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Market Volatility Takes a Toll on Investors’ Financial Satisfaction

With the stock market’s recent volatility casting a cloud over Americans’ personal financial satisfaction, the AICPA’s “Personal Financial Satisfaction Index” (PFSi) declined for the first time in two years.

According to the report, the unfavorable fourth quarter results erased 24% of the index’s gains from the first three quarters of 2018. The AICPA notes that this is only the fourth time the index has decreased since climbing from an all-time low of -42, set in the third quarter of 2011. Yet, even with the decline, the PFSi remains in solid positive territory and relatively close to recent record highs, the report emphasizes.

Used as a quarterly economic gauge that measures the personal financial standing of a typical American, the PFSi is based on the difference between the Personal Financial Pleasure Index and the Personal Financial Pain Index. Pleasure factors include the AICPA’s PFS 750 Market Index, comprised of the 750 largest companies by market capitalization trading on the U.S. market, excluding mutual funds and ETFs.

Additional components are the AICPA’s CPA Outlook Index, as well as Real Home Equity Per Capita and Job Openings Per Capita. Pain factors include inflation, personal taxes, loan delinquencies and underemployment.

The fourth quarter 2018 PFSi measured 30.9, a 1.4-point (4.4%) decrease from the prior quarter and the second largest quarterly decrease of the index in seven years. This decrease apparently was due to a 4.1-point decline in the Pleasure Index, which outweighed a slight boost from a 2.6-point decrease in the Pain Index. (A decline in the Pain Index improves the PFSi overall.)

The pullback in the Pleasure Index was driven primarily by a 13.4-point (14.5%) drop in the PFS 750 Market Index. As a result of the market’s fourth quarter, all sectors declined, wiping out all of the PFS 750 gains from the previous three quarters and dropping the index to slightly below its fourth quarter 2016 value. The worst losses were in energy and industrials, while utilities had the most modest losses, the report notes.

As a result of the sharp quarterly decline, the PFS 750 Market Index is no longer the biggest contributor to financial pleasure for the first time in almost a decade. Instead, it was replaced by job openings, which is now the largest contributor to financial pleasure for the first time in more than eight years, the AICPA notes. The final December job numbers have not yet been released by the Federal Reserve, but based on data through the month of November, 2018 was on pace to set a new record for job creation.

“The recent stock market decline is a good reminder to focus on the long-term goals of your financial plan and don’t let yourself be influenced by the prevailing financial winds,” says Dave Stolz, member of the AICPA’s PFS Credential Committee. “Even with the recent market turbulence, economic conditions overall in the U.S. remain strong.”