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Investor Optimism surges as gas prices fall
UBS/Gallup Index of Investor Optimism at 74 - Its Highest Level Since March Energy Price Concerns Decline Significantly Real Estate Market Conditions Continue to Worry Investors
- Investor optimism surged in September to 74, its highest level in five months, according to the UBS/Gallup Index of Investor Optimism. The 21 point increase from last month follows a downward trending in investor optimism since the beginning of 2006, which reached a low point of 53 in August. The Index is conducted monthly and had a baseline score of 124 when it was established in October 1996.
Much of the surge in optimism can be attributed to the sharp drop in investor concerns about energy prices. The percentage of investors who believe energy prices are hurting the investment climate "a lot" fell from 78 percent in August to 63 percent in September. This represents the lowest level of investor concern about energy costs since February 2005 when 56 percent of investors held this view and a sharp contrast to the 80 percent who felt this way in October of last year.
The fall in energy prices over the last month has also impacted investor expectations for future gas prices. In August, investors expected the average price of a gallon of regular gas to reach $3.30 in the next three months. In September, however, their expected average price for a gallon of gas three months from now is down to $2.76.
"This sharp rise in optimism demonstrates the significant degree to which high energy prices affect investor sentiment - both with regard to the potential impact upon growth as well as the threat of higher inflation. We therefore expect that lower energy prices will also positively influence consumer confidence," said Mike Ryan, Head of UBS Wealth Management Research Americas.
Investors seem to believe that the U.S. economy is headed towards a so-called "soft-landing." Fifty-one percent of investors describe current economic conditions as showing signs of an "economic slowdown" while 38 percent feel the economy is experiencing a "recovery" or an "economic expansion." Only one in ten investors believes that the economy is in a recession.
Despite the increase in overall optimism, investors are increasingly concerned about conditions in the residential real estate market, not only nationally but also in their local communities. Six in ten investors rate conditions in today's residential real estate market nationwide as "only fair" or "poor." This is up from 46 percent in June and July and 56 percent in August. Significantly, three in four investors (74%) say economic conditions in the residential real estate market nationwide are getting worse, while only 21 percent feel they are getting better.
When asked to think about their local real estate markets, more than half of investors rate conditions in their local residential real estate market as "only fair" (37%) or "poor" (16%) - up from 43 percent who held this view about their local market last month. Fully 65 percent of respondents believe conditions in their local residential real estate markets are getting worse as opposed to only 30 percent who feel conditions are improving. This is up from 48 percent who believed last month that local market conditions were deteriorating.
Given these trends, it is not surprising that in September a large majority, 73 percent, believe that the potential for a housing or real estate crash in some local markets is hurting the investment climate. This is up from 67 percent who held this view in August.
With the increase in the September Index reading also came increases in the Personal and Economic Dimensions of the Index. The Personal Dimension increased nine points to 63 from 54 in August indicating that investors are more optimistic about their own investment portfolios than they were a month ago. At the same time, the Economic Dimension increased 12 points to 11 suggesting that investors as a whole have shifted to feeling optimistic from being neutral about the economic outlook over the next 12 months.
These findings are part of the 100th Index of Investor Optimism, which was conducted September 1-17, 2006. To track and measure Index changes on an ongoing basis, new samplings are taken monthly. Dennis J. Jacobe, Chief Economist 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.
UBS is one of the world's leading financial firms, serving a discerning global client base. As an organization, it combines financial strength with an international culture that embraces change. As an integrated firm, UBS creates added value for clients by drawing on the combined resources and expertise of all its businesses.
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Additional information about the Index of Investor Optimism can be found at www.ubs.com/investoroptimism
New York, September 25, 2006
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