.7% surge over the past year and a 4.8% increase month-over-month.

Margin Debt is a key indicator of investor sentiment and risk appetite. There is a near-parallel relationship between debt levels and market, as significant increases in borrowing, often correlate with market peaks, while troughs in debt tend to precede market bottoms.

While high levels of margin debt can signal strong investor confidence, it also means a higher risk appetite which can increase market volatility. The sheer scale of borrowing over the past several months suggests unparalleled levels of risk-taking in the current stock market environment, potentially setting the stage for a magnified sell-off should a market decline trigger margin calls.

Market Reactions

The S&P 500 had a volatile week, falling below its 50-day moving average for the first time since April. The index ultimately posted a weekly loss of 2.0%. As a result, the SPDR S&P 500 ETF Trust (SPY) fell 1.9% last week. Meanwhile, the S&P Equal Weight Index was 0.9% from the previous week and the Invesco S&P 500® Equal Weight ETF (RSP) fell 0.8%.

The 10-year Treasury yield finished the week at 4.06%, while the 2-year note finished at 3.51%.

The CME FedWatch Tool currently shows a 72% likelihood that the Fed will cut rates by 25 basis points at their next meeting. Markets are also pricing in three additional 25 basis point cuts in 2026.

Economic Data in the Week Ahead

The upcoming week will feature a handful of major economic data on a compressed timeline, due to the holiday shortened week and the effort to clear the backlog from the recent government shutdown. The primary focus will be on the release of key September data, including reports on inflation, consumer spending, and business investment. These rescheduled reports will include the PCE Price Index, the Producer Price Index, Retail Sales, and Durable Goods.

Beyond the catch-up reports, the week still holds its regularly scheduled releases, including the preliminary reading of Q4 Gross Domestic Product (GDP). Data on consumer health will be provided by the Conference Board Consumer Confidence Index, and the housing sector will be analyzed with releases including the S&P Case-Shiller Home Price Index, Pending Home Sales, and New Home Sales. Rounding out the data will be regional manufacturing and activity reports, notably the Richmond Fed, the Chicago PMI, and the Chicago Fed National Activity Index.

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