U.S. investor confidence drops

As many as 82 percent of U.S. investors in a survey said they wanted the Joe Biden administration to focus on the control of inflation, followed by 81 percent in favor of the control of COVID-19.

Persistent inflation at the highest level since the early 1980s is dampening U.S. investors’ sentiment and their confidence in the macro economy.

As many as 62 percent of U.S. investors said inflation would last longer than 12 months, higher than 58 percent in Latin America, 44 percent in Asia and 57 percent in Europe excluding Switzerland, according to a quarterly survey conducted by UBS recently.

Moreover, 27 percent of U.S. investors thought inflation would last six to 12 months while 11 percent of them believed inflation would ease in less than six months, according to the UBS survey, which covered 900 U.S. investors with at least 1 million U.S. dollars in investable assets from Jan. 11 to 24.

The survey showed that 48 percent of respondents were concerned about market downturn and 61 percent of U.S. investors had more than 10 percent of their portfolio in cash and equivalents.

Only 54 percent of respondents said they were optimistic about the U.S. economy for the next 12 months, down from 61 percent three months ago. Meanwhile, 34 percent of U.S. investors were pessimistic about the U.S. economy for the next 12 months, up from 26 percent in the previous quarterly survey.

The share of U.S. investors with optimistic expectations of stock market for the upcoming six months fell to 54 percent from 61 percent, while the share of U.S. investors with pessimistic views of the stock market went up to 24 percent from 17 percent three months earlier.

As many as 82 percent of U.S. investors in the survey said they wanted the Joe Biden administration to focus on the control of inflation, followed by 81 percent in favor of the control of COVID-19.

Only 24.4 percent of U.S. individual investors were bullish about the U.S. stock market in the next six months, significantly lower than 38 percent of historic average, according to the latest survey by the American Association of Individual Investors for the week ending Feb. 9.

U.S. headline and core consumer price index (CPI) in January posted year-on-year growth of 7.5 percent and 6 percent, respectively, both at the highest level since 1982.

There was broad-based price strength across goods and services and the latest CPI report provided another wake-up call to the Fed, according to economists with the Bank of America Global Research.

“Inflation is here and it continues to make its presence known everywhere. We remain comfortable with our hawkish call for the Fed to hike seven times this year,” beginning at the next meeting of the Federal Open Market Committee in March, said a recent note by the Bank of America Global Research.

The higher-than-expected CPI growth led to expectation of more interest rate hikes by the Fed and heavy losses of U.S. stock market last Thursday and Friday.

However, price pressures would ease in the second half of 2022, enabling the Federal Reserve to adopt a pace of tightening that doesn’t push economic growth below trend, said Mark Haefele, chief investment officer at the UBS Global Wealth Management, in a separate research note.

U.S. policy makers would avoid overreacting to price rises driven by pandemic distortions and climbing energy costs and anticipated moderation of inflation would allow the Fed to avoid inducing a hard landing for economic growth, according to Haefele.