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š Confidence or arrogance?
Our collective rizz is the biggest risk of 2025
Happy Monday, and an even happier new year. Letās make 2025 an unforgettable year in all the best ways.
Iām writing this newsletter to the background of an AI-generated hip hop mix on Spotify, and TBH itās inspiring me to write a lot about confidence. Not necessarily self-confidence, although thatās a great topic for another day.
Iām talking confidence on a grander scale. The type of confidence that motivates you and billions of other Americans to walk into a Gucci store and make it rain.
Consumer confidence, babyā¦and why we may be getting a little too arrogant.
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Weāre talking confidence this week, so letās rewind to the halls of high school.
You know, a time in life when you were your most confident.
Uhā¦yeah, right. If thatās you, then Iām sorryāyou peaked at 17.
Itās prom season, and youāre standing in front of your locker wondering when that special someone will ask you to the dance. Or maybe youāre that special someone, planning the perfect promposal for your crush.
Itās time to ask, and youāre nervous. Palms are sweaty, knees weak, arms are heavy. Your best friend tells you to breathe and speak confidently. Nobody is going to say yes when you can barely get the words out.
So, you puff your chest, pull a rose from behind your back and ask in a steady, confident tone. Boom...you and your crush are going to prom.
Then, you see the school jock saunter down the hall. He thinks the world of himself, and heās about to ask the head cheerleader to the dance.
Everybody but him knows this is a disaster about to happen. He has no idea that the cheerleading team is on to him ā heās shamelessly flirted with all of them, and the whole school knows it. Except for him, of course. Public enemy #1, a la John Tucker Must Die.
He drops a shallow, presumptuous pick-up line, and she throws her Big Gulp in his face.
Your eyes widen. That just happened! Cue the jeers.
Weāve all seen the difference between confidence and arrogance.
Confidence ā a constructive state of trust and certainty ā helps you own the room, control the narrative, and get that prom date. Arrogance ā a destructive air of superiority ā sets you up for embarrassment, whispers and abject failure.
And thereās a thin line between the two, my friend.
Americans are unusually confident right now. Theyāre making money, enjoying stable prices, and straight-up feeling themselves as a new administration prepares to enter the White House.
At least thatās what Conference Board data tells us. In November, consumer confidence rose to a three-year high, driven by higher optimism for the future. Yes, confidence has dropped off a bit since then, but the underlying details are important here too.
Source: Callie Cox Media LLC, Conference Board
Hopes for job market prospects have risen for three straight months ā something we havenāt seen since early 2023.
And perhaps most stunning of all, a record number of Americans believe the stock market will move higher over the next 12 months.
Source: Callie Cox Media LLC, Conference Board
They agree with Wall Street strategists, who almost unanimously agree that the S&P 500 will rise this year, and executives, who are the most upbeat about the economy in two years.
Swagger. Rizz. Whatever you want to call it, we collectively have it, and thatās a good omen for your wallet. Confident Americans are more likely to spend money, and consumer spending is 70% of the American economy. Confident CEOs are more likely to hire people and invest in growth so the rest of us can make more money. Confident Wall Street suits are more likely to, I donāt know, adjust their models and count their cash?
Seriously, surges in confidence often correspond with a strong economy. Since 1970, when the Conference Boardās consumer confidence index has hit a 52-week high (like it did in November), the economy kept growing over the following 12 months about 90% of the time. And when confidence is growing, the stock market has often performed better over time.
Source: Callie Cox Media LLC, Conference Board, YCharts. Data since 1970. Confidence changes are measured as the change in quarterly averages.
The recent surge in confidence is especially welcome given the weird vibecession the world has been stuck in these past few years. The US economy has been roaring, but people have been vocally ā and understandably ā miserable. The Federal Reserve ā that quirky group of policymakers in DC that celebrated New Years with economic crosswords instead of champagne ā increased rates quickly in 2022, toppling the stock market and making mortgages ultra expensive.
Prices were growing at a 9% clip. Elon Musk bought Twitter and turned it into a doom propaganda machine. Enduring all of that and emerging in a good mood feels like a cosmic victory.
Confidenceās impact on the marketās psyche is undeniable.
Remember that thin line between confidence and arrogance, though?
I think weāre dangerously close to crossing it.
Weāve mustered up the strength to ask our crush to prom, but have we turned into the jock unknowingly strolling into painful rejection?
Maybe.
There are definitely signs of cockiness. For one, the stock market seemed to defy gravity there for a while. Tech stocks were untouchable. Crypto bros starting bragging about their bags. Fartcoin became a thing.
All of that, only for the S&P 500 to get knocked off its axis on December 18. The stock market posted its second-worst day of the bull market after Fed chair Jay Powell told the world that the economy was fine and inflation was hovering closer to target. Bond prices fell with stocks ā a classic sign of panic.
To be fair, Fed members released projections for two rate cuts this year versus the four they telegraphed in September. But cāmon, we clearly got ahead of ourselves.
Also, the bar for this year is objectively high. S&P 500 earnings growth is expected to average 12% next year, which would be the strongest year for corporate America in seven years. Thatās great, but have people already factored that in? If so, thereās a lot of room for disappointment.
People seem to be conveniently forgetting the cracks that still exist. Unemployment is low, but those who are looking for a new role are having a tough time finding jobs. Can the S&P 500 post stellar profit growth while in a hiring freeze? There are ways to achieve this, but itās undoubtedly harder.
Iām not one of those people who think doom is coming because everybodyās happy. If the economy is growing, itās tough to see a disastrous crash on the horizon. Besides, it is very difficult to call a bubble and predict precisely when itāll pop. For the love of the market gods, please donāt sell out of everything based on vibes alone.
Letās face it. Weāve been spoiled. The S&P 500 has climbed more than 20% for two straight years. A third year of 20% gains is historically rare, and we donāt have the undercurrent of fear and skepticism working on our behalf.
Be confident. You should be. There are reasons to feel good, and you deserve a date to the prom.
But donāt let your attitude stray into arrogance. Thatās when you ā and your investments ā are the most vulnerable.
Thanks for reading! Happy new year.
Callie
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