A Key Five Sigma Macro Divergence; Store Pics of Seasonal Items & Protein Power Alley; Spend Muted; Sentiment Historically Low: Holiday Macro Monday on Tuesday

By David Schick and Jonathan Feeney and David Katzman and Jack Hermann Published on May 26, 2026 PDF

Summary: (1) See charts of the week at the top and store pics at the end of full report – there is now real risk in the five sigma divergence between Consumer Sentiment and stock market performance and we include our store check pics from Costco seasonal items and protein power alley introductions; (2) Consumer Velocity ticked up slight to +1.9% y/y T4W and 12W is running +2.6%, with T4W < T12W for the fifth straight week; underlying trend still slightly soft vs. post-2022 average, see Fig 1; (3) Housing activity remains largely frozen with 30Y FRM at 6.51% (-41 bps y/y T4W) and home prices flat y/y, though precursor metrics show some positive inflection, see Fig 3-6; (4) Prices have retreated from highs but gas inflation remain the dominant macro signal at +70% y/y T4W (1.4 std dev above average), now firmly in the 6-8 week window where sustained pressure historically shifts consumer behavior, see Fig 7; (5) Sentiment hitting all-time lows (44.8) for the second straight month, down -14% y/y, with lower-income (-15% T3M) and middle-income (-11% T3M) worsening while upper-income is flat, see Fig 9-12; and (6) Wealth Effect Index is at +15.1% y/y, increasing for the 8th consecutive week, see Fig 13-16.

Charts of the Week

Stocks are Up and Sentiment is Down – They Typically Move Together

Source: Optimal Advisory Analysis, University of Michigan, FRED

Rate-of-Change Lens on Newly Divergent Trends

Source: Optimal Advisory Analysis, University of Michigan, FRED

Historic 5+ Sigma Divergence

Source: Optimal Advisory Analysis, University of Michigan, FRED

Our Consumer Velocity tracker improved from last week, up +1.9% y/y T4W following +1.5% y/y the prior week, though the T12W trend decelerated slightly to +2.6% y/y (from +2.7%). The underlying trend remains slightly soft (0.4 standard deviations below the post-2022 average on T12W and 0.6 standard deviations below on T4W). The T4W vs. T12W Inflection was -0.7 pts, the fifth consecutive week of shorter-term growth lagging longer-term (although the gap is narrowing). See Fig 1-2.

Housing activity remains virtually frozen but some positive inflection in precursor metrics. US 30Y FRM rate is up to 6.51%, running down -41 bps y/y on a T4W basis (0.6 standard deviations below average since 2020). MBA’s mortgage applications for purchase index is running up +8% y/y while refinance applications index is running up +35% y/y. Median home prices are flat y/y. Roughly 18% of US GDP is related to the selling, building, fixing, lending to, and furnishing of homes – velocity matters for the economy. See Fig 3-6.

Gasoline inflation remains the dominant macro signal (though gas prices have retreated from recent highs) as the latest weekly print is up +64% y/y, with the T4W now at +70% y/y and the T12W at +56% y/y. The T4W reading is 1.4 standard deviations above average and we are now firmly in the 6-8 week window in which history suggests sustained price pressure begins to materially change consumer spending behavior. We continue to flag that utilities (electricity and heating fuel) run about 9% of lower-income household spending vs. 4% for higher-income households – compounding the squeeze at the bottom of the income distribution. See Fig 7-8.

Sentiment is at all-time lows (currently at 44.8) for the second consecutive month, down -14% y/y this month despite lapping exceedingly weak comparisons (revised even further downward). Overall, headline Sentiment is down -14% y/y this month alone and down -8% on a T3M basis (0.7 standard deviations below average) and -19% y/y on a T9M basis (1.8 standard deviations below average). Upper-third income Sentiment is down -1% y/y on a T3M basis (0.1 standard deviations below average), after declining -4% y/y T3M last month. Middle-income Sentiment is down -11% y/y on a T3M basis (0.8 standard deviations below average) after declining -8% y/y T3M last month, and lower-income Sentiment has declined -15% y/y on a T3M basis (1.3 standard deviations below average) compared to -13% last month. See Fig 9-12.

Consumer “Wealth Effect” continued momentum carried by equity returns. Optimal Advisory’s Wealth Effect Index is at +15.1% y/y (0.4 standard deviations above average since the start of 2022 and higher for 8 consecutive weeks). Equity returns have been strong, shrugging off conflict in the Middle East and higher energy prices, while beginning to lap a softer market from Spring 2025. With home prices flat y/y we note the “flywheel” of wealth effect turning higher. See Fig 13-16.

Our Multifactor Macro Market Model has been suggestive of March 2026 softness, rebound. Optimal’s Multifactor Macro Market Model projects the S&P 500 as well as bull and bear cases based on lagged data for 12 macroeconomic factors. The model suggested the S&P 500 to fall to just below 6000 by March, before rebounding back up to 6400 by May. We use this model as a guide to how macro would guide the market, given our analysis of current variables. This is, of course, outside of other factors at work. See Fig 17-18.

Figures 1-2: Optimal Advisory Consumer Velocity Monitor

Source: Optimal Advisory Analysis, Bloomberg Second Measure

Consumer Spending y/y Relative to Historical Average

Source: Optimal Advisory Analysis, Bloomberg Second Measure

Figures 3-6: Housing Kinetic Energy

Source: Optimal Advisory Analysis, Freddie Mac, Zillow, Redfin

Mortgage Rates, For Sale Inventory, & Median List Price y/y Relative to Historical Averages (Since 2020)

Source: Optimal Advisory Analysis, Freddie Mac, Zillow, Redfin

Figures 7-8: Gas Prices y/y

Source: Optimal Advisory Analysis, Bloomberg

Gas Prices y/y Relative to Historical Averages (Since 1992)

Source: Optimal Advisory Analysis, Bloomberg

Figures 9-12: Consumer Sentiment T3M and T9M y/y

Sentiment y/y by Income Tercile Relative to Historical Averages

Comparison of Sentiment y/y Across Income Terciles

Source: Optimal Advisory Analysis, University of Michigan Consumer Survey

Figures 13-16: Consumer Wealth Effect & Components y/y

Source: Optimal Advisory Analysis, Bloomberg, Zillow, Redfin

Median Home Price y/y, S&P 500 y/y, & Wealth Effect Index (Since 2022)

Source: Optimal Advisory Analysis, Bloomberg, Zillow, Redfin

Figures 17-18: Optimal Advisory Multifactor Macro Market Model

Historical Test Predictions vs. Actual (On Test Data Only)

Source: Optimal Advisory Proprietary Analysis, Bloomberg, FRED, BLS, BEA, OECD, University of Michigan Consumer Sentiment Survey, U.S. Census Bureau, FRB

Actual & Projected S&P 500 (Including Training & Test Data) with Confidence Intervals

Source: Optimal Advisory Proprietary Analysis, Bloomberg, FRED, BLS, BEA, OECD, University of Michigan Consumer Sentiment Survey, U.S. Census Bureau, FRB

Figure 19: Index & Sector Performance

Source: Optimal Advisory Analysis, Bloomberg, prices at market close 5/22/2026

Store Pics Week Ending May 25th
All Pics Source: Optimal Advisory

Protein Power Alley

Seasonal Home Improvement

Seasonal Summer

Crab Cakes in Prepared Meals

Clearly Canadian Endcap Makes it Feel Like the 80s

2nd Swing Golf – Golf Trends Remain Hot (as per Optimal’s David Katzman) and We Note Strong Presentation and Execution

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