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Investor Optimism Hits New Post-Sept. 11 Low

Investor Optimism Hits New Post-Sept. 11 Low

Declining optimism does not suggest good things for retailers in the months ahead

by Dennis Jacobe

GALLUP NEWS SERVICE

Investor optimism has fallen sharply during the past three months, reaching its second-lowest level ever in June, according to the Index of Investor Optimism -- a joint effort of UBS and The Gallup Organization. In March, the overall Index was at 121. Since then, it has tumbled 49 points, so it now stands at 72. The overall Index reached its all-time low (since its inception in 1996) in September 2001, when it hit 50.

Given the recent turmoil in the financial markets, as one company after another seems to implode, it is not a great surprise that investor optimism is suffering. Still, the extent of the decline is worthy of note, particularly when one looks at how investors rate the Personal Dimension of the Index. In June, the Personal Dimension has actually matched its all-time low of 61 -- a level also reached in September of last year.

Right now, overall investor optimism is higher than it was last September due solely to the Economic Dimension of the Index. The Economic Dimension is now at 11, compared to -11 in September 2001. Thus, it is investors' optimism about the prospects of the overall economy, rather than their optimism about their own personal situations, that is holding the overall Index above its September low.

Index of Investor Optimism – U.S.
October 1996 to June 2002

Not Good for Retailers

Of course, some observers will argue that investors' loss of confidence is due to extraordinary events. As a result, they will discount the potential impact of the decline in investor optimism on the consumer and the economy.

On the other hand, one can also argue that it is the decline of investor optimism that is important, not the reasons for it. In this regard, econometric analysis shows that the Index of Investor Optimism is a good predictor of both future consumer spending and future economic activity -- even better than the frequently monitored consumer confidence indices.

Assuming this predictive relationship holds true in the current environment, then declining investor optimism suggests that consumer spending may continue to be less robust than many prognosticators are expecting -- as was the case with May retail sales. The falling Index also implies that economic activity will continue to moderate as we enter the third quarter.

Good for Real Estate

While turmoil on Wall Street and declining investor confidence/optimism make the stock market less attractive to many investors, they make other investments more attractive. For example, in June, 59% of investors tell us that they find real estate more attractive than they did six months ago. That's significantly greater than the 35% who say they find bonds more attractive, and about twice as many as the 28% who find gold more attractive and the 27% who find CDs more attractive.

Of course, some investors see opportunity where others see risk. In this regard, 31% of investors say they find stocks more attractive in the current investment climate than they did six months ago.

Given the current investment climate, please indicate whether you think each of the following types of investments is more attractive now than it was six months ago, about as attractive, or less attractive.
June 2002

Investors Want Reform

So, what needs to happen to improve investor optimism? From what investors tell us, they want Wall Street reforms. For example, in June, the overwhelming majority of investors with an opinion support reforms ranging from simplifying the stock rating system of financial-services firms to prohibiting Wall Street firms from providing both research coverage and investment banking services to the same company.

Now I am going to read you a list of proposed new rules that have been suggested as possible ways to deal with the problem of objectivity of financial analysts. For each one, please indicate if you favor or oppose that proposal, or if you don't know enough to say.
June 2002

Survey Methods

Results for the total dataset are based on telephone interviews with 1,000 investors, aged 18+, conducted June 1 - 14, 2002. For results based on the total sample of investors, one can say with 95% confidence that the margin of sampling error is ± 3 percentage points.


Gallup https://news.gallup.com/poll/6262/Investor-Optimism-Hits-New-PostSept-Low.aspx
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