If you only listened to investors last week, you would think stocks were nowhere near record territory. Bears outnumbered bulls again in a widely followed investor poll, retail investors have been heading for the exits, and July’s retail sales report renewed concerns that the American consumer is showing weakness. Yet the S&P 500 pushed to new all-time highs last week, climbing 0.4%.
We think that disconnect is good news. Bull markets have historically ended amid euphoria, not anxiety, and last week brought fresh evidence that euphoria is nowhere in sight.
Uncertainty Just Won’t Go Away
We noted recently that the American Association of Individual Investors (AAII) Sentiment Poll had seen more bears than bulls for three straight weeks. Well, now make it four. In the week ending August 12, bears came in at 37.9% versus 34.7% bulls, and the bulls slipped from the week before even as stocks pushed to new all-time highs. Going back a month, bearish readings have run 42.3%, 42.1%, 38.0%, and now 37.9%.
Sentiment polls can change quickly, and someone is buying despite the sour mood of retail investors, but from a contrarian point of view, we believe the weak polling is encouraging. One thing that would concern us is if we had a few bad days and everyone stayed calm. That is not what is happening. Investors are still nervous, and historically, worried investors have been better fuel for a bull market than complacent ones.
Retail Headed for the Exits
We also like to follow the hard data on what investors are actually doing, not only what they say they think. Data from Citadel Securities showed retail investors sold at one of the highest clips in history during the final week of July, right as the momentum and AI names were breaking down. That kind of selling can feel alarming in the moment, but it also tends to flush out weak hands, and stocks have historically had an easier time moving higher once that has happened.
The Slingshot Still Has Room
We shared this table back in July, and we think it is worth another look. After a negative first quarter, the S&P 500 came back with a historic gain of nearly 15% in the second quarter. Going back to 1950, there were 17 prior instances of a double-digit quarter following a down quarter. In 16 of those 17, the following quarter was higher as well, the lone exception a 0.1% decline back in 2002. That is a small sample size and we would not lean on it too hard, but it lines up with what we have been seeing elsewhere. After a flat July, things appear to be getting back on track in what has historically been a weak month of August.
Forty-Four Years Ago This Week
One more piece of history worth remembering. On August 12, 1982, stocks finally bottomed after a brutal stretch, with the Dow Jones Industrial Average closing at 776.92. Stocks soared over the next five years, until the Crash of 1987. But the bigger picture was even better: That day kicked off an 18-year secular bull market that did not peak until January 2000, at 11,722.98—a gain of more than 1,400%.
We are not predicting a repeat of anything like that. But it is a good reminder that bull markets have historically lasted much longer than most investors expect, a theme we covered at length in our Midyear Outlook: Still Riding the Wave. The hardest part of a long bull market has never been finding it. It has been staying in it.
The opinions contained in this complimentary download is provided entirely on behalf of CWM, LLC and is in no way related to Cetera Wealth Services LLC, or its registered representatives. This information is from sources believed to be reliable, but Cetera Wealth Services LLC cannot guarantee or represent that it is accurate or complete.
The Consumer Is Slowing, Not Breaking
Wall Street is not the only place where nerves are showing. Every time we get a soft consumer spending print, concern rises that the consumer is tapped out. This time it was retail sales, which fell 0.6% in July, while core retail sales (excluding autos and gasoline stations) fell 0.4%. But Amazon Prime Day had shifted to June, which had pulled sales forward. Zooming out, retail sales have run at a 2.4% annualized pace over the past three months, and core sales at 2.1%. That’s not great, and it does mark a momentum shift after strong readings earlier this year, which were likely helped by larger-than-usual tax refunds. These numbers are nominal, though. Adjusted for inflation, consumption is probably treading water, which is why real GDP growth is running below trend.
Inflation is still a big problem for consumers, but they’re still spending. How? Income growth is relatively strong, but barely keeping up with inflation. More interestingly, consumers are saving less than they used to rather than taking on more debt to finance consumption.
The savings rate has fallen from 4.3% at the end of 2024 to 2.5% in June. This is not a “drawdown” in savings; it measures the difference between aggregate disposable income and consumption each month, as a share of income. Consumers are simply saving less, perhaps because they feel wealthier thanks to a booming stock market and higher home equity.
- The S&P 500 has gained 155% from the end of 2019 through July 2026.
- Home prices (Case-Shiller National Home Price Index) are up more than 50% over the same period.
Carson Investment Research Team, FactSet Research Systems, 8/17/2026
Households Are Still Deleveraging
On the other hand, credit card debt has fallen 1.1% from the end of 2025, according to the New York Federal Reserve’s quarterly report on household credit and debt. At the same time, disposable income is up 2.4%. In short, households became less levered again this year. For perspective, over all of 2019:
- Total household debt grew by 4.4%.
- Credit card debt grew by 6.6%.
- Disposable income grew by 2.7%.
It’s remarkable that disposable income grew faster than overall debt in 2023–25. In 2026, the gap has widened further, with debt actually shrinking. Credit card debt now stands at 5.3% of disposable income, versus 5.7% in Q4 2019 and a 2003–19 average of 6.4%.
