The fourth quarter Wells Fargo/Gallup Investor and Retirement Optimism Index hit a nine-year high, registering +96, up from +79 in the third quarter.
The index, which measures investor optimism, shot up 36 points to +117 among retired investors, and rose 11 points among non-retired investors to +89.
The index results, released Tuesday, were based on a survey conducted by telephone with 1,012 U.S. investors in mid-November. The index last approached the current level in May 2007, prior to the recession, when it registered +95.
The index had a baseline score of 124 when it was established in October 1996. It peaked at 178 in January 2000, at the height of the dot-com boom, and hit a low of negative 64 in February 2009.
Fifty-seven percent of investors in the current survey expressed optimism about economic growth over the next 12 months, up from 45% in the third quarter. Only 27% were pessimistic, down from 35%.
Similarly, investors’ outlook for unemployment improved in the fourth quarter, with 52% optimistic, up from 47%.
Fifty-four percent of respondents were optimistic about the stock market, little changed from last quarter but sharply higher than the 32% who said they were optimistic in the first quarter.
“Rising investor optimism and the stock market reaching all-time highs is great news to end the year on, but it isn’t necessarily driving investors to put their money into the markets,” Scott Wren, senior global equity strategist for Wells Fargo Investment Institute, said in a statement.
“Investors are more interested in the markets, but it takes time for this optimism to translate to flows into the stock market, especially when investors have been cautious for so long.”
The Wells Fargo/Gallup poll was conducted just over a week after the November elections and the Dow Jones industrial average had surged more than 500 points since the vote, but before it crossed the 19,000 mark.
Forty-six percent of investors surveyed said the election outcome had made them feel more optimistic about the U.S. economy over the next 12 months, compared with the 38% who said it made them feel less optimistic.
Another 15% maintained that the election had had no effect on their expectations for the economy.
In line with their optimism about economic growth, 57% of investors said they felt positive about where the economy was heading into 2017, while 38% were “bracing” themselves for a downturn.
Perhaps not surprising, 79% of investors who identified as Republican felt positive about where the economy was headed, while 68% of self-identified Democratic investors were anticipating an economic downturn.
Because more investors identified as or lean Republican than Democratic — 53% vs. 40% — the balance of investor expectations for economic growth in 2017 was positive.
Forty-two percent of retirees and 35% of non-retirees surveyed — 37% of investors overall — believed the election results would have a major influence on their net worth. Another 42% said it would have a minor effect, while 19% said it would have none.
Of all investors, half expected a positive effect on their net worth and 28% a negative one. Market Volatility Expectations
Three-quarters of investors told pollsters the stock market would be volatile in 2017, including one in five who expected high volatility, up slightly from this time last year.
Another 53% expected the stock market to be somewhat volatile, while just 23% said it would not be too volatile.
Looking back on 2016, some six in 10 investors described the stock market as highly or somewhat volatile, while 39% said it was not too volatile.
“Last year was not as volatile as some investors perceived it to be, and we are not forecasting a lot of volatility in the U.S. markets for the first half of the new year,” Wren said. “We encourage investors to think of volatility in terms of what opportunities it may present.”
Asked about their reaction to periods of stock market volatility since the 2008–2009 market downturn, 44% of investors said volatility still bothered them as much as before, 42% said they were better at shrugging it off and 11% said it did not bother them.
Retirees and non-retirees had similar views of volatility, though they differed by gender. Forty-eight percent of women said volatility still bothered them, compared with 39% of men, and 38% of women said they had gotten better at shrugging it off, versus 46% of men.
Workers’ Income Expectations
Fifty-seven percent of working investors in the survey expected their wages or employment income to increase in the coming year, with just 5% foreseeing a decrease.
More specifically, 7% predicted their income would increase substantially next year, 30% said it would increase a moderate amount and 20% said it would go up only a little.
In 2016, 62% of investors saw their income rise and 10% saw it decrease.
Thirty-eight percent said they expected their income to stay the same next year, while 28% said it was steady in 2016.
Two-thirds of investors aged 18 to 49 expected their wages to increase in 2017, compared with 47% of those 50 and older. As well, 69% of the former reported that their wages did increase in 2016, compared with 52% of the latter.
— Check out Young Americans Piled Into Some Horrendous ETF Trades Right After the Election on ThinkAdvisor.