U.S. Investor Optimism Still a Long Way From Pre-Pandemic

WASHINGTON, D.C. -- Even as the Dow Jones Industrial Average was approaching a record high in early November, U.S. investor optimism was far short of the robust level found at the start of the year.

The Wells Fargo/Gallup Investor and Retirement Optimism Index stands at +42 in the fourth quarter. This is up from +18 in the third quarter and +4 in the second. Still, investor confidence remains well below the +138 recorded in the first quarter of the year, before the coronavirus pandemic forced unprecedented economic shutdowns.

The latest results are from a Nov. 9-15 survey with 1,709 U.S. investors, conducted by web using the Gallup Panel. Investors are defined for this survey 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 latest index score reflects investor attitudes shortly after the November elections and as Americans were learning that highly effective COVID-19 vaccines could soon receive FDA approval. But it also followed the government's jobs report for October, showing a much slower pace of recovery than in previous months.

Investors Remain Discouraged About Outlook for Jobs

The Wells Fargo/Gallup Investor and Retirement Optimism Index is a composite of U.S. investors' 12-month outlooks for four aspects of the economy: economic growth, unemployment, the stock market and inflation. It also includes their outlook for three aspects of their personal finances: their 12-month outlooks for household income and reaching their investing targets, plus their five-year outlook for reaching their investment goals.

For each dimension, investors are asked to rate their outlook on a five-point scale from very optimistic to very pessimistic. Investors' net optimism -- the percentage very or somewhat optimistic minus those very or somewhat pessimistic -- is lower today on all elements of the index than it was in Q1.

Among the four economic elements, optimism is down most sharply on unemployment.

• At -3, investors' net optimism about unemployment remains down 50 points since right before the pandemic when it was +47. But it has improved considerably from -35 in Q2.

• Net optimism is down 24 points on economic growth as well as inflation, although the outlook for inflation (-21 net optimistic) is significantly worse than for economic growth (+13).

• Investors' outlook for the stock market has declined least, with a +25 net optimistic score today, down 13 points from +38 in Q1.

The importance of unemployment to investor confidence is evident in a separate measure in the November survey asking investors which metric -- the unemployment rate or the stock market -- they think is the better indicator of how the economy is doing right now. Close to half of investors (48%) chose the unemployment rate while just 10% picked the stock market; the remaining 42% said both are equally good indicators.

Investor Confidence in Reaching Short-Term Investing Targets Still Reduced

Investors are more optimistic than pessimistic about all three personal financial aspects of the index, but optimism is lagging most compared with Q1 on reaching their 12-month investing targets.

• Net optimism on reaching their 12-month investing targets had plunged 54 points in Q2 to -1, likely reflecting the stock market's steep drop in March. While this outlook has since improved to +23, it is still down 32 points compared with the baseline measure this year.

• By contrast, investors lost only a little confidence in Q2 with respect to reaching their five-year investment goals. Net optimism fell seven points to +50. But this worsened in Q3 (falling an additional 12 points to +38) and has remained at that level in Q4.

• Meanwhile, Q2 saw a sizable drop in investor confidence about maintaining their household income (down 24 points to +29), and that has since improved only slightly to +33.

Despite investors' reduced confidence in the five-year outlook for their investments, the large majority (65%) still report being very or somewhat confident in the stock market as a way to build wealth for retirement. This is little changed from the 69% recorded in both Q2-2020 and Q2-2019, but it is down from 78% in Q2-2018.

	Very confident	Somewhat confident	Somewhat doubtful	Very doubtful
	%	%	%	%
2020-Q4	16	49	29	5
2020-Q2	21	48	25	6
2019-Q2	20	49	26	5
2018-Q2	24	54	18	4
Wells Fargo/Gallup

Bottom Line

Unlike the strong rebound in the stock market since the significant market drop earlier this year, U.S. investor optimism has improved incrementally each quarter and is far from recovered from the pandemic shock. Investors remain broadly confident in the stock market as a place to invest, but as long as the pandemic stifles employment, they may continue to harbor concerns about economic growth and the outlook for sustained stock market gains. While investors were initially focused on the risks to short-term market gains, they are now showing reduced confidence in its longer-term performance as well.

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