Analyzing the effects of last week's important indicators on ETFs

Part 6
Analyzing the effects of last week's important indicators on ETFs (Part 6 of 10)

Why did investor confidence rise despite declining retail sales?

State Street Investor Confidence Index

Strong corporate fundamentals released over the past few weeks kept eyes rolling around the U.S. equity market. According to the State Street Global Markets, many institutional investors were bullish about the U.S. equity market, which strongly translated into higher consumer confidence readings for the month of February at a 123.0 level compared to a revised 114.3 level in January. The index has a strong implication on the U.S. equity market, as it measures investor confidence or risk appetite quantitatively by analyzing the actual buying and selling patterns of institutional investors.

State Street Investor Confidence IndexEnlarge Graph

The greater the percentage of allocation to equities, the higher the risk appetite or confidence. Increases in investor risk appetite also boost fixed income assets, particularly non–investment-grade bonds, which are a riskier asset class compared to U.S. Treasuries and corporate bonds. While risk remains a center of concern for high yield bonds, they are normally compensated by higher yields to investors. Also, considering the fact that the default rate on high yield bonds are at their lowest, investors may be willing to show interest in this asset class.

As per the State Street investor confidence index, non-European equities were particularly in high demand, as institutional investors have been buying heavily into this year’s stock market corrections. Confidence among North American investors was at 125.5—especially strong—with Europe at 110.6 and Asia at 106.6.

Along with the increase in the State Street Investor Confidence Index, the Conference Board’s consumer confidence index also posted a recovery last week. Learn more in the next part of this series.

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