The FINANCIAL -- U.S. investor optimism about the nation's investing climate jumped markedly in the first quarter, following steady gains throughout 2016. The Wells Fargo/Gallup Investor and Retirement Optimism Index stands at +126, up from +96 in the fourth quarter of 2016 and +40 a year ago.
Steady improvements in investor confidence over the past year have driven the index to its highest point since +130 in November 2000, toward the end of the dot-com boom, according to Gallup.
The latest results are based on the Wells Fargo/Gallup Investor and Retirement Optimism Index survey, conducted Feb. 10-19 as the Dow Jones industrial average first crossed the 20,000 threshold. The survey reflects the views of U.S. investors with $10,000 or more invested in stocks, bonds or mutual funds.
The Wells Fargo/Gallup Investor and Retirement Optimism Index has been conducted quarterly since 2011. Before that, it was conducted monthly from October 1996 through October 2009. The index has a theoretical range of +400 to -400, but in practice has ranged from +178 at its highest in January 2000 to -64 at its lowest in February 2009.
Investors' Confidence in Economic Factors Surges
The index reflects two aspects of investor confidence encompassing seven different measures:
investors' outlook for three personal financial matters, including their income, their 12-month investment targets and their five-year investment goals
their outlook for four aspects of the economy, including the stock market, economic growth, unemployment and inflation
Investor optimism improved on all seven measures but rose the most on the stock market (with net confidence up 15 points) and economic growth (up 11 points). This likely reflects the market reaching a new record high in February, as well as the broader improvement in the public's attitudes about the economy evident since the presidential election.
Relatedly, the entire economic dimension of the index rose 20 points this quarter to +46, while confidence in the personal dimension rose 12 points to +80.
Over the years, investors have consistently shown more confidence in the personal dimension of the index than in the economic dimension. However, the 34-point gap between the two this quarter is below the average 51-point gap since 1996. That is because increases in the personal dimension over the past year have not kept up with gains in the economic dimension. In the past, when confidence in the economic dimension was near the current level of +46, confidence in the economic dimension was generally above +90, a bit better than today's +80.
Investors' recent enthusiasm about the economy has only partly translated into improvements in how investors perceive their personal financial situations. However, if the stock market remains strong in the coming months, that may boost investors' confidence in reaching their own long-term and short-term investment goals, thus boosting the personal dimension of the index.
Enhanced confidence in economic growth may be based partly on some investors' happiness with the outcome of the November election, rather than tangible factors aiding their wallet.
Confidence among investors who identify as or lean Republican rose 55 points this quarter, on top of a massive 154-point gain in the fourth quarter of 2016. Democrats' optimism rose slightly this quarter (up 15 points), but this hardly compensates for a 134-point decline in the fourth quarter. The net result is that Republican investors' confidence is 209 points higher today than in the third quarter of 2016, while Democratic investors' confidence is 119 points lower.
If Republicans' hopes for the economy are realized in stronger retail sales and employment, that could lead to even higher investor confidence in their personal income, and therefore in the personal dimension of the index. On the other hand, should the economy fail to meet Republicans' expectations, that would likely deflate their confidence in both the economy and their own financial picture.