The largest short interest in the US stock market: University of Michigan

Overnight, U.S. stocks experienced a "Black Friday," with all three major indices declining, led by the Nasdaq, which fell 2.7%. The utilities sector was the only sector to close higher.

The "culprit" behind the sharp decline in U.S. stocks is the University of Michigan.

Due to tariff threats, the short-term inflation expectations from the University of Michigan surged to 4.9% in March, while long-term inflation expectations also reached the highest level since 1993, and consumer confidence hit a new low in over two years.

Since Trump's election, "hard data"—that is, actual economic figures—has remained stable. However, in the past three months, U.S. inflation "soft data" (indicators of inflation expectations based on surveys and markets) has deteriorated sharply, with the University of Michigan's consumer sentiment survey being one of the main drivers of this soft data plunge.

It is worth mentioning that this is not the first time; since Trump was elected president, there have been six instances when the University of Michigan survey results were released, and the market reacted similarly, resulting in six sell-offs in U.S. stocks.

Recent University of Michigan consumer surveys indicate that U.S. inflation expectations have broken through the range fluctuations seen in recent years. For a considerable period, the University of Michigan's 5-year inflation expectations fluctuated within a narrow range of 2.9%-3.1%. In June 2022, when U.S. inflation was at its peak in this cycle, the initial value of this inflation expectation reached 3.3%, the highest since 2008, while the latest long-term inflation expectations are significantly above the post-pandemic peak levels.

Regarding the surge in long-term inflation expectations from the University of Michigan, Federal Reserve Chairman Jerome Powell previously stated that this inflation expectation data is an outlier.

However, this week several voting members "sang a different tune," arguing that survey-based inflation expectation data should be closely monitored. A dovish voting member, the President of the Chicago Federal Reserve, stated that if market inflation expectations also rise, it would be a "significant danger signal."

Goldman Sachs bluntly pointed out that investors can ignore the University of Michigan's inflation expectation data. Compared to other surveys, the University of Michigan's survey has many design limitations. The three main issues with this survey are:

• Inflation expectations are highly partisan: The inflation expectations in the survey have become extremely partisan.
• Overrepresentation of Democrats: The proportion of Democrats among respondents in the University of Michigan survey has consistently been higher than that of Republicans.
• Change in survey method: The shift from telephone surveys to online surveys has led to more extreme responses regarding inflation expectations Goldman Sachs believes that these factors collectively drive the University of Michigan's short-term inflation expectations up by about 1.3 percentage points and long-term inflation expectations up by about 0.5 percentage points. In particular, changes in party composition and intensified partisan positions led to a significant increase of 1 percentage point in one-year inflation expectations in February.

Looking ahead, investors need to closely monitor the University of Michigan survey data to be released on April 11 and 25, as this may trigger a new round of market volatility.

With the tariff deadline on April 2 approaching, will this time be different? Will the market rebound? According to CCTV News, U.S. President Trump reiterated during a joint session of Congress that equivalent tariffs would begin on April 2. Currently, Europe has proposed concessions and plans to create a "concession list," while India and the UK have also sent signals of goodwill, and Canada has not yet issued any related signals.

Risk Warning and Disclaimer

The market has risks, and investment should be cautious. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at their own risk