Market experts are concerned about the diminishing consumer confidence as a potential risk to the stock market. The Consumer Confidence Index recently hit its lowest point since 2021. Investors are closely monitoring the possibility of reduced consumer spending, which could negatively impact corporate earnings. Americans' perception of the economy is currently pessimistic, leading to a less optimistic outlook on expenditure.

The Conference Board's latest survey reported that Consumer Confidence stood at 92.9 in March, marking the lowest level seen since 2021. The Expectations Index, reflecting consumer sentiments about income, business conditions, and the job market, dropped to 65.2. This level of pessimism among consumers is the most severe in 12 years and falls significantly below the crucial threshold of 80 historically associated with economic recessions, according to the Conference Board.

A decline in consumer confidence poses a significant threat to the market, especially if spending habits change among Americans. Analysts at UBS Global Research highlighted reduced consumer spending as a contributing factor to their bearish outlook for the stock market. They projected a potential correction of the S&P 500 to 5,300, which would represent an 8% decrease from current levels. Additionally, the firm estimated a drop in 12-month forward earnings growth expectations for the US to as low as 6%, down from the current 12%.

The effects of lower spending anticipation are already impacting the market, with shares of airlines and retailers such as Kohl's, Dick's Sporting Goods, and Delta Airlines experiencing declines due to concerns surrounding a potential slowdown in consumer activity. Consumer discretionary stocks in the S&P 500 have dropped by 9% since the beginning of the year, contrasting with the overall index which has decreased by approximately 2%.

Analysis from Torsten Sløk, chief economist at Apollo Global Management, asserts that the recent significant decrease in the consumer discretionary stock basket within the S&P 500 indicates growing investor apprehension regarding future consumer expenditure on major purchases like cars, appliances, and electronic devices.