It is not surprising that investor confidence headed south in October, with major U.S. equity indexes posting large monthly losses.
According to CNBC,
- “The S&P 500 lost 6.9 percent in October, its biggest one-month slide since September 2011, when it fell 7.2 percent.
- “The Dow dropped 5.1 percent to post its biggest monthly fall since January 2016, when it dropped 5.5 percent.
- “The NASDAQ plunged 9.2 percent, its largest monthly pullback since November 2008, when it shed 10.8 percent.”
What is a little surprising is that the steep decline in institutional investor exposure to the markets (thought to be a more reflective measure of true risk appetite) began back in the late spring and early summer and continued through October.
For U.S. institutional investors, this undoubtedly reflected concerns over the uncertain prospects for continued strong corporate earnings growth, the impact of tariffs and trade wars, and the anticipation that the Fed would continue its path of rate hikes. For institutional investors outside of the U.S., they have been faced with rocky equity markets for most of 2018. Several overseas country indexes have seen double-digit percentage declines for the year, and the Dow Jones Global Index Ex-U.S. was down 11.4% through November 2.
Barron’s noted last week,
FIGURE 1: STATE STREET INVESTOR CONFIDENCE INDEX
Note: Reflects combined global data.
Source: Barron’s, State Street
State Street reviewed its methodology and commented on this month’s report in a press release on October 31:
According to the AAII (American Association of Individual Investors) Investor Sentiment Survey, individual investors remain about evenly split between bullish and bearish attitudes, with last week’s positive market results in the U.S. helping to give a large weekly lift to bullish sentiment.
FIGURE 2: INVESTOR SENTIMENT
Source: American Association of Individual Investors
The good news for all investors can be found in historical analysis of postelection equity market results in midterm election years. MarketWatch recently wrote,
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