Wells Fargo: Investor Optimism Gains Steam in Fourth Quarter

Rhea-AI Summary

The Wells Fargo/Gallup Investor and Retirement Optimism Index increased by 24 points to +42, though it remains significantly below the first quarter's +138. This gain reflects rising confidence in the economy, with 48% of investors optimistic about the economy's outlook. Confidence in stock market investments is strong, with 65% feeling it's a good way to build retirement wealth. However, 25% of investors are holding more cash, indicating a cautious approach amidst market volatility. The survey also highlights a split sentiment regarding the impact of the 2020 elections on economic outlook.

Positive

• Investor and Retirement Optimism Index rose 24 points to +42.
• 48% of investors are optimistic about the economy's 12-month outlook.
• 65% of investors are confident in the stock market as a retirement investment.

Negative

• Current optimism is significantly lower than the first quarter's +138.
• 25% of investors have increased cash holdings since the pandemic, indicating caution.

Investor optimism improved moderately this quarter, with the Wells Fargo/Gallup Investor and Retirement Optimism Index rising 24 points to +42, about double the 14-point gain seen in the third quarter. Still, investor optimism continues to fall well short of its first quarter level, when the index was at a 20-year high of +138.

(Graphic: Wells Fargo)

The Investor and Retirement Optimism Index is up this quarter specifically because investors are feeling better about the future of the economy and jobs. Close to half (48%), up from 40% last quarter, are now “very” or “somewhat” optimistic about the 12-month outlook for the economy. Optimism about the potential for unemployment to decrease is up seven-points to 40%, while optimism levels for the stock market (47%) and inflation (19%) are essentially unchanged.

The latest survey was conducted by web Nov. 9 – 15, using the Gallup Panel, with 1,709 U.S. adults who have $10,000 or more invested in stocks or bonds, either individually or as part of a retirement or mutual fund. This quarter’s poll includes an oversample of 603 higher-income investors, defined as having $240,000 or more in household income.

“Investors were absorbing a number of significant developments in the economy, politics, and the pandemic at the time of this survey,” said Michael Liersch, head of Advice and Planning for Wells Fargo’s Wealth & Investment Management division. “These ranged from a new surge in COVID-19 infections and the October jobs report, to the Nov. 3 elections and the very first announcements about the high effectiveness of certain COVID-19 vaccines.”

Liersch also says that while these events may have pulled investors’ mindsets in different directions, the net effect is positive, most likely because there is more perceived certainty about the future. “Human beings, in general, are ‘uncertainty reduction machines,’ so when uncertainty is reduced, people often feel better about, or more in control over, what’s to come.”

Nearly two-thirds express confidence in stock market, but some are hedging with cash

In the fourth quarter poll, conducted before the Dow Jones Industrial Average cracked the 30,000 barrier in late November, nearly two-thirds of investors surveyed (65%) say they feel “very” or “somewhat” confident that the stock market is a good way to build wealth for retirement. This percentage is similar to the 69% expressing this sentiment in Q2-2020 as well as in Q2-2019. Similarly, 67% this quarter report feeling either neutral or optimistic about investing, rather than fearful of a market downturn. Although lower than the 78% who reported feeling this way in 2018, today’s 67% remains a solid majority.

Still, Liersch says “the uncertainty and market volatility created by the pandemic may be causing some investors to continue to proceed with more caution than usual.”

While most (69%) say they have made no change to their cash versus investment allocations, 25% report they have kept a greater proportion of their money in cash since the start of the pandemic, significantly outnumbering the 6% who say they have invested a greater proportion in the markets. Even with this, a third of investors surveyed (32%) say they feel they have too little cash on hand, compared with just 7% who say they have too much.

“Investors’ desire for cash makes sense, given that holding cash is one strategy they can employ to exert control over their financial security at a time when so much is out of people’s control,” said Liersch. “Liquidity affords people a sense of short-term control, while long-term they may recognize that they should either be investing or staying the course in the markets. This dynamic can create a bit of inner-conflict when making financial decisions for one’s ‘present’ vs. ‘future’ self. People wonder: Which one should I prioritize during times of uncertainty?”

Indeed, recognition of what is in vs. out of investors’ control is infused in much of their financial lives. Asked how much control they feel they have over various aspects of their financial security, a solid majority (62%) report feeling they have a lot of control over being able to reduce or stay out of debt. This sentiment drops sharply to 30% in terms of saving for a comfortable retirement, 24% for generating the income they need to support their standard of living, 11% for preventing major investment losses, and to just 3% for producing major investment gains. While majorities feel they have at least some control over their debt, income and savings, this is not the case for investment losses and gains.

