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Investor optimism remains at six month low
UBS/Gallup Index of Investor Optimism at 64, Unchanged From April Over 90% of Investors Say Energy Prices Hurting Investment Climate Majority of Investors Fear Weakening Housing Market
Investor optimism remains at a low point for the year, at 64, during the month of May. This reading represents a one point rise since April and a 29 point decline since the beginning of 2006. The Index is conducted monthly and had a baseline score of 124 when it was established in October 1996.
Concerns among investors include rising interest rates, the value of the U.S. dollar and the softening housing market. Forty-seven percent of respondents feel that the current level of interest rates is hurting them, up from 40 percent in March. Sixty-three percent said that they are concerned that the value of the dollar against other currencies will unfavorably affect the investment climate, up eight points from March. A clear majority of respondents, 63 percent, feel that the softening housing market is harming the investment climate.
Of particular concern to investors is the continued rise in energy prices. Ninety-two percent of investors believe that energy prices are negatively affecting the U.S. investment climate, a reading that has held steady since March. Investors are clearly feeling the pinch at the pump and expect to continue to pay more for gasoline. Two years ago, in May 2004, investors reported paying an average of $1.92 per gallon of gasoline; during the first two weeks of May 2006, investors reported paying an average of $2.93, representing an increase of over 50 percent. Respondents believe the price will continue to rise over the next three months by another $0.30 (or 10 percent) per gallon to $3.23 per gallon.
"Investors are approaching the markets with caution and are readjusting their financial holdings to respond to current economic conditions and concerns over the direction of future policy changes," said Mike Ryan, Head of UBS Wealth Management Research. "Because of the rise in energy prices, 14 percent of investors tell us that they are increasing their holdings in utility companies, and another 18 percent are shifting money into cash or CDs."
A clear majority, 81 percent, of investors feel that the federal government should be doing more about high gas prices. However, investors are not as clear that cutting gasoline taxes is an action the government should take. When asked if all federal, state and local taxes on a gallon of gas should be temporarily suspended until prices fall below $2.50 a gallon, investors are evenly split with 51 percent in favor of a temporary suspension and 47 percent opposed.
Although investors are cautious about the economy, they expect to reap a healthy double-digit average return of 13.6 percent on their investment portfolios over the next 12 months. And investors continue to believe in the financial markets, with six in ten responding that now is a good time to invest in the financial markets, unchanged from April and only slightly down from the first three months of 2006.
These findings are part of the 97th Index of Investor Optimism, which was conducted May 1-14, 2006. 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 803 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. newLine/>
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New York, May 22, 2006
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