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Index of Investor Optimism
INVESTOR OPTIMISM DECLINES FOR SECOND MONTH IN A ROW Investor Concerns about Real Estate Market Continue to Increase Optimism about Stock Market Performance Declines
Investor optimism fell for the second month in a row in March and now stands at 78 according to the UBS/Gallup Index of Investor Optimism. Since January, when the Index reached its highest level in two years, the Index has fallen 25 points over the past two months bringing it to its lowest level since September 2006 when it stood at 74. The Index is conducted monthly and had a baseline score of 124 when it was established in October 1996.
Investors are increasingly concerned about conditions in the residential real estate market. Seventy-two percent of investors say they believe that conditions in the residential real estate market nationwide are getting worse, not better in March, up from 63 percent in February. This is the most pessimistic view of conditions in the residential real estate market nationwide since September 2006 when 74 percent of investors said that conditions were worsening. Similarly, 58 percent of investors say conditions in their local community's residential real estate market are getting worse in March, up from the 56 percent in February and 50 percent in January who responded this way.
Reacting to recent dips in global equities markets, investors have become concerned about performance of the stock market. The percentage of investors who believe that now is a good time to invest in financial markets declined in March to 57 percent, down from 66 percent in February. Thirty-nine percent of investors say now is not a good time to invest, up from 30 percent last month. When asked about the impact of stock market performance on the overall investment environment, 29 percent of investors said they are either somewhat or very pessimistic, up sharply from 16 percent who felt this way in February. Similarly, 47 percent are either somewhat or very optimistic, down from 57 percent in February.
"Investors are feeling the pinch of a volatile stock market, continued slowdown in the housing sector and higher energy prices. All of these issues directly affect investors' perceptions of their personal wealth and expectations for future performance of their portfolios. This is especially so given the recent focus on the fallout in the sub-prime mortgage market," said Mike Ryan, Head of UBS Wealth Management Research Americas.
The sharp drop in optimism about the U.S. economy also relates to the recent surge in gasoline prices over the past several weeks. Sixty-three percent of investors say they believe energy prices are hurting the current investment climate "a lot," up from 58 percent last month. Investors also expect to see future gasoline price increases. On average, investors report paying $2.50 for a gallon of gas in March, up $0.29 from what they said they were paying a month ago. More importantly, investors now expect gas prices to increase to an average price of $2.74 per gallon over the next three months.
Investors' perceptions of current conditions of the U.S. economy have also turned somewhat negative. Fifty-two percent of investors describe the U.S. economy as experiencing a slowdown, up from 42 percent last month. The percentage of investors who described the economy as being in a sustained expansion declined to 25 percent, down from 30 percent last month.
Additionally, investors are also experiencing a sharp decline in optimism about the future course of the U.S. economy. The Economic Dimension of the Index, which measures people's optimism about the economy over the next 12 months, fell sharply for the second month in a row in March and now stands at 10 - down 13 points from its level of 23 in February and down 20 points from January's level of 30. The Personal Dimension of the Index, which measures people's optimism about their own portfolios over the next 12 months, was 68 in March, essentially unchanged from its 67 of February.
These findings are part of the 108th Index of Investor Optimism, which was conducted March 1-17, 2007. 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.
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