How much control do you feel you have over the following aspects of your financial security?
		A lot of control		Moderate amount		Only a little		None/No control
		%		%		%		%
Reducing or staying out of debt		62		32		5		1
Having enough saved for a comfortable retirement		30		52		15		2
Having the income you need to support your standard of living		24		58		15		3
Preventing major investment losses		11		38		41		10
Producing major investment gains		3		33		50		14

Higher-income investors surveyed are more likely than investors overall to feel they have a lot of control over their income (43% vs. 24%), saving for retirement (54% vs. 30%) and staying out of debt (72% vs. 62%). However, they are similar to all investors in feeling they have control over avoiding big market losses (10% vs. 11%) or achieving big market gains (3% each).

Higher-income investors are much more likely than investors on average to say that having a large amount invested in the markets makes them feel more confident about their financial security (67% vs. 37%). Conversely, most investors surveyed say that having a large amount of money in cash makes them feel more confident.

“This finding highlights fundamental similarities and differences between the two groups of investors,” said Liersch. “While investors of all levels of affluence tend to agree that cash is a tool that provides confidence, they tend to differ in their views of investing as a productive tool for their financial future. The question we should ask ourselves is ‘Why?’ These different investor perceptions can drive decision-making and ultimately financial health and outcomes.”

Higher-income investors surveyed are also more risk tolerant than investors as a whole, with 64% saying they are willing to take a lot or a fair amount of financial risk, versus 49% of all investors. Additionally, 20% report currently taking “a good deal of risk,” versus just 5% of all investors.

Investors divided over how election will impact the economy

The 2020 elections also could affect how people look at their plan. Close to half of investors surveyed (46%) say that the results of the 2020 elections make them feel more optimistic about the U.S. economy over the next 12 months, but nearly as many (42%) say it makes them less optimistic. The remaining 12% say the elections have had no impact on their economic outlook.

This nearly split decision on the impact of the elections contrasts with a slightly more positive balance of opinion after the 2016 elections, when 46% of investors felt more optimistic and 38% less optimistic. Today’s reactions are more positive, however, than after the 2012 elections when views tilted negative: 40% felt more optimistic and 48% less optimistic at that time.

Do this year’s presidential and congressional election results make you more optimistic about the U.S. economy over the next 12 months, less optimistic, or have the elections had no impact at all on how you feel about the economy?
	More optimistic	Less optimistic	No impact
	%	%	%
2020 Nov	46	42	12
2016 Nov	46	38	15
2012 Nov	40	48	12

Naturally these attitudes are highly related to the partisan orientation of investors. Eight in 10 Democrats (81%) feel more optimistic about the economy in the wake of President-elect Joe Biden’s victory, and 59% think it will have a positive impact on their net worth. By contrast, nine in 10 Republicans (90%) feel less optimistic about the economy, and 77% foresee it negatively affecting their net worth. These figures represent a reversal of the partisan reaction recorded four years ago following President Donald Trump’s victory, when Republicans were mostly optimistic about the election’s effects, while Democrats felt the opposite.

Liersch, who has a doctorate in behavioral science, says this is the result of what is called confirmation bias — a tendency to seek out information confirming one’s point of view; in this case, whether that is supported by the winning or losing candidate. He says investors who can move beyond that bias tend to be more open-minded and flexible with their investments.

“If we are willing to update our beliefs and assumptions, we can update our plans, too. This is where working with other trusted people can help keep you on your toes, especially if they serve to challenge your beliefs no matter what they are.”

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About the Wells Fargo/Gallup Investor and Retirement Optimism Index

Results for this Wells Fargo/Gallup Investor and Retirement Optimism Index are based on a Gallup Panel™ web study completed by 1,709 U.S. investors, aged 18 and older, from Nov. 9 – 15, 2020. This quarter’s poll includes an oversample of higher-income investors, defined as having $240,000 or more in household income, resulting in a total of 603 higher-income investors included in this survey.

The Gallup Panel is a probability-based, longitudinal panel of U.S. adults who Gallup selects using random-digit-dial phone interviews that cover landline and cellphones. Gallup also uses address-based sampling methods to recruit Panel members. The Gallup Panel is not an opt-in panel. The sample for this study was weighted to be demographically representative of the U.S. investor population, using demographic targets determined from investor samples within prior Gallup national adult surveys. For results based on this sample, one can say that the maximum margin of sampling error is ±5 percentage points at the 95% confidence level. Margins of error are higher for subsamples.

In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error and bias into the findings of public opinion polls.

