GALLUP NEWS SERVICE
Investor optimism increased for the second month in a row in December according to the Index of Investor Optimism -- a joint effort of UBS and The Gallup Organization. The Index is now at 52 -- up11 points from last month's 41 and 23 points from the October low of 29 -- its lowest point since its inception in October 1996.
Although the Index has almost doubled over the past two months, investor confidence remains weak. The Index remains substantially below where it was last December (88, in Dec.01) and at about half the level it was at two years ago (106, in Dec.'00). Investor optimism is now at virtually the same low level that it was at when investors had to deal with the impact of terrorist attacks last year (50, in Sept.'01).
As was the case last month, the increase in the Index in December was the result of increases along both its personal and economic dimensions. The personal dimension increased 7 points to 50 in December, placing it 10 points above its October low of 40. The economic dimension increased 4 points to +2 -- slightly better than last month --but still suggesting that investors as a group remain essentially neutral about the prospects for the economy over the next 12 months. The increase in the economic dimension was due mostly to an increase in optimism about the stock market -- up four points -- and the increase in the personal dimension was due mostly to an increase in investor optimism about their ability to make their long-term investment goals -- also up four points.
Overall Investor Optimism Remains Weak
Overall investor optimism fell to a new low in September 2001. In the months that followed, investor optimism increased steadily with the Index of Investor Optimism reaching 121 in March of this year. In April and May the Index fell to 89 and 90 respectively. In June, it fell again to 72 and then plunged to 46 in July. In August and September, the overall Index increased slightly to 52 and 60 before plunging to a new all-time low of 29 in October. The November and December increases in the overall Index have only succeeded in bringing it back up to its comparatively low August level.
| Index of Investor Optimism – U.S. January 2000 – December 2002 |
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Personal Dimension Also Remains Weak
The personal dimension of the index has shown a similar pattern since September 2001, when it fell to 61. Following that low point, the personal dimension increased steadily and was at 85 in January. The Index was at 80 in March before it fell to 66 and 67 in April and May respectively. The personal dimension of the Index dropped to 61 in June before plunging to 48 in July and 46 in August. In September, the personal dimension increased modestly to 51 before falling again to a new low of 40 in October. The combined November and December increases in the personal dimension brought it back up to 50 -- essentially its September 2002 level (51). However, it remains well below its December 2001 level of 76.
| Index of Investor Optimism – U.S. January 2000 – December 2002 |
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Economic Dimension Turns Neutral
In October, the economic dimension of the Index of Investor Optimism plunged to –11 -- matching its all-time low of September 2001. At that point, investors as a group seemed to be just about as pessimistic about the outlook for the U.S. economy as they did immediately following the terrorist attacks in 2001. The increase of nine points along the economic dimension of the Index in November and another four points in December implies that investor sentiment about the economic outlook has improved somewhat 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 – December 2002 |
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Key Points
Last year, investor optimism hit a low point in September and then proceeded to increase in both the fourth quarter of 2001 and the first quarter of 2002. During the second quarter and the last half of 2002, investor optimism declined before reaching a new all-time low in October. Since then, investor confidence has improved somewhat, but remains no better than it was in September of 2001.
Why has investor confidence improved in recent months? Clearly, the rally in the stock market since the equity markets hit their October lows is the source of some of the improvement in investor optimism. So is the fact that much of those gains have been preserved. And, the president's replacement of his economic team right after the mid-term elections may also have helped.
In fact, the results of the mid-term elections probably also played a part, as more investors tell Gallup that these elections had a positive effect on the investment climate than say they had a negative effect.
- Four out of 10 investors (39%) say that the recent congressional elections have had a positive effect on the investment climate.
- One out of four investors (24%) say the elections had a negative effect.
- Three out of 10 investors (30%) say they had no effect.
Of course, the real question is whether investor optimism will continue to increase in early 2003 -- the way it did in early 2002. At this point, the answer to that question is not at all clear. Still, there is reason for hope as two out of three investors (69%) say they are somewhat or very optimistic that 2003 will be a better year for the stock market than 2002. In sharp contrast, only 15% of investors say they are somewhat or very pessimistic about the prospects for the markets next year.
Survey Methods
Results for the total dataset are based on telephone interviews with 1,000 investors, aged 18 years old or older, conducted December 1 – 15, 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.
