Investor Confidence Continues to Strengthen

2018-01-10T12:47:08+00:00 January 9th, 2018|

Overall Index

The PNC-CivicScience Investor Sentiment Index (ISI) strengthened for the third month in a row in December 2017, and reflects a sharp turn higher in the latter months of the year, indicating growing optimism. As measured by the poll, investor confidence strengthened in the final quarter of 2017, after a downward softening trend had prevailed during the first nine months of the year. Sentiment began moving higher in October, and again in the following two months. The December reading indicated a jump in sentiment, reaching the highest level recorded in 2017. The ISI moved sharply higher to 54.3 in December, up from 51.7 in November. The November sentiment reading was just slightly below the prior high readings for the year, noted in January and March, both at 51.8. Optimism growing through the fall appears to reflect broader market views and optimism in the economy, ongoing legislation on tax reform, and strong financial markets. With global growth continuing in December, in addition to the passing of tax reform legislation in the United States, financial markets traded higher, and the ISI poll would suggest optimism rose as well. Volatility in 2017 was the lowest on record as measured by futures markets which assess trading statistics of the S&P 500®, despite the many headlines financial markets needed to digest. Despite geopolitical risks, uncertainty regarding the outcome of tax reform, uneven economic data, and other factors, domestic U.S. indexes continued to test new all-time record highs as the year came to an end. The economy quickly bounced back from the severe hurricane storm season. Third-quarter 2017 GDP was 3.2%, and the estimate for fourth quarter GDP is currently 3.2% as well. The job market remains on solid ground, with the unemployment rate holding at 4.1% for December. As expected, the Federal Reserve (Fed) raised interest rates for the third time in 2017 at the December meeting, and PNC expects the Fed will raise interest rates three times in 2018, all at a measured pace of 25 basis points at each meeting.

Domestic stocks have benefited from continued optimism and strong fundamentals with corporate earnings and moved higher in 2017. Currently, consensus estimates for 2017 earnings growth for the S&P 500 sit around 9.5%. Fourth quarter 2017 earnings season commences in January 2018, therefore by the next ISI post, results of the 2017 corporate earnings growth rate will be better defined. The S&P 500 rose approximately 1.0% in the final month of the year, and overall for 2017, the index moved 19.4% higher. Including the reinvestment of dividends, the S&P 500 returned 20.8% in 2017.

Individual Poll Questions

Question 1: Six months from now, do you think business conditions overall will be more favorable or less favorable to large, publicly traded companies?

The most notable move in the ISI poll was the sharp turn higher in Business Conditions, which had moved little in November. In December, however, the sentiment surrounding Business Conditions rose to 59.1, from 55.5. We note that the tax reform legislation passed by the U.S. Congress in December 2017 includes corporate tax cuts and other potential benefits for companies which could have affected how poll participants viewed business conditions. For December, participants were notably more optimistic that business conditions would improve in the next six-month period for large, publicly traded companies. Data published by the Institute for Supply Management (ISM ®) took a turn higher as well, as the published ISM Manufacturing Purchasing Manager Index (PMI ®) moved higher for December to 59.7 from November’s 58.2. Typically, a reading over the 50 level indicates expansionary conditions.

Question 2: When it comes to U.S. stock markets, would you say that you feel bullish (optimistic) or bearish (pessimistic) right now?

The PNC – CS Investor Sentiment Index Bullish/Bearish sentiment currently suggests that more poll participants are bullish than bearish about U.S. stock markets, more so in December than in any previous month in 2017. Participants have become more bullish as we’ve moved through the months of 2017, with a slight acceleration in December.

Bullish versus bearish sentiment trended slowly higher through 2017, with a pickup in paced noted in the second half of the year. The December reading of 57.5 set a high for the year, rising from 56.6 in November, and more bullish than bearish view.

As we have noted above, as well as in previous poll summaries, financial markets have also reflected growing optimism as the year 2017 progressed, and stock indexes domestically and internationally ended the year with strong returns. Consumer confidence, as measured by The Conference Board, eased a bit in December to 128.0, from the strong 17 – year high number recorded in November, owing to a strong labor market, optimism over tax cuts, and continued economic expansion in the United States.

Question 3: Six months from now, do you expect to invest in stocks/equities at a higher or lower rate than you are currently investing?

Sentiment towards Personal Investment questions poll participants as to whether they will be more or less likely to invest in stocks six months from now versus current levels. Individuals are likely to respond to headlines from a more personal vie w than the business community. Similarly, Personal Investment Sentiment was higher in December, rising to 45.5 versus the 43.1 in November.

Summary

The PNC – CivicScience Investor Sentiment Index (ISI) survey results for December depict investors as, in general, much more optimistic in the final month of 2017 than in any prior month during the year. Investor Bullish versus Bearish sentiment rose, and from a personal investment perspective, respondents were more optimistic in terms of investing in stocks six months from now. With regard to Business Conditions, there was a sharp upward move in the poll reading.

The next PNC – CivicScience ISI will be published in February.