Consumer Sentiment Plunges To All-Time Lows on Iran War. Why Are Markets At Record Highs?

Consumer sentiment has collapsed to historic lows amid escalating geopolitical tensions related to the Iran conflict, reflecting heightened household anxiety over economic stability and inflation. Despite this, equity markets are trading at record highs, driven by risk-on capital flows into defense, energy, and aerospace sectors that benefit from increased military spending and supply disruption premiums. The divergence stems from a decoupling of consumer psychology from corporate earnings, where market pricing reflects anticipated government spending surges and strategic energy stockpiling rather than broad-based consumer demand. This dynamic reinforces rate differential and risk premium channels, with investors favoring tangible assets and high-beta equities over consumer-sensitive sectors. Traders will watch the next CPI release and Defense Department procurement announcements for signals on inflation persistence and the scale of military escalation funding.

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