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Investor Optimism Reaches New Low For Year
UBS/Gallup Index of Investor Optimism at 55, Down from 58 in June. Situation in the Middle East of Concern to Investors.
Investor optimism reached a low point for the year, falling to 55 during the month of July, down three points from June and 38 points since the beginning of 2006. The UBS/Gallup Index of Investor Optimism is conducted monthly and had a baseline score of 124 when it was established in October 1996.
For the first time this year, investors turned pessimistic about the outlook for the U.S. economy. The Economic Dimension of the Index fell to -2 in July from +1 in June, which suggests that investors as a whole are neutral to slightly pessimistic about the economic outlook over the next 12 months. The last time investors were pessimistic about the economic outlook was in November 2005, also with a -2 reading, as the economy was working through the negative impact of last year's hurricanes.
Concerns among investors include the general condition of the economy, rising energy prices and the state of the real estate market. Forty percent of investors are pessimistic about the rate of economic growth, up six points from June. Energy prices continue to be of particular concern to investors with 97 percent saying energy prices are negatively affecting the U.S. investment climate, up from 94 percent in June. Concerns about the real estate market are also strong and growing. This month, 68 percent of investors responded that they believe economic conditions in the residential real estate market nationwide to be deteriorating. This compares with 62 percent who felt that way in June.
Investors are also greatly concerned about the unsettled geopolitical environment, with 78 percent responding they are worried about the current situation in Iraq, 65 percent concerned about more terrorist attacks, 61 percent worried about Iran's nuclear ambitions, and 60 percent worried about troubles with North Korea. Although much of the survey was conducted prior to the recent situation in Lebanon, fully half of investors say they are concerned that the conflict between the Israelis and Palestinians will hurt the U.S. investment climate.
"Investors are increasingly seeing the impact that global challenges can have on their personal finances, such as with escalating geopolitical risks and rising energy prices," said Mike Ryan, Head of UBS Wealth Management Research.
Investors will likely be watching to see whether the Federal Reserve raises interest rates at its August meeting. Fifty-seven percent of investors say the current level of interest rates is hurting the investment climate, up five points from June. Inflation is weighing on investor sentiment, with 79 percent responding that the investment climate is being hurt by inflation, up six points from last month.
These findings are part of the 99th Index of Investor Optimism, which was conducted July 1-16, 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 801 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, July 24, 2006
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