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Investor Optimism rebounds one month after storms.

New York | | Media Releases Americas

Investor sentiment rebounded this month following the drastic drop it took in the wake of Hurricanes Katrina and Rita. With the moderation of gas and oil prices over the past month, investor sentiment is now at 47, up from 34 in September, but still not making a full recovery to the 61-point reading in August. Concerns about the investment climate are reflected in the perceptions by most investors (66 percent) that the US economy is either in a slowdown (52 percent) or a recession (14 percent). Two thirds of these investors predict that economic recovery will not come for at least two years.

Moderation of Gas Prices Fuels Rebound but Remains Major Factor Affecting Investment Climate.

Majority of Investors Believe US Economy in Slowdown or Recession.


Investor sentiment rebounded this month following the drastic drop it took in the wake of Hurricanes Katrina and Rita. With the moderation of gas and oil prices over the past month, investor sentiment is now at 47, up from 34 in September, but still not making a full recovery to the 61-point reading in August. Concerns about the investment climate are reflected in the perceptions by most investors (66 percent) that the US economy is either in a slowdown (52 percent) or a recession (14 percent). Two thirds of these investors predict that economic recovery will not come for at least two years.

These economic assessments are significantly higher than they were at the beginning of the year, when 57 percent of investors felt the economy was in a recovery or sustained expansion, and only 42 percent judged the economy to be in a slowdown (31 percent) or recession (11 percent).

"Following last month's drastic decline in investor optimism, the question was whether or not the dip was permanent or merely a short-term reaction to the storms," said UBS Associate Strategist Robin Miranda. "The recovery is not complete and may indicate a downward trend in investor sentiment."

Modest gains in investor optimism were stimulated by slightly lower energy prices, but investors continue to identify this area of the economy as the most harmful. Eighty percent say energy costs are hurting the investment climate "a lot," up from 71 percent who said that last July, well before the damage wrought by Hurricanes Katrina and Rita.

While optimism recovered, investor concerns about the federal budget deficit, interest rates and the stock market have grown since the summer. Inflation fears have subsided somewhat since the summer in part because gas and oil prices have fallen in recent weeks.

Fifty-eight percent of investors say the federal budget deficit is hurting the investment climate a lot, up from 51 percent in July. This increase is undoubtedly impacted by the government's rebuilding costs following Hurricanes Katrina and Rita.

Forty-five percent say interest rates are hurting the investment climate versus 36 percent in July. Investors seem torn in their evaluation of the Federal Reserve policy on interest rates. Half approve of the recent interest rate increases while 43 percent disapprove. When asked what the Fed should do in the future, most investors opt for keeping interest rates at their current level, while 24 percent of investors would like to see rates reduced and 16 percent would like to see an increase.

Investors are slightly less optimistic about the performance of the stock market over the next 12 months. Thirty-nine percent of investors are optimistic versus 42 percent last month and 45 percent in August.

Average expected rate of return on investor portfolios over the next twelve months is 9.7 percent (down from 11.1 in September). Fifty-one percent of investors say now is a good time to invest in the financial markets. This is unchanged since last month but significantly lower than readings this summer (59 percent in August, 60 percent in July, 58 percent in June).

Other areas that investors judge to be hurting the investment climate a lot include outsourcing of jobs to foreign countries (mentioned by 64 percent of investors) and the war with Iraq (mentioned by 46 percent). The economic impact of Hurricanes Katrina and Rita also remains on investor's minds, with 55 percent rating the storms as having a severe impact on the investment climate.

These findings are part of the 91st Index of Investor Optimism, which was conducted October 1 to October 16. To track and measure Index changes on an ongoing basis, new samplings are taken monthly. Dennis J. Jacobe, research director for Gallup, said the sampling included 804 investors randomly selected from across the country. For this study, the American investor is defined as any person who is head of a household or a spouse in any household with total savings and investments of $10,000 or more. Nearly 40 percent of American households have at least this amount in savings and investments. The sampling error in the results is plus or minus four percentage points.

For more than 60 years, the Gallup Organization has been a recognized leader in the measurement and analysis of people's attitudes, opinions and behavior. While best known for the Gallup Poll, founded in 1935, Gallup's current activities consist largely of providing marketing and management research, advisory services and education to the world's largest corporations and institutions.

UBS is a leading financial firm, combining financial strength with a reputation for innovation and a global culture that embraces change.

UBS is one of the world's largest wealth managers, a premier investment banking and securities firm, and one of the largest global asset managers. In Switzerland, UBS is a market leader in retail and commercial banking.

Headquartered in Zurich and Basel, UBS employs around 69,000 people, and has operations in over 50 countries and in all major financial centers.

Additional information about the Index of Investor Optimism can be found at

month

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

December

79

104

52

88

106

174

141

151

November

69

93

41

84

130

148

125

October

47

62

69

29

86

132

139

124

September

34

74

54

60

50

147

160

147

151

August

61

77

61

52

76

160

149

July

58

88

54

46

74

143

166

June

54

95

77

72

85

149

146

160

152

May

50

71

42

90

90

155

163

April

52

73

66

89

81

140

168

March

74

85

5

121

82

150

151

161

February

82

97

9

92

77

168

167

158

January

76

108

38

115

96

178


New York, October 24, 2005
UBS