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I don't think it's the right question for this context.
Fair, enough.
If money is diverting from producing consumer goods into investments in research and development, there will naturally be a reduction in consumer sentiment because the market (free or not) is catering less to consumers of final goods in the present.
To me it is hard to see how the former necessarily leads to this result, I.e. a reduction in consumer sentiment. Does catering less to consumer goods cause a loss in sentiment?
Isn't it a bit like saying that if a cattle rancher invests less into raising grass-fed cows, then the market feels less confident in buying good quality meat?
What consumers experience in the scenario I’m describing is a reduction in supply, which translates into higher prices.
Consumer sentiment pretty much just reflects the supply of goods.
What consumers experience in the scenario I’m describing is a reduction in supply, which translates into higher prices.
Where I get confused is that I always thought a lower supply leads to higher prices only if demand increases, but bad sentiment sounds like the opposite is happening.
No, if demand is the same and supply contracts, there will be higher prices. Same money chasing fewer goods, so to speak.
Bad sentiment is consumers feeling like the goods and services they want aren't (or won't be) available at prices they're willing to pay (or maybe just at higher prices than they're used to). Broadly, it's the feeling of being pinched and not able to maintain one's lifestyle. It generally maps to being unhappy with the supply curve.
I see.
so I am curious how you account for the divergence in the two lines on the graph, when previously they seem relatively correlated.
Did previously, s and p growth mirror investment in consumer products more, whereas now it is mostly driven by ai speculation?
That is basically what I'm thinking. I don't know that we've ever seen the economy so tilted towards something that doesn't have direct consumer value.
The story is that AI will radically reduce costs of production in the future, which means eventually the supply curve will shift back outwards and consumers will be happy again.
I don't think it's the right question for this context.
If money is diverting from producing consumer goods into investments in research and development, there will naturally be a reduction in consumer sentiment because the market (free or not) is catering less to consumers of final goods in the present.
If it's generally believed that these investments will be fruitful, stock prices will reflect that in the present.