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Index of Investor Optimism
MAY INVESTOR OPTIMISM HITS HIGHEST LEVEL SINCE JANUARY Investors Plan to Cut Overall Spending in Response to Surging Energy Prices Residential Real Estate Market Conditions Continue to Worry Investors
Investor optimism surged 21 points in May and now stands at 95 according to the UBS/Gallup Index of Investor Optimism. The Index is currently at its highest level since January of this year when it reached 103. The Index is conducted monthly and had a baseline score of 124 when it was established in October 1996.
One reason for the sharp improvement in May's Index is that investors are much more optimistic about their investments than they have been in the past five years. The Personal Dimension of the Index, which measures optimism about investors' own personal investment portfolios, increased 13 points in May to 75, its highest level since March 2002 when it stood at 80.
Investors are also more optimistic about the outlook for the US economy. The Economic Dimension, which measures investors' feelings about the direction of the overall US economy over the next 12 months, increased eight points in May to 20. Although this increase represents a substantial improvement in optimism about the direction of the economy over last month, it remains below its reading in February of this year. In this regard, 41 percent of investors now say the US economy is in a recovery or sustained expansion, up from 35 percent who responded this way in April.
"Increased optimism is being fueled by the ongoing rally in the stock market. With solid corporate earnings, a strong M&A market, and moderating inflation fears the equity markets have posted impressive gains. However, even with the increased optimism in regard to the market and overall economy, investors continue to be plagued by concerns over gas prices," said Mike Ryan, Head of UBS Wealth Management Research Americas.
Despite the improvement in overall investor optimism, investors remain concerned about the recent surge in gas prices over the past few months. Three in four investors (76 percent) say they believe energy prices are hurting the current investment climate "a lot," up from 72 percent who voiced those concerns about energy prices in April. May's results show the highest level of investor concern about energy prices since August of last year when 78 percent said energy prices were hurting the investment climate "a lot."
Increased gasoline prices have impacted investor expectations for future price increases. On average, investors report paying $3.04 for a gallon of gas during the first half of May, up $0.54 from what they said they were paying two months ago and $0.83 from what they were paying three months ago. Recent price increases have sent energy prices far above the $2.39 per gallon investors expected to pay over the next three months when asked in February. Investors now expect gasoline prices to increase to $3.38 per gallon over the next three months.
Given their expectations for higher gasoline prices at the pump, 51 percent of investors say they plan to cut back on their driving this summer and 43 percent say they plan to cut back on their vacations. In addition, 39 percent of respondents say they plan to cut back on their use of air conditioning or fans, and 60 percent say they plan to cut back on other spending in general in response to increased gasoline prices.
The deterioration in residential real estate market conditions continues to worry investors. Seventy-three percent of investors polled say they believe conditions in the residential real estate market nationwide are getting worse, not better. This is about the same as the 70 percent who felt this way in April and the 72 percent in March.
These findings are part of the 110th Index of Investor Optimism, which was conducted May 1-16, 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 800 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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