Despite gains in the financial markets, investor optimism showed little improvement in the third quarter, according to the Wells Fargo/Gallup Investor and Retirement Optimism Index.

The index, which plunged from 138, a 20-year-high, to 4 in the second quarter, the largest-short-term drop since its inception in 1996, registered 18 in a third quarter survey of more than 1,000 Americans with at least $10,000 in invested assets. 

The Investor and Retirement Optimism Index has an adjusted baseline score of 100. It peaked at 152 in January 2000, at the height of the dot-com boom, and hit a low of negative 81 in February 2009.

The survey showed that the economy continues to weigh on investors’ outlook, with 47% indicating that they are pessimistic about economic growth over the next 12 months versus 40% saying they are optimistic. Investors’ sentiments of economic conditions also are grim. About three-quarters describe current conditions as shaky (49%) or weak (25%), while 24% described them as solid, and 3% said the economy is booming.

Talks of a V-shaped economy does not seem to be registering with most investors. While only 37% of investors expect the economy to steadily improve from the low point experienced in April, the survey showed that two-thirds of investors believe the road to recovery will be far from smooth. Forty percent of investors believe the economy will have multiple downturns before a recovery will take place, while another 23% believe the economy will have at least one other significant downturn before recovering — a so-called W-shaped recovery, the study noted.

As for what investors are most worried about, 40% pointed to the coronavirus. They also are concerned about the upcoming election (36%), and the federal budget deficit (32%). Further, the Wells Fargo report noted that two-thirds of investors (66%) believe “the stock market is overheated relative to the economy.” However, most investors are significantly more concerned about economic growth (71%) than the stock market’s performance (6%) as 2020 continues to unfold, the survey found.

And as the presidential election nears, investors ranked the economy at the top among 10 issues the poll tested as potentially influencing their votes. More than a third (69%) said the candidates’ positions on the economy are very important in deciding how they will vote; 59% said healthcare is their No. 1 concern; 58% said education, and 57% said the candidates’ position on the coronavirus is top of mind.

Slightly more than half of investors rate taxes (51%), racial justice (51%), and immigration (50%) as very important. Of lesser importance to investors are U.S. policy toward China (39%), climate change (37%) and the federal budget deficit (36%).

Of note, however, is despite the importance of the economy to investors’ votes in the election,  most continue to believe the nation should prioritize reducing the number of Covid-19 deaths (60%) over opening the economy and getting people back to work as soon as possible (40%).

The survey showed that investors continue to be harmed financially as the coronavirus lingers. Forty percent, up from 32% in May, said the pandemic is having a negative effect on their day-to-day finances. In addition, more investors than in May foresee this year’s stock market downturn harming their long-term financial security and retirement: 54% expect it to have a negative effect, up from 41% in May.

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