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COVID-19 Prompts Record Drop in Investor Optimism

COVID-19 Prompts Record Drop in Investor Optimism

Story Highlights

  • Investor Optimism Index dropped 134 points in the second quarter
  • Investors' outlook sours more on the economy than their own finances
  • Majority still have faith in stock market as good place to grow wealth

WASHINGTON, D.C. -- The Wells Fargo/Gallup Investor and Retirement Optimism Index -- an indicator of U.S. investors' outlook for the investing climate -- showed the largest quarterly drop in its history for the second quarter.

The index plunged a record 134 points in May, to +4, the lowest it has been in nearly seven years. This comes after registering a 20-year high of +138 in the first quarter of 2020.

Line graph. Trend in Investor and Retirement Optimism Index from October 1996 to May 2020. Index peaked at 152 in January 2000 and reached its lowest, negative 81, in February 2009. After hitting a 20-year high of 138 in January 2020, the index fell to 4 in May.

The latest index score is based on a nationwide poll of U.S. investors, conducted May 11-17 -- just days after the Bureau of Labor Statistics (BLS) reported an unprecedented decline of 20.5 million jobs in April. The poll coincided with a volatile week in the markets, including a nearly 1,000-point drop in the Dow Jones Industrial Average toward the start of the seven-day field period.

For this survey, investors are defined as U.S. adults with $10,000 or more invested in stocks, bonds or mutual funds, either within or outside a retirement savings account. The Wells Fargo/Gallup Investor and Retirement Optimism Index has had a historical range of +152 to -81 since its inception in 1996.

In contrast to the recent 134-point index decline, the previous record declines were all less than 100 points, including:

  • a 77-point decline in the third quarter of 2011 after an intense partisan standoff in Congress over raising the federal debt ceiling, which resulted in Standard & Poor's downgrading the U.S. credit rating
  • a 56-point drop between June and November 2008, toward the start of the global financial crisis
  • a 51-point decline in the first quarter of 2001, at the start of the 2001-2003 recession
  • a 47-point drop (although not a record at the time) in the second quarter of 2002, stemming from the economic disruption caused by 9/11

Investors Sour on the Economy More Than Their Finances

In the latest survey, investor optimism fell by 84 points on the economic dimension of the index, putting it in negative territory (-31). By contrast, the personal dimension fell less steeply (49 points) and retains a positive value (+35). This is consistent with Gallup's national polling that found little change in April in Americans' concern about their ability to pay expenses and save for retirement, among other aspects of their finances.

Wells Fargo/Gallup Investor and Retirement Optimism Index
Recent trend in overall index and subindexes
Overall index Personal dimension Economic dimension
2020 Q2 +4 +35 -31
2020 Q1 +138 +84 +53
2019 Q4 +84 +64 +20
2019 Q3 +72 +56 +16
2019 Q2 +85 +52 +35
2019 Q1 +90 +55 +35

The economic dimension of the index includes investors' 12-month outlooks for U.S. unemployment, economic growth, the stock market and inflation.

The percentage of investors feeling very or somewhat optimistic fell on all four aspects of the economic dimension in the second quarter. However, consistent with the May jobs report, it fell the most on unemployment (down 34 points), followed by economic growth (down 26 points). Optimism about the stock market and inflation each fell by less than 20 points.

The personal dimension of the index spans three questions about investors' finances -- their 12-month outlooks for household income and reaching their investment targets, and their five-year outlook for reaching their investment goals.

Notably, investors' confidence in reaching their 12-month investment targets fell sharply last quarter (down 32 points), while there was almost no reduction in their confidence about reaching their five-year investment goals. Investors' confidence about maintaining or increasing their household income declined slightly (down 14 points).

Recent Change in Wells Fargo/Gallup Investor and Retirement Optimism Index Components
2020 Q1 2020 Q2 Change
Overall index +138 +4 -134
Personal dimension
Reaching five-year investment goals +68 +65 -3
Maintaining/Increasing 12-month income +67 +53 -14
Reaching 12-month investment targets +66 +34 -32
Economic dimension (12-month outlook)
Stock market performance +59 +40 -19
Economic growth +60 +34 -26
Unemployment +61 +27 -34
Inflation +34 +18 -16

Investors Not Scared Away From Stock Market Altogether

Despite the sharp downturn in investors' confidence in the economy, including the stock market, a majority of investors continue to express confidence in the market as a place to invest.

  • Six in 10 investors say now is a good time to invest in the financial markets. While down from 71% in the first quarter, this is on par with the 59% recorded in the third quarter of 2019.
  • Nearly seven in 10 investors are very (21%) or somewhat (48%) confident about investing in the stock market as a way to build wealth for retirement. This is unchanged from a year ago.
  • Few investors (8%) see the current stock market environment as a time to decrease stock holdings to protect from further losses. About half (48%) say it's a good time to hold what they have and wait for the market to come back. Another 35%, up from 29% in April, see it as a buying opportunity while stock prices are down.

Bottom Line

The Wells Fargo/Gallup Investor and Retirement Optimism Index took a strong hit in the second quarter, resulting in the largest index drop since its inception in 1996. That is saying something given the large jolts that have occurred in the past from other significant challenges facing the country, including the Great Recession and 9/11.

The stock market has already recovered further in June than it had at the time of the investor poll in May, but other aspects of the economy -- unemployment and GDP, in particular -- remain worrisome and could continue to dampen investors' outlook even as they maintain their confidence in the markets as a viable long-term option for investing. As Gallup reported last week, Americans are now less likely to think the economy is in a depression or recession than they were in May, when three-quarters described it as such -- but 59% still hold this view.

Learn more about how the Wells Fargo/Gallup Investor and Retirement Optimism Index works.

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