For the first time in over a year, the Wells Fargo/Gallup Investor and Retirement Optimism index did not improve. Instead it fell slightly from +126 in February, a 16-year high, to +124, its baseline score when it was established in October 1996.
Investors are slightly less optimistic primarily because of political developments here and abroad. Seventy-five percent were very or somewhat worried about military and diplomatic conflicts around the world while 69% were concerned about domestic politics. Just under 50% were concerned that the economy would threaten their investments.
“Given recent headlines, it’s not surprising that investors are more concerned that geopolitical risks pose a greater threat to their investments than the economy,” said Brian Rehling, co-head of fixed income strategy at Wells Fargo Investment Institute, in a statement. He told ThinkAdvisor that investors were “jazzed up” with the new Trump administration at the beginning but now seem to be “scaling back” that optimism.
The survey is based on telephone interviews with just over 1,000 investors, age 18 and older, who are randomly selected, with close to 60% reporting incomes of $90,000 or more and the rest reporting lower incomes.
Wednesday’s midafternoon headline will likely announce another 25-basis-point rate hike by the Federal Reserve, but most investors won’t adjust their portfolios as a result, according to the survey. Two-thirds of respondents said additional rate hikes this year won’t compel them to make any changes in their investments, although 23% said they would move some money out of stocks and into interest-bearing accounts or investments. That may indicate that investors are “more comfortable with the risks in the stock market,” said Rehling in the statement.
“The pace at which interest rates have been rising has been so slow that investors may not feel the heat until it’s boiling,” he said. “The lack of meaningful rate and/or credit shocks in recent years may have given some investors a false sense of security.”
He suggests that investors carefully assess how rising rates will impact them as both a consumer and investor and then create a plan. Rising Fed rates will increase the cost of adjustable debt like credit card debt but at the same time increase the income of short-term debt investments. The yield on long-term debt is not linked as closely to Fed rate hikes.
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