Global patterns in consumer confidence and stock returns

This study examines the dynamic relationship between consumer confidence indices worldwide and Europe, United States, and China stock markets’ performance from January 2007 to March 2023, analyzing both aggregate markets and sector-level patterns. We document three key findings. First, we identify strong bidirectional causality between consumer confidence and stock returns in developed markets (Europe and the US), consistent with traditional wealth effect and investor sentiment channels. Second, China exhibits a distinct asymmetric pattern where consumer confidence predicts stock returns but not conversely, reflecting its unique market structure and regulatory environment, while Chinese returns only influence East Asian consumer confidence, suggesting regional economic interdependence. Third, the COVID-19 pandemic period revealed significant deviations, with some negative correlations emerging, particular in the health care and other defensive sectors across all markets. While consumer confidence-return connections weakened in Western markets during the crisis, they strengthened in China, likely reflecting its distinctive policy response and market insulation. These findings provide important insights for understanding how investor sentiment transmits across global markets and offer practical guidance for internationally diversified portfolios, particularly during periods of economic stress.