John Hancock Financial recently announced the results of its quarterly measure of investors’ views on a range of investment choices, life goals and economic outlook. For the third quarter of 2011, the John Hancock Investor Sentiment Index score is +10, a significant drop from the +18 score in the year’s second quarter and from the +22 score of the inaugural index in Q1 2011.
The third quarter survey was conducted in mid-August on the heels of the U.S. government’s debt ceiling debate and the decision by Standard & Poor’s to downgrade the U.S. credit rating. Results of the survey indicate that market volatility and concerns about the impact of the national debt ceiling agreement have made many investors more averse to equities.
In contrast with previous quarters, fewer investors have a positive view of the equity markets, while an increasing share of respondents are more comfortable putting their money into fixed or liquid vehicles such as bonds or cash. Fewer than four out of ten investors surveyed feel they are in a better financial position now than they were two years ago, in the middle of the recession, while the share of investors who feel they are worse off has risen.
Despite the turmoil, investors appear to be sticking to their principles. Most have not made changes to their investment programs even in the face of increasing worries. Virtually all (95 percent) describe themselves as long-term investors, and nearly as many (89 percent) feel they are savings-oriented. A strong majority still believe that now is a good time to be contributing to defined contribution/401(k) plans (66 percent), or to IRAs (67 percent). This is, however, lower than in Q2 when the figures were 80 percent and 79 percent, respectively.
“It seems clear from our survey that investors’ concerns have grown with respect to the national debt, the strength of the dollar, and the level of unemployment,” said Bill Cheney, Chief Economist for John Hancock. “However, other concerns have lessened, such as worries about oil and gas prices, unrest in the Middle East, and even inflation as fewer people predict inflation rates of four percent or higher. It is interesting to note, too, that despite these concerns, it is clear that people still understand the importance of investing and planning for retirement.”
Among the key findings for Q3:
· Regarding stocks, just two out of every five investors think that now is a very good or good time to invest in stocks (41 percent) or stock mutual funds (38 percent), compared to Q2 (58 percent and 53 percent, respectively). Balanced mutual funds and ETFs have also lost appeal, dropping from 54 percent in Q2 to 42 percent now for balanced funds, and from 32 percent to 24 percent for ETFs.
· Seventy-three percent in Q3 say they are pessimistic about the long-term future of the American economy. Two-thirds (67 percent) are very concerned about the nation’s debt (up from 61 percent in Q2), and half (48 percent) are very concerned about the strength of the dollar, up from 42 percent in Q2 2011. Concern about the level of unemployment also increased to 53 percent, compared to 44 percent in Q2.
· On the other hand, fewer express worry about oil and gas prices (41 percent, down from 62 percent), and concern over unrest in the Middle East (30 percent, down from 40 percent). Inflation worries have moderated, as significantly fewer predict inflation rates of four percent or higher (34 percent in Q1 versus 27 percent in Q3).
· About 37 percent feel they are in a better financial position now than they were two years ago, while the share of respondents who feel worse-off has increased from 19 percent in Q2 to 26 percent in Q3. The future outlook is also more negative, with 12 percent of investors predicting their financial position will worsen in coming years, versus seven percent in Q1 of 2011.
· While the number of investors bullish on real estate investments has notably declined to 50 percent, down from 57 percent in Q2, more than half believe that now is a good time to be putting money into their own homes (54 percent, consistent with Q2’s 56 percent).