Investor sentiment may be turning more positive, but consumers remain cautious

September has a history of being a challenging month for US equity markets, but not this September. However, tariffs, trade tensions, and regional conflicts continue to influence investor sentiment, which remains generally cautious; however, there are signs that it may be starting to change. The CNN Fear and Greed Index remains in neutral territory, but is nudging greed. There is some indication that retail investor sentiment has improved over the past few weeks, as the AAII sentiment survey reported on Thursday that retail investors are slightly more optimistic than on average.

 September’s Merrill Lynch investor survey revealed that a net 24% of respondents believed the global CPI would be higher in 12 months. However, around 60% expected at least a 3 cut to US interest rates in the coming year, with around half that number expecting four cuts. Only a small minority of those polled expect a hard landing for the US economy, with the overwhelming majority expecting a soft landing. Despite a net of more than 50% of them think equities look expensive, Merrill Lynch’s broadest measure of Fund Manager Survey Investment sentiment, based on cash levels, equity allocation, and global growth expectations, rose to 5.4, the highest level in 7 months. Lastly, they still hate UK stocks, as September saw the biggest rotation out of UK stocks in over 20 years.

Looking to the week ahead, Trump is set to meet with the four top congressional leaders tomorrow, ahead of an expected redo of a Senate vote that will determine whether Congress will keep the government funded beyond Tuesday. Ultimately, the debt ceiling is raised, disaster averted, until the next time.

The US equity market finished the week moderately lower after a winning streak that extended over most of August and much of September. Despite a raging stock market, US consumers remain cautious, according to the monthly Michigan Consumer Sentiment Survey released on Friday. The latest Michigan Consumer Sentiment fell for a second straight month, hitting its lowest level since May.

The latest Inflation data in the form of the monthly PCE rose 0.3% month over month in August, translating to an annual gain of 2.7%. That’s up from a rate of 2.6% year over year in July.

This week, the monthly US employment report will guide the likelihood of further rate cuts this year. At the end of the week, we receive the monthly PMI, and according to S&P Global, after August’s global PMI hit a 14-month high, more recent flash PMI data have hinted that this performance is losing steam as the boost to production and trade from the front-running of US tariffs fades. Developments in US factory prices will also be key data to watch.