Investor Optimism Rises 68% After Oil Price Cuts
Investor optimism in October 2006
rose 68 percent from one year ago --and reached its highest level in
seven months-- to 79 points according to investment banking firm UBS
and the Gallup Organization. UBS reported that investors are feeling
more bullish on the stock market than in previous months.
The UBS/Gallup Index increased five points from September and 26 points
The 10-year-old survey began in October 1996 at 124 points. The survey
peaked at 178 points in January 2000, and dropped below 124 points (to
106) for the first time in December 2000. In the past 71 months the
survey had not again reached 124 points, and had only pushed past 100
points four times -- in January and March 2002, and in December 2003
and January 2004.
The lowest point --so far-- hit single digit numbers in February and
March 2003 (9 and 5 respectively) at the time the United States invaded
The Index is conducted monthly.
In October 2006, 53 percent of investors said that they are optimistic
about the performance of the stock market, up from 47 percent who held
that view in September and 42 percent in August. Additionally, the
percentage of investors who believe that now is a good time to invest
in the financial markets has steadily increased since July and is now
at 61 percent, compared with 57 percent in September and 54 percent in
August, UBS reported.
The Dow Industry Average rose above 12,000 points for its first time on
23 October 2006 and maintained +12,000 for the following trading week.
The Dow is up roughly 18 percent from October 2005.
Investor concerns about energy prices continued to decline in October
as the percentage of investors saying they believe energy prices are
hurting the investment climate “a lot” fell to 58 percent, down from 63
percent in September and 78 percent in August.
Oil prices peaked at $78 per barrel in July 2006, but have since
leveled off around $60, with some analysts predicting a trading range
of between $50 and $66 per barrel for the next four to six months.
Nearly as many investors (55 percent) now consider international
tensions --including those in the Middle East and in North Korea-- as
hurting the current investment “a lot” as they do energy prices.
The decline in energy prices from two months ago has not only
encouraged investors about the current economic situation but has also
changed investor expectations for future gasoline prices. In August,
investors said they expected the average price of a gallon of regular
gasoline to reach $3.30 in the following three months. In September,
their expected price for a gallon of gasoline three months from then
was to $2.76. In October, these expectations fell to $2.45, indicating
that investor price expectations for a gallon of gas have fallen
85-cents during the past two months.
"Strong corporate earnings coupled with the easing of energy prices and
reduced expectations of further Fed rate hikes have contributed to both
the recent stock market rally and improved investor sentiment," said
Mike Ryan, Head of UBS Wealth Management Research Americas.
"As UBS expects a slowdown in the economy in early 2007, we will be
watching several areas carefully, including the housing market and
consumer spending," he said.
Investor expectations --for a soft-landing economy-- increased in
October as the percentage of investors saying the nation is
experiencing a “recovery” or an “economic expansion” rose to 43 percent
from 38 percent in September. Another 44 percent believed the economy
is in a “slowdown,” while only 1-in-10 investors felt the United States
is in a recession.
While investors are slightly less concerned about conditions in the
housing market this month than in September, most investors seem to
believe that the real estate markets are going to get worse before they
get better. Six in 10 investors continue to rate conditions in today’s
residential real estate market nationwide as “only fair” (45 percent)
or “poor” (14 percent) – essentially the same as in September.
More than two-thirds of investors (68 percent) believe economic
conditions in the residential real estate market nationwide are getting
worse, a slight improvement from the 74 percent of investors who felt
this way in September.
When considering their local markets, 59 percent view conditions in
their local residential real estate markets as getting worse. This is
an improvement from the 65 percent who felt this way last month, but
still suggests that many local real estate markets have some way to go
before they reach bottom.
With the October increase in the overall Index reading came a rise in
the Economic Dimension of the Index. The Economic Dimension, which
measures people’s optimism about the economy outlook 12-months ahead,
increased six points in October on top of its 12 point increase of
September and now stands at 17.
This suggests that investors as a whole have gone from being neutral
about the economy two months ago -- to being somewhat optimistic about
the economic outlook today. The Personal Dimension of the Index, which
measures people’s optimism about their own portfolios 12 months out,
decreased one point to 62 in October, but remains substantially above
its August level of 54.
Dennis J. Jacobe, chief economist for Gallup, said the sampling
included 802 investors randomly selected from across the country.
Gallup defined the investor as any person who is head of a household or
a spouse in any household with total savings and investments of $10,000
Nearly 40 percent of households in the United States have at least
$10,000 in savings and investments Gallup reported. The sampling error
in the results is plus or minus four percentage points.
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