Mass affluent investors' confidence in the markets has dropped sharply since April, with many now expressing concern about U.S. debt and global political and economic instability, according to a nationwide survey released today by Allianz Global Investors.
With investors unsure about what to expect from the markets and unclear on how to invest in today's challenging economy, the survey indicated growing signs of what AGI termed "economic angst and investing indecision."
Only 35% of affluent investors questioned said that it is a good time to invest in the stock market, a 10% drop from April and down 15% from April 2010, when about half the respondents said it was a good time to invest.
More telling is the fact that the survey was conducted from July 7 to July 15-before the heightened debate over raising the U.S. the debt ceiling and S&P's downgrade of U.S. debt on Aug 5, AGI officials noted.
Asked about their expectations for the U.S. economy, 40% of investors surveyed said they expect it to be at least a little better one year from now, compared to 55% in April.
"The economic climate, like the weather, has been overheated this summer, culminating in S&P's controversial downgrade of U.S. debt," said Kristina Hooper, head of portfolio strategies at Allianz Global Investors Distributors LLC. "But America's loss of its AAA credit rating was just the latest in a litany of market and economic events taking a toll on investor confidence."
From debt issues at home and abroad to mixed economic data to increasing volatility in the markets to geopolitical instability, it has become increasingly difficult for many investors to find the silver lining amidst the haze of uncertainty, Hooper said.
Moreover, Hooper predicts that it will "take awhile to emerge from the valley of the shadow of debt troubles across large developed markets like the U.S. and some European nations."
Although a large majority of investors continue to believe that it is at least somewhat likely there will be a major stock market downturn in the next five years, their time frame is compressing. More than two-thirds of investors surveyed said a major market downturn is at least somewhat likely within the next year, up from 57% in April and 63% in August 2010.
"We've found that in recent years, investors have been increasingly at peace with the notion that over the long term, the market will experience occasional sharp, downward corrections," said Hooper. "But in our latest survey, the prospect of such a downturn appeared to be larger and more immediate than it's been in the recent past. Investors may or may not deem the 10%-plus drop in market averages experienced in early August a major market downturn, but, whatever you call it, investors are hardly surprised."
The survey was conducted by GfK Roper Public Affairs and Corporate Communications. Completed surveys were obtained from 1,003 Americans with sole or shared responsibility for investment decisions in households with portfolios of at least $250,000.