Investor Optimism Improves Slightly in November

GALLUP NEWS SERVICE

The Dow has increased 17% as it has posted seven consecutive weekly increases for the first time in 5 years. Given the way the equity markets have surged, one might expect investor optimism to be soaring. Surprisingly, that is not the case.

Investor optimism increased only modestly in November, according to the Index of Investor Optimism -- a joint effort of UBS and The Gallup Organization. The Index is now at 41 -- up 12 points from last month's 29. Still the November rating places investor confidence at it second-lowest point since the Index's inception in October 1996.

The increase in the Index was the result of increases along both its Personal and Economic Dimensions. The Personal Dimension increased three points to 43 in November, placing it also at its second-lowest level ever. The Economic Dimension increased nine points to –2, suggesting that investors as a group are essentially neutral about the economy's prospects over the next 12 months. The increase in the Economic Dimension mostly resulted from increased optimism about economic growth -- up four points -- and the stock market -- also up four points.

Overall Investor Optimism Remains Weak

Overall investor optimism fell to an all-time low in October. This continued a pattern that started in March of this year when the Index of Investor Optimism was at 121. In April and May, the Index fell to 89 and 90, respectively. In June, it fell again to 72 before plunging to a 6-year low of 46 in July. In August and September, the overall Index increased slightly to 52 and 60 before plunging to 29 in October. The November uptick in the overall Index to 41 was not sufficient to bring it above its pre-October low of 46.

Index of Investor Optimism – U.S. January 2000 – November 2002

Personal Dimension Also Remains Weak

The Personal Dimension of the Index has also shown a pattern of steady decline since March. The Personal Dimension fell from 80 in March to 66 in April and 67 in May. It dropped to 61 in June before plunging to 48 and 46 in July and August, respectively. In September, the Personal Dimension of the Index increased modestly to 51 before dropping again to a new low of 40 in October. The November increase in the Personal Dimension leaves it at 43 -- below its pre-October low of 46.

Index of Investor Optimism – U.S. January 2000 – November 2002

Economic Dimension Turns Neutral

In October, the Economic Dimension of the Index of Investor Optimism plunged to -11 -- matching its all-time low in September 2001. In October, investors as a group appeared to have turned just about as pessimistic about the outlook for the U.S. economy over the next 12 months as they did immediately following the terrorist attacks in 2001. The increase of nine points along the Economic Dimension implies that investor sentiment about the economic outlook improved somewhat in November and is now neither pessimistic nor optimistic about the economy's prospects over the next 12 months.

Index of Investor Optimism – U.S. January 2000 – November 2002

Less Holiday Spending

The recent strength of the equity markets may be a source of hope for many retailers that the holiday season will be better than many prognosticators currently fear. This is particularly the case for those retailers serving the high-end consumer market. If investors are feeling wealthier now that the markets are improving, then surely they'll feel much more like spending during the upcoming holidays than they did in early October when the equity markets were at a 5-year low. Or, so the logic goes.

As convincing as this logic may seem, it may not help retailers much in the weeks ahead. Unfortunately, investors are telling Gallup the same things as other consumers when it comes to their holiday spending plans. Slightly more than one in four consumers (27%) say they plan to spend less this Christmas than they spent last Christmas. Similarly, one in four investors (25%) say they plan to spend less this Christmas. Only about 12% of consumers and 10% of investors say they plan to spend more during the holidays, while 63% of consumers and 59% of investors say they plan to spend about the same this Christmas.

Evidently, the steadily increasing stock market averages are not reflective of similar increases in investor optimism. Nor, does it seem that they portend increased holiday spending among investors and consumers in the weeks ahead. Maybe this is just one of those times when the professional investors on Wall Street who drive the equity market averages know more than the average investor/consumer on Main Street -- or, maybe not.

Survey Methods

Investor results are based on telephone interviews with 1,001 investors, aged 18 and older, conducted Nov. 1-17, 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.

Consumer results are based on telephone interviews with 1,001 national adults, aged 18 and older, conducted Nov. 11-14, 2002. For results based on the total sample of national adults, one can say with 95% confidence that the maximum margin of sampling error is ±3 percentage points.