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Index of Investor Optimism
INVESTOR OPTIMISM DECLINES FOR THIRD MONTH IN A ROW High Energy Prices, Real Estate Market Conditions Dominate Investor Concerns
Investor optimism fell for the third month in a row in April, continuing a downward slide since the beginning of 2007. The Index has fallen 31 points over the past three months and now stands at 74, according to the UBS/Gallup Index of Investor Optimism. The Index is now at its lowest level since September 2006 when it also stood at 74. The Index is conducted monthly and had a baseline score of 124 when it was established in October 1996.
The recent surge in gasoline prices is one of the major reasons for the decline in investor optimism. Over the past three months, investors' concerns about energy prices have been creeping upwards. In April nearly three-quarters of investors (72 percent) said that they believe energy prices are hurting the current investment climate "a lot," up from 63 percent in March and 58 percent in February. This is the highest level of investor concern about energy prices since 78 percent of investors responded this way in August 2006 when the price of gasoline was at one of its highest points for 2006.
Investors continue to brace for increasing prices at the pump. On average, investors reported paying $2.73 for a gallon of gasoline during the first half of April, up $0.23 from what they said they were paying a month ago and $0.52 from what they were paying two months ago. In February, respondents said they expected to pay $2.39 per gallon over the subsequent three months. Investors are already paying far above that level and now expect gasoline prices to increase to an average of $3.02 a gallon over the next three months.
"Even as the equity markets reach new highs, investors are troubled by fundamental economic issues that directly impact their bottom line - energy prices and real estate. With the slowdown in real estate sales this spring, traditionally the strongest sales season, investors are particularly sensitive to these issues," said Mike Ryan, Head of UBS Wealth Management Research Americas.
The continued deterioration of the residential real estate market remains a top investor concern. In April, seven in ten investors said conditions in the residential real estate market nationwide are getting worse, not better, approximately the same as the 72 percent in March and up from the 63 percent in February who felt this way.
Investors also harbor fears about economic growth. Today, nearly two in three investors describe the current U.S. economy as being in a slowdown (54 percent) or a recession (10 percent). About one-third of investors (35 percent) view the economy as being in a sustained expansion or a recovery, a reading that has been below the 50 percent mark since February.
With increasing fuel prices and yesterday's marking of Earth Day 2007, Americans are thinking about alternative fuel sources, especially ethanol. When asked about the expanded use of ethanol in the U.S. economy, only one-quarter of investors believe increased use of ethanol will cause gasoline prices to decrease, and more than half (54 percent) believe that it will have no effect on gasoline prices. Investors are split on how they believe increased ethanol use will impact food prices, with 44 percent saying it will increase food prices and 47 percent who believe it will have no effect.
These findings are part of the 109th Index of Investor Optimism, which was conducted April 1-15, 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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