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Index of Investor Optimism
INVESTOR OPTIMISM REMAINS DOWN IN OCTOBER Worries Rising about Personal Portfolios and Declining Dollar; Hopes Rising for US Economy
Investor optimism remained essentially unchanged for the month of October rising just two points to a level of 70, according to the UBS/Gallup Index of Investor Optimism. But the Personal Dimension of the Index, which measures investors' optimism about their own investment portfolios, tumbled sharply by 8 points to 62 from 70 in September. The Index is conducted monthly and had a baseline score of 124 when it was established in October 1996.
Investor pessimism regarding the declining value of the dollar grew in October with 39 percent of investors saying they believe that the value of the dollar is hurting the current investment climate "a lot." This is up significantly from the 30 percent who felt this way in September and is the highest level of investor concern about the dollar since tracking began in March 2004.
These concerns about personal portfolio performance and the dollar may translate to less holiday spending, as 27 percent of investors say they will spend less this holiday season than last. This compares to 24 percent who said they would spend less the last time measurement took place in November 2005.
In contrast to investor pessimism about personal portfolios and the dollar, the Economic Dimension of the Index, which measures investors' feelings about the direction of the overall US economy improved dramatically, jumping 10 points from -2 in the month of September to +8 in October. This leap in optimism suggests that the Fed's cut in interest rates made investors somewhat more optimistic about the direction of the economy over the next 12 months.
"The Fed cut has improved investor sentiment and the prospects for continued economic expansion, but the effects of the subprime fallout will likely be felt for many months to come," said Mike Ryan, Head of UBS Wealth Management Research, Americas.
In spite of oil prices recently exceeding $80 a barrel, investor worries regarding higher energy prices fell five percentage points in October with 60 percent saying they believe energy prices are hurting the current investment climate "a lot." Energy prices continue to top the list of investor concerns but are currently at a much lower level than they were earlier this year.
Housing and real estate worries continue to concern investors with 51 percent saying they believe the potential for a housing or real estate crash in some local markets is hurting the investment climate "a lot." This is down from the 55 percent who felt this way in September but a sharp jump from the 41 percent who felt this way as recently as July.
Investors continue to see no bottom in sight for the housing and real estate markets with 78 percent saying they believe economic conditions in the national residential real estate market are getting worse. Sixty-three percent of investors say conditions in their local real estate markets are worsening, down just slightly from the 65 percent who felt this way in September.
Investors continue to fear that the problems in the subprime mortgage market will spread, with 61 percent feeling there will be a spillover into the overall mortgage market. The credit crunch continues to squeeze consumers with 65 percent saying it is harder for Americans to get credit now than it was three months ago. Forty-three percent of investors now believe the consumer crunch is hurting the investment climate "a lot."
These findings are part of the 115th Index of Investor Optimism, which was conducted October 1-14, 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 804 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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