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 from August.
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 Iraq.
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 or more.
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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