Investor Confidence Index at 9-Month Low

Investor confidence has crumbled right along with the stock market this month, according to a poll released Monday.

The Index of Investor Optimism, based on a monthly survey of U.S. investors’ outlook for the financial markets, fell in June to 72, down from 90 in May and its lowest reading since September.

The survey, a joint effort of financial services firm UBS and pollster Gallup Organization, was conducted during the first two weeks of June. The benchmark Standard & Poor’s 500 index fell 6% during that period and has continued to slide since.

The confidence index bottomed at 50 in September. It rebounded along with the markets in late 2001 and early 2002, reaching a recent peak of 121 in March. Since then, stock prices and investor confidence have been battered by a daunting combination of corporate accounting scandals, escalating Middle East violence, repeated terrorist warnings and mixed signals about the health of the economy.

The survey found that only 38% of those polled were optimistic about the prospects for financial markets during the next 12 months, down from 46% in May. And 40% said stocks were less attractive as an investment than they were six months ago.

In contrast, 59% said they viewed real estate as a more attractive investment than they did six months ago, reflecting the continued rise in home prices and the comparatively strong performance of real estate investment trusts.

Two other areas that have outperformed stocks this year--bonds and gold--got a less enthusiastic reception. Only 35% of investors said bonds were more attractive than they were six months ago, and 28% thought the same of gold.

Approval of the Federal Reserve’s monetary policies held steady at 89% of those who had an opinion. The Fed begins a two-day meeting today, and two-thirds of the investors surveyed thought the Fed would leave its key short-term interest rate unchanged at a 40-year low of 1.75%. That mirrors Wall Street’s expectations.

The survey each month asks investors what level of returns they expect on their portfolios.

In the latest survey, investors with less than five years’ experience in the market said they expected their portfolios to return an average of almost 16% in the next year. Investors with more than 20 years’ experience were expecting a much more modest 7% return.

The UBS/Gallup investor confidence index was established in October 1996 with a baseline of 124. It is based on a telephone survey of 1,000 randomly selected private investors. The index peaked at 178 in January 2000 as the 1990s bull market was nearing its crest.