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Index of Investor Optimism
Investor optimism falls five points in September - prior to FED rate cut Investors Shifting Into Cash; Housing, Energy Prices Still Top List of Investor Concerns
Investor optimism fell another 5 points in September to a level of 68, the fourth consecutive month of decline and the lowest level for the year, according to the UBS/Gallup Index of Investor Optimism. The Index is conducted monthly and had a baseline score of 124 when it was established in October 1996.
The decline in optimism can be directly attributed to anxiety about the economy. The Economic Dimension of the Index, which measures investors' feelings about the US economy, fell 7 points to -2 in September. This is the lowest level of optimism about the future direction of the economy since August 2006, when it stood at -1.
In sharp contrast, the Personal Dimension of the Index, which measures investors' optimism about their individual investment portfolios, rose by 2 points in September to 70. Recent market turmoil has led more and more investors to review their personal holdings, with 34 percent re-evaluating their portfolios. Of those who have made such a re-evaluation, 58% are holding more cash or cash equivalents, 43 percent have reduced their investments in complicated financial instruments such as mortgage-backed securities, and 20 percent have reduced their investments outside the United States.
Real estate and housing continue to worry investors with 55 percent believing that the potential for a housing or real estate crash in some local markets is hurting the investment climate "a lot." This is basically unchanged from the 54 percent who felt this way in August but is a sharp jump from the 41 percent who felt this way in July and represents the highest level of concern about housing since tracking of this issue began in October 2005.
"I don't believe that the Fed cut is going to solve the housing problem right now, but it is a start," said Maury Harris, Chief US Economist, UBS Investment Bank. "The cuts are going to have to go a bit deeper before we see any real stability."
Investors appear to see no bottom in sight for the housing and real estate markets. Eighty-one percent of investors polled in September believe that conditions in the national residential real estate market are getting worse. Eighty percent felt this way in August, up from 71 percent who held this view in July.
Subprime fears continue with 63 percent of investors feeling that there will be a spillover into the overall mortgage market. Investors felt that the credit crunch is squeezing even tighter for September, with 68 percent saying it is harder for Americans to get credit now than it was three months ago - up from 51% who felt this way a month ago. Forty-four percent of investors now believe the consumer crunch is hurting the investment climate "a lot."
Despite the sharp uptick in oil prices over recent weeks, investor sentiment about higher energy prices has remained essentially unchanged with 65 percent of investors saying that they believe energy prices are hurting the current investment climate "a lot." This compares to 64% who felt this way in August and is down from 70 percent who held this view in July.
Pessimism over the economy continues with 74 percent of investors stating that they believe the US economy is now either in a slowdown or a recession. This is up from 65 percent who felt this way in August and the highest percentage of investors to hold this view since November 2001.
These findings are part of the 114th Index of Investor Optimism, which was conducted September 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 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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