Despite the volatility in the stock market and a weak economy, investor confidence in the capital markets has stabilized, according to a new survey. However, investors are split over when they think the recession is ending.
The report, released on Wednesday by the Center for Audit Quality in Washington, is based on a late-summer survey of 1,000 individual investors who had at least $10,000 invested in the market. A majority of investors 73% of those surveyed have either some, quite a bit, or a great deal of confidence in the capital markets. That's up from 70% from a year ago, but still below confidence levels of 84% in 2007.
"There was a pretty significant drop between 2007 and 2008, and now in 2009 it's leveled off," says Cindy Fornelli, executive director of the Center for Audit Quality. "I think it's stabilizing, which is good news."
Fornelli notes that the improvement came even though a hoard of bad news shook up the markets between last year's summer survey and this year's fall survey. "Unemployment went up significantly, you had problems with AIG and Lehman Brothers, the stock market went down so the indicators of the economy got worse and yet confidence has leveled off," she says. Of course, you could also say that the two surveys bridged the worst months of the financial crisis, but it's positive nonetheless that current investor confidence is a tad better than pre-Lehman levels.
Of those expressing confidence, 40% cited improved economic data, 31% named trust in the U.S. government and President Obama and 4% cited better government controls and regulations as the reasons behind their stance, the survey said.
The 26% who expressed little or no confidence named the recession, concerns about too much government spending or interference, weak government oversight of the capital markets, the volatility in the U.S. stock market, bank failures, corporate greed, job losses, and the home foreclosure crisis as their top concerns.
Though investors' confidence is up overall, certain doubts remain. Slighlty more than 20% of those surveyed had very little or no confidence in the stock market. Skepticism about company financial reports was a big factor: Approximately 69% expressed no confidence or only some confidence in financial reports, up from 57% in 2008.
When asked who does the best job at protecting investor interests, 38% said they did themselves. This was followed by auditors at 27%, government regulations at 23%, financial analysts/brokers at 18% and investigative journalists at 18%.
In the survey, investors were split on how much longer they think the recession will last, with about half saying they think it will end in the next year, 22% saying it will last another two years and 25% feeling it will stretch out beyond two years.
Geoffrey VanderPal, a certified financial planner and chief investment officer at Skyline Capital Management in Austin, says he isn't surprised by the survey's results. "Most of my clients are cautiously optimistic," he said, although most are expecting a double-dip in the economy before the real rebound comes.