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Market Tumult Pushes Investor Confidence to 3-Year Low

Industry Trends and Research

New research finds that the early August market decline apparently has had an impact on investor confidence.   

According to the Wells Fargo/Gallup Investor Optimism Index, U.S. investor optimism fell to its lowest point since the fourth quarter of 2016, as investor confidence weakened in the 12-month outlook for the stock market and U.S. employment. 

Amid concerns about China trade and tariffs, currency fluctuations and bond yield curves, results for the third quarter show that the Wells Fargo/Gallup Investor and Retirement Optimism Index is now 72 – down 13 points from 85 in the second quarter and significantly below the 2017 post-recession high of 117 in the fourth quarter. This is also the largest quarterly drop for the index in more than three years. 

The poll was conducted Aug. 5-11 among 2,091 U.S. investors, and captured investor sentiment in the wake of five consecutive days of market sell-offs leading up to the start of the survey. The firm notes that confidence fell about equally among investors who are retired and those who are not retired, as well as among those with $100,000 or more invested and those with less than $100,000 invested. 

The Index measures U.S. investor confidence in the investing climate, including perceptions of the economy and their own financial situation. For purposes of the survey, investors are defined as U.S. adults with $10,000 or more invested in stocks, bonds or mutual funds, either in an investment account or in a self-directed IRA or 401(k) retirement account.

“Even before the volatility of the past two weeks, investors were rattled by the market decline at the start of the month, including a nearly 800-point drop in the Dow at the start of the survey period,” Andy Byer, head of Client Service and Advice for Wells Fargo Advisors, explained in a statement.  

Shaken But Not Stirred

Echoing the findings of reduced confidence in the market, slightly fewer investors this quarter (59%) than in the second quarter (65%) say that now is a good time to invest in the financial markets. Wells Fargo notes that this marks the first time since the two firms have been tracking this measure at the beginning of 2018 that confidence in the market buying climate has dropped below 64%. 

At the same time, however, investors’ outlook for their own financial situation in retirement is steady, with 76% saying they feel very confident or somewhat confident they will have enough money to maintain the lifestyle they want throughout their retirement. “With the market still up from the start of the year, recent market losses have not cut into investors’ underlying confidence in their portfolio or long-term retirement goals,” Byer emphasizes. 

Index Dimensions

A more detailed look at the findings reveal that investor optimism fell during this current third quarter on all four components of the Index’s economic dimension, including investors’ 12-month outlook for the stock market and for unemployment – both down nine percentage points. Similarly, investor optimism about economic growth dropped six points and inflation is down five points. 

By contrast, investor optimism for the three components of the Index’s personal financial dimension were mixed. Investors’ outlook for reaching their five-year and 12-month investment targets were up three points, while maintaining their household income over the next year was down two points.  

Investor Optimism on Index Dimensions (% Very/Somewhat Optimistic)
12-Month Outlook Year Ago (Q3 18) Last Quarter (Q2 19) This Quarter (Q3 19) Change This Quarter
Unemployment 54 57 48 -9
Economic growth 52 50 44 -6
Stock market performance 47 48 39 -9
Inflation 24 30 25 -5
Reaching 5-year investment goals 65 58 61 +3
Maintaining/increasing 12-month HH income 67 59 57 -2
Reaching 12-month investment targets 57 50 53 +3

 

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