As US Stock Market Hits New Highs, 2 of 3 Americans Are Cutting Back on Spending

The Stock Market vs. The Kitchen Table

America’s stock market keeps climbing. The S&P 500 has been notching new highs, carried by excitement around artificial intelligence and solid corporate earnings. But step away from the trading terminals and into a grocery aisle, a gas station, or a family budget meeting, and the story sounds completely different. Roughly two out of three Americans are pulling back on discretionary spending—dining out less, skipping new clothes, and rethinking weekend outings.

This split between Wall Street euphoria and Main Street belt‑tightening is widening at a pace that demands attention. Just as bond markets have begun signaling unease—something we explored in our recent look at why Treasury term premiums are moving again—the consumer numbers are now flashing their own warning. The data table accompanying this article lays out the latest indicators, and the picture is sobering.

What the Data Shows: Consumer Sentiment Hits Record Lows

Every month, the University of Michigan asks Americans how they feel about their own finances and the broader economy. The answers are compiled into an index, where higher numbers mean more optimism. In May 2026, the index fell to its lowest point since the survey began decades ago. The part that tracks how people see their current financial situation dropped to 45.8. The part that measures what they expect for the future slid to 44.1. Both are record lows.

Figure 1 (the chart below) shows just how steep that decline has been. A reading below 100 already points to widespread pessimism. A reading in the mid‑40s signals something deeper: households don’t feel stretched—they feel eroded. And the number that best captures that erosion is one that appeared spontaneously in the survey responses: 57% of consumers, without being prompted, said high prices are eating away at their personal finances. That figure has jumped from 50% a month earlier.

Inflation Expectations: The Long Shadow of Higher Prices

What makes the current mood different from a typical budget squeeze is that people aren’t just worried about today’s receipt. They’re becoming more worried about tomorrow’s. When consumers expect inflation to stick around, they change their behavior—they delay purchases, trade down to cheaper brands, or stop spending altogether on things they consider luxuries.

In May, Americans told the University of Michigan survey that they expect prices to climb 4.8% over the next year. That’s a sharp bite. Even more telling is what they think about the longer run: over the next five to ten years, they now see inflation settling at 3.9%. That’s up from 3.5% in April and marks the highest reading in seven months.

Gasoline prices are the most visible culprit. According to AAA data, a gallon of regular gasoline has stayed above $4.50 since early May. Since the start of the Iran conflict at the end of February, gasoline has surged more than 50%. That’s a cost families can’t avoid, and it colors how they think about everything else. Joanne Hsu, who directs the consumer survey, noted a critical shift: “Consumers appear worried that inflation will increase and proliferate beyond fuel prices, even in the long run.”

Why This Divergence Matters for the Economy

Consumer spending accounts for nearly 70% of all economic activity in the United States. So when households cut back on meals out, streaming subscriptions, or summer travel, the ripple effects move fast. A restaurant sees fewer tables filled; a retailer orders less inventory; a manufacturer slows production. Multiply that across millions of households, and the engine of the entire economy starts to lose horsepower.

The stock market, on the other hand, tends to price in what it thinks will happen to corporate profits over the coming quarters. Right now, it’s betting heavily that technology companies and AI‑related revenue streams will keep growing, even if Main Street struggles. That bet can work for a while—especially if high‑earning households, who own the bulk of stocks, continue to spend. But if belt‑tightening spreads further, companies that rely on mass‑market consumers may miss their earnings targets. When that happens, stock prices can adjust downward much faster than they rose.

The bond market has been watching these risks closely. As we noted in our coverage of Treasury term premiums, investors are demanding higher yields to hold longer‑dated government bonds, partly because of uncertainty about where inflation and consumer demand are heading. If the consumer really does weaken, the economy could lose momentum even as headline market indices stay elevated—a gap that rarely lasts without consequences.

Conclusion

Record stock market highs and record‑low consumer sentiment are two things that don’t fit together for long. One of them eventually gives way. The most likely path isn’t a dramatic crash but a gradual pullback in spending that chips away at corporate revenues, especially in sectors that depend on discretionary purchases. That could bring stock market enthusiasm back into line with household reality.

What’s new about this moment is the durability of inflation expectations. Even if fuel prices stabilize, the belief that inflation will linger above the Federal Reserve’s 2% target is now baked into many household budgets. That belief shapes how people save, spend, and borrow. It also makes them more cautious—and a cautious consumer is not the rocket fuel that stock market bulls are counting on.

For investors, the takeaway is not to abandon all optimism, but to watch consumer data with the same attention they give to corporate announcements. The record highs on Wall Street rest on a foundation where two out of three Americans are already scaling back. That foundation deserves a closer look.