😏 Confidence or arrogance?

Happy Monday, and an even happier new year. Let’s make 2025 an unforgettable year in all the best ways.

I’m writing this newsletter to the background of an AI-generated hip hop mix on Spotify, and TBH it’s inspiring me to write a lot about confidence. Not necessarily self-confidence, although that’s a great topic for another day.

I’m 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, baby…and why we may be getting a little too arrogant.

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We’re talking confidence this week, so let’s rewind to the halls of high school.

You know, a time in life when you were your most confident.

Uh…yeah, right. If that’s you, then I’m sorry—you peaked at 17.

It’s prom season, and you’re standing in front of your locker wondering when that special someone will ask you to the dance. Or maybe you’re that special someone, planning the perfect promposal for your crush.

It’s time to ask, and you’re 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 he’s 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 – he’s 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.

We’ve all seen the difference between confidence and arrogance.

Confidence – a constructive state of trust and certainty – helps you own the room, control the narrative, and get that prom date. Arrogance – a destructive air of superiority – sets you up for embarrassment, whispers and abject failure.

And there’s a thin line between the two, my friend.

Americans are unusually confident right now. They’re making money, enjoying stable prices, and straight-up feeling themselves as a new administration prepares to enter the White House.

At least that’s 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.

Hopes for job market prospects have risen for three straight months — something we haven’t 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.

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 that’s 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 don’t know, adjust their models and count their cash?

Seriously, surges in confidence often correspond with a strong economy. Since 1970, when the Conference Board’s 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.

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 – and understandably – miserable. The Federal Reserve – that quirky group of policymakers in DC that celebrated New Years with economic crosswords instead of champagne – 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. 

Confidence’s impact on the market’s psyche is undeniable.

Remember that thin line between confidence and arrogance, though?

I think we’re dangerously close to crossing it.

We’ve 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 – 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 c’mon, 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. That’s great, but have people already factored that in? If so, there’s 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 it’s undoubtedly harder.

I’m not one of those people who think doom is coming because everybody’s happy. If the economy is growing, it’s tough to see a disastrous crash on the horizon. Besides, it is very difficult to call a bubble and predict precisely when it’ll pop. For the love of the market gods, please don’t sell out of everything based on vibes alone.

Let’s face it. We’ve 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 don’t 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 don’t let your attitude stray into arrogance. That’s when you – and your investments – are the most vulnerable.

Thanks for reading! Happy new year.

Callie

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