For all the forces driving the

United States stock market

— from artificial intelligence to fresh uncertainty on tariffs to geopolitical angst — the health of the American consumer remains a key determinant for whether

the S&P 500 index

will break out of its recent range.

The problem is, getting a read on how they are doing isn’t that easy. Sentiment surveys have shown gloom for months, while spending and income data continue to show strength. Some of that owes to the bifurcation in society, with well-off Americans benefiting from strong investment portfolios and home values driving spending while lower-end consumers struggle.

That’s got Wall Street pros looking for any edge on how to gauge the consumer and what it means for the market. Jim Paulsen, an investment industry veteran and Substack writer, has landed on a somewhat quirky barometer, called the Poor-Rich Indicator, that shows signs of worry among the top-end consumer. The gap between how wealthy households feel about the economy compared with lower-income households is starting to narrow.

When that has happened in the past five years, the short-term move for U.S. stocks has always been higher, Paulsen said. The reason, he suggests, is that policymakers, whether at the Federal Reserve or elsewhere in Washington, become more likely to take action to support economic growth.

“It is a contrarian indicator, but it’s got real teeth, because it suggests that more and more people are altering their behaviors and their attitudes, and then that does bring change,” Paulsen said in an interview. If multimillionaire households show some worry, “policy officials step up a little bit more, and the public accepts greater stimulus.”

Paulsen’s gauge combines survey data from Morning Consult on economic confidence among lower-income versus higher-income households with the relative performance of

Walmart Inc.

shares against a luxury retail index — effectively measuring whether sentiment is improving faster among the lower-end consumer than the higher-end.

“In the short term, typically when the indicator spikes like now in rapid fashion, that’s tended to be fairly soon a good indicator for the stock market,” he said.

Historically, sharp spikes in this “poor versus rich” indicator have coincided with attractive entry points for equities, including around major drawdowns in 2018, 2020 and 2022, according to Paulsen’s analysis. The latest surge since late last year is comparable in magnitude to those prior market turning points.

Paulsen cautioned that the indicator is not a stand-alone tradeable input, but should be considered additive to any market-sentiment analysis.

Fresh data on the state of the consumer will arrive in the next two weeks, with earnings reports from, among others, Target Corp.,

Home Depot Inc.

and Lowe’s Cos., along with the Conference Board’s reading on sentiment. Earlier on Monday, Domino’s Pizza Inc. reported a larger-than-expected rise in comparable sales, as consumers were drawn to the pizza chain’s budget-friendly pies.

And while Friday’s Supreme Court ruling that upended

U.S. President Donald Trump

’s tariff regime won’t be captured in the latter, the handful of retail reports should bring executive commentary on how companies view the state of trade policy. Walmart’s results last week struck a note of caution. The University of Michigan consumer sentiment index published Friday fell short of expectations, largely owing to gloom among lower-end consumers.

The latest batch of economic data offers clues on why higher-end consumers might be starting to sour some on the economy. Inflation-adjusted gross domestic product increased at an annualized 1.4 per cent in the fourth quarter — below all economist estimates. The

United States Federal Reserve

’s preferred measure of underlying inflation — the core personal consumption expenditures price index — showed cost pressures remain stubborn.

That data, though, could also be a harbinger for more policy stimulus — jibing with the short-term signal form Paulsen’s indicator.

Another reason for the higher-end gloom is that stock portfolios have largely been stagnant for four months. America’s richest, as tracked by the Bloomberg U.S. Billionaires Investment index, have seen their investment wealth drop by one of the largest margins since the bull market started in late 2022. This index measures the performance of the top 50 U.S.-listed companies held by U.S. billionaires. Similar slumps have historically preceded stronger equity performance.

“You have to keep open the possibility it’s a spurious relationship built on a short history since 2018, but I don’t think the intuition is crazy: when high earners start sounding relatively worse than low earners, you’re often seeing the point where the marginal buyer with the most exposure to stocks is getting uncomfortable and taking risk down,” said Dave Mazza, chief executive officer of Roundhill Investments. “That tends to happen late in the de-risking cycle, not early, which is why it can show up as a contrarian buy signal.”

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Mazza says the construction of the indicator lends it some gravitas beyond a sentiment survey, as it combines a high frequency confidence gap between lower and higher income households with a market signal, namely Walmart outperforming a basket of luxury retailers.

When they move in tandem, he said, the same message comes from two angles: the wealthy are turning cautious by shifting toward lower-end retailers. Another point as to why it may be a buying signal is because the pain has already been felt and expectations start to get reset.

Bloomberg.com