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Investor Optimism Continues to Decline
UBS/Gallup Index of Investor Optimism at Low Point for Year at 58. Fed Will Raise Rates Too Much, Fear Six in 10 Investors. Residential Real Estate Conditions Are Getting Worse, Say Nearly Two in Three.
Investor optimism reached a new low for the year, falling to 58 during the month of June. This is down six points from the 64 reading in May and a decline of 35 points since the beginning of 2006. The Index is conducted monthly and had a baseline score of 124 when it was established in October 1996.
Sentiment about the state of the U.S. economy has changed dramatically since January. This month, 50% of investors surveyed said that they believe the economy is in a slowdown, compared with just 31% who viewed the economy that way in January. Among the issues that investors believe are harmful to the U.S. investment climate are energy prices (94%), the Federal budget deficit (79%) and inflation (72%), readings that have held generally steady since last month.
Investors are increasingly pessimistic about the performance of the stock market. Last month, 23 percent of investors were pessimistic about stock market performance; this month that number has risen to 32 percent. Additionally, the percentage of respondents who believe that now is a good time to invest in the stock market has declined to 55% in June from 60% in May.
More than half of investors (52%) believe that the current level of interest rates is harmful to the U.S. investment climate, an increase of five points over last month. Investors are clearly concerned about upcoming moves by the Federal Reserve, with six in ten investors fearing that the Fed will increase interest rates "too much, too fast," leading to a possible recession. These concerns translate into investors' opinions of Federal Reserve Chairman Ben Bernanke's job performance. Only 34% say that they believe he is doing a good or excellent job while 39% rate his performance as "only fair"; four percent rate it as "poor" and 23% have no opinion.
"Investors will be closely watching the outcome of the Federal Reserve's meeting this week. UBS expects that the Fed will again raise rates to address concerns about rising inflation," said Anne Briglia, Senior Fixed Income Strategist, UBS Wealth Management Research.
Real Estate Sentiment:
This month, the Index focused on investors' attitudes about the real estate sector. Although half of investors rate conditions in the residential real estate market nationwide as good (45%) or excellent (5%), fully 63% of investors expect economic conditions in the residential real estate market nationwide to worsen over the next year. Only 29% say conditions will improve in that timeframe.
Despite the increasing doubts about the residential real estate market, only 32% believe prices will decline over the coming year. The same percentage, 32%, expects prices to remain unchanged while 35% expect home prices to increase.
Investors are somewhat more optimistic about their local real estate market than the national market. Fifty-six percent of investors say conditions in their local community's residential real estate market are good (39%) or excellent (17%), with 30% rating them as "only fair" and 13% saying they are "poor." However, 46% of investors say conditions in their local community's residential real estate market are getting better compared to 48% who say they are getting worse.
The combination of this price optimism and fears of higher interest rates appears to lead many investors to believe now is a good time to buy a home. Sixty-four percent of investors say now is a good time to buy a home in their local community and 55% say it is a good time to invest in real estate and/or real estate related assets nationwide.
These findings are part of the 98th Index of Investor Optimism, which was conducted June 1-15, 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 802 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.
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New York, June 26, 2006
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