For this study, the American investor is defined as an adult in a household with stocks, bonds, or mutual funds of $10,000 or more, either in an investment account or in a self-directed IRA or 401(k) retirement account. About two in five U.S. households have at least $10,000 in such investments. The sample consists of 62% nonretirees and 38% retirees. Of total respondents, 25% reported annual incomes of less than $90,000; 65% reported $90,000 or more. The median age of the nonretired investor is 51 and the retiree is 69. The Wells Fargo/Gallup Investor and Retirement Index is an enhanced version of Gallup’s Index of Investor Optimism, which provides the historical trend data.

The Investor and Retirement Optimism Index has an adjusted baseline score of 100 from when it was established in October 1996. It peaked at +152 in January 2000, at the height of the dot-com boom, and hit a low of -81 in February 2009.

About Wells Fargo Wealth & Investment Management

Wells Fargo Wealth & Investment Management (WIM) is a division within Wells Fargo & Company. WIM provides financial products and services through various bank and brokerage affiliates of Wells Fargo & Company and is one of the largest wealth managers in the U.S., with nearly $1.9 trillion in client assets. WIM serves clients through the following businesses: Wells Fargo Private Bank serves high-net-worth individuals and families; Abbot Downing serves ultra-high-net-worth individuals and families; Wells Fargo Advisors provides investment advice and guidance to clients through nearly 13,000 full-service financial advisors and referrals from more than 5,300 licensed bankers; and Wells Fargo Asset Management brings together a strategic balance of investment capabilities to serve the investment needs of institutions, financial advisors, and individuals worldwide. Through Wells Fargo Private Bank and Abbot Downing, WIM is also a leading provider of trust, investment, and fiduciary services, including personal trust services and a number of specialized wealth services designed to meet the diverse needs of high-net-worth clients.

Abbot Downing, a Wells Fargo business, and Wells Fargo Private Bank offer products and services through Wells Fargo Bank, N.A. and its various affiliates and subsidiaries. Wells Fargo Bank, N.A. is a bank affiliate of Wells Fargo & Company.

Brokerage services are offered through Wells Fargo Advisors. Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC, and Wells Fargo Advisors Financial Network, LLC, Members SIPC, separate registered broker-dealers and non-bank affiliates of Wells Fargo & Company.

Wells Fargo Asset Management (WFAM) is the trade name for certain investment advisory/management firms owned by Wells Fargo & Company. These firms include but are not limited to Wells Capital Management Incorporated and Wells Fargo Funds Management, LLC. Certain products managed by WFAM entities are distributed by Wells Fargo Funds Distributor, LLC (a broker-dealer and Member FINRA).

Wells Fargo Bank, N.A., offers various advisory and fiduciary products and services including discretionary portfolio management. Wells Fargo affiliates, including financial advisors of Wells Fargo Advisors, a separate non-bank affiliate, may be paid an ongoing or one-time referral fee in relation to clients referred to the bank. The bank is responsible for the day-to-day management of the account and for providing investment advice, investment management services, and wealth management services to clients. The role of the financial advisor with respect to bank products and services is limited to referral and relationship management services.

About Wells Fargo

Wells Fargo & Company (NYSE: WFC) is a diversified, community-based financial services company with $1.92 trillion in assets. Wells Fargo’s vision is to satisfy our customers’ financial needs and help them succeed financially. Founded in 1852 and headquartered in San Francisco, Wells Fargo provides banking, investment and mortgage products and services, as well as consumer and commercial finance, through 7,200 locations, more than 13,000 ATMs, the internet (wellsfargo.com) and mobile banking, and has offices in 31 countries and territories to support customers who conduct business in the global economy. Wells Fargo serves one in three households in the United States. Wells Fargo & Company was ranked No. 30 on Fortune’s 2020 rankings of America’s largest corporations. News, insights and perspectives from Wells Fargo are also available at Wells Fargo Stories.

Additional information may be found at www.wellsfargo.com | Twitter: @WellsFargo.

News Release Category: WF-ERS

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FAQ

What is the current Wells Fargo Investor and Retirement Optimism Index for 2023?

The Wells Fargo Investor and Retirement Optimism Index stands at +42 as of the latest report.

How did the 2020 elections impact investor sentiment regarding the economy?

Approximately 46% of investors feel more optimistic about the economy post-elections, while 42% feel less optimistic.

What percentage of investors feel confident in the stock market for retirement?

About 65% of investors feel confident that the stock market is a good way to build wealth for retirement.

How many investors are optimistic about the economy's future outlook?

48% of surveyed investors are optimistic about the economy's outlook for the next 12 months.

What is the significance of the recent rise in the Investor Optimism Index?

The 24-point rise indicates increased investor confidence, though it's still well below earlier highs.