How do you feel about the economy? It depends on whether you own stocks.

Americans who own stocks are feeling much better about the economy than people who don’t. 

The best way to figure out how someone feels about the economy might be to ask them whether they own any stocks.

The University of Michigan’s monthly consumer sentiment index offers a popular reading of this. After bottoming out in June 2022, the gauge has recovered over the past two years — though it remains below pre-pandemic levels.

That rebound has been driven by the top one-third of stock owners, whose sentiment surged 71% during the period, more than six times the increase for non-owners. Not so coincidentally, the S&P 500 has soared nearly 50% over the same timeframe.

While that top group of stock owners is enjoying the rally, others feel left out — like they’re not getting the same economic benefit. As it stands right now, the consumer-sentiment gap between the two groups is currently the second-widest it’s ever been, dating back to 1998, University of Michigan data shows.

“Rising stock markets benefit consumers with stock portfolios but leave behind consumers who do not own stocks,” said a University of Michigan consumer sentiment report published in July.

The sentiment spread between large stock owners and people without stocks has followed a predictable historical pattern. During times of market prosperity, like the past two-plus years, it’s expanded. Sure enough, the S&P 500 sits just 0.6% from record highs.

On the flip side, the only times consumer sentiment for non-stock owners has been more positive than their shareholding peers has been during times of extreme market weakness. Examples include 2022 (dotcom bubble), 2008-2009 (Global Financial Crisis), 2020 (COVID crash), and 2022 (Fed rate hikes).

The chart below shows the dynamic in action. Since the 2022 low — and during recoveries from similar periods of depressed sentiment — the optimism of the top third of stock owners (represented by the red line) has outpaced that of non-owners and the overall index.

Going forward, all eyes in the stock market are on the Fed’s pace of expected rate cuts, and the degree to which that will stimulate an economy battling both inflation and a tight job market. Much also hinges on the ability of artificial intelligence titans like Microsoft and Alphabet to translate big spending into actual profits.

If anything transpires to derail the currently bullish market forecast, expect stock owners’ sentiment to decline, and the spread outlined above to tighten from near-record levels.