Investor confidence shaken to 3-year low on trade war, bonds

At a time of an escalating trade war with China and not long after the Federal Reserve cut interest rates, investor optimism in the U.S. plunged to the lowest point since the fourth quarter of 2016.

That’s according to the Wells Fargo/Gallup Investor and Retirement Optimism Index, which was released on Thursday. The poll, conducted from Aug. 5 to 11, found that confidence among U.S. investors weakened in the 12-month outlook for the stock market and U.S. employment.

The third-quarter index, which now sits at 72, dropped 13 points from 85 in the second quarter and is well below the post-recession high of 117 reached in the fourth quarter of 2017. It’s also the largest quarterly drop for the index in more than three years, according to Wells Fargo.

“Even before the volatility of the past two weeks, investors were rattled by the market decline at the start of the month, including a nearly 800-point drop in the Dow at the start of the survey period,” said Andy Byer, head of client service and advice at Wells Fargo Advisors.

Investors were defined as U.S. adults with $10,000 or more invested in stocks, bonds or mutual funds. And the index takes into consideration their perceptions of the economy and personal financial situations. More than 2,000 investors completed the survey.

Recession fears rising: Here’s how to find stability when Wall Street has you on edge

Gas prices: Expect relief at the pump this fall, AAA says

Along with added tariffs on Chinese goods, other main drivers behind weaker investor optimism were currency concerns, bond yield curves and credit spreads. Investors were also concerned with consumer indicators along with business and consumer confidence, according to a separate Wells Fargo report.

Confidence was shaken equally among investors who are retired, those who are not retired, those with $100,000 or more invested and those who have contributed less than $100,000 in investments.

By contrast, investor optimism was flat in the index’s personal finance dimension which measures their outlook for reaching five-year and 12-month investment targets. It also takes into consideration their confidence in maintaining their household income over the next year.

“With the market still up from the start of the year, recent market losses have not cut into investors’ underlying confidence in their portfolio or long-term retirement goals,” Byer said.

 “Even with volatile markets, investors should keep their focus on their long-term investment plans. And making sure investments are aligned with their personal risk tolerance and rebalancing portfolios to match their investment objectives.”

Follow Dalvin Brown on Twitter: @Dalvin_Brown.