Disposable income is what matters for servicing debt, and debt service payments are just 11.2% of disposable income—below the 1980–2019 average of 12%, and even below the 2019 level of 11.7%. Recall that 2019 came after a decade of deleveraging following the financial crisis. Yet debt service today is running even below 2019 levels.
Mortgage Originations Eased, but Auto Originations Hit a Record
Mortgage originations fell 4.7% in Q2, down $25 billion to $505 billion, including refinances. That’s not surprising given higher interest rates amid persistently elevated inflation.
Most of the decline came from “high quality” borrowers with credit scores above 760 (-$22 billion). That group still accounts for 58% of originations and has driven most mortgage borrowing in recent years. Lower-score borrowers, especially subprime borrowers with scores below 620, are taking out far fewer mortgages, in sharp contrast to the mid-2000s.
Quality matters. Credit growth is less important than in prior cycles, and borrowing is concentrated among the highest-rated borrowers, unlike in the mid-2000s. This also suggests there’s a lot of “dry powder” in home equity waiting to be unlocked if mortgage rates pull back. Assuming home prices hold and mortgage rates fall toward 5–6%, housing could provide a meaningful tailwind for the economy over the next few years. Even if we enter a recession, lower rates could pull mortgage rates down sharply and help housing lead the economy out.
Auto loans are especially interesting. Originations jumped 15.8% to $211 billion, the strongest quarter in the history of the data. Credit quality held up, too: The median score was 716, well above the roughly 680 average in the mid-2000s. That’s another sign consumers feel reasonably good about the economy. If they were deeply worried about their jobs, they’d be less likely to make a big-ticket purchase like a car.
Quality matters here, too. The 10th percentile credit score for auto originations is around 580, versus a 550 average in the mid-2000s. Borrowers below 620 make up 16% of originations now, versus 20% pre-pandemic and 28% in the mid-2000s. The long and short of it: Even if there is a recession in the next 12–24 months, a debt crisis looks unlikely. Most new mortgage and auto borrowing is concentrated at the top of the credit-quality spectrum.
Delinquencies Look Worse Than They Are
But what about delinquencies? The share of total balances current on payments actually rose from 95.24% to 95.27% in Q2—exactly the Q4 2019 level and well above the 93.3% seen in Q4 2007. Here is the percent of balances that are 90+ days delinquent right now:
- Credit cards: 12.9% (versus 8.4% in Q4 2019)
- Auto loans: 5.5% (versus 4.9% in Q4 2019)
- Student loans: 10.6% (versus 11.1% in Q4 2019)
Keep in mind that mortgages and HELOCs make up the bulk of household debt, and serious delinquencies there are running around pre-pandemic levels—0.99% for mortgage debt (versus 1.07% in Q4 2019) and 0.99% for HELOCs (versus 0.84% in Q4 2019).
One concern is that transitions into serious delinquency (90+ days) are running above pre-pandemic levels. But the transition rate measures newly delinquent balances as a share of the prior quarter’s non-delinquent balance. With debt balances low, it doesn’t take much to make that rate look alarmingly high.
There’s also an unusual reason why delinquent balances look high right now. The New York Fed published a blog post on August 11 showing that charged-off credit card debt is simply staying on credit reports far longer than it used to. Between 2004 and 2012, about 40% of borrowers’ charged-off debts were still being reported a year later. By 2024, that share had doubled.
That matters because “severely derogatory” balances—loans lenders have effectively written off—never leave the New York Fed’s delinquency measure. Lenders drop them once deemed uncollectable, typically 120–180 days past due, but the Fed keeps counting them. So delinquent balances can mechanically build even without new borrowers falling behind. When researchers stripped out severely derogatory balances, delinquencies stabilized after 2024. In other words, the headline measure overstates credit card stress. One caveat: Delinquency rates remain especially elevated for borrowers in low-income areas and younger borrowers, and aggregate calm can hide real pockets of pain.
The big picture is that delinquencies are low relative to incomes. Seriously delinquent balances overall are just 2.6% of disposable income, down from 2.7% in Q1. Even after the student-loan restart pushed the ratio higher, it remains below the 2.7% seen in Q4 2019.
So yes, consumer spending is losing some momentum, especially with inflation biting. But slowing is not the same as breaking, and with household leverage, debt service, and delinquencies still relatively contained, there’s a lot more resilience here than the monthly headlines suggest. None of this means consumers are immune to a slowdown, especially if the labor market weakens. But if a recession does arrive, it’s hard to see household balance sheets as the source of the problem: They look more like a cushion than a vulnerability. Paired with sentiment that remains stubbornly cautious, that’s a backdrop we believe this bull market can continue to climb.
S&P 500 — A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ 100 Index is a stock index of the 100 largest companies by market capitalization traded on NASDAQ Stock Market. The NASDAQ 100 Index includes publicly traded companies from most sectors in the global economy, the major exception being financial services.
The views stated in this letter are not necessarily the opinion of Cetera Wealth Services LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.
A diversified portfolio does not assure a profit or protect against loss in a declining market.
All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful. This information is from sources believed to be reliable, but Cetera Wealth Services, LLC cannot guarantee or represent that it is accurate or complete.
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