Investor confidence was resilient despite geopolitical tensions


Sep. 5 2014, Updated 9:00 a.m. ET

Why is the State Street Investor Confidence Index important?

The State Street Investor Confidence Index quantitatively measures investor confidence or risk appetite. It analyzes institutional investors’ actual buying and selling patterns. The Index assigns a precise meaning to changes in investor risk appetite. A higher equity percentage signals higher risk appetite or confidence. A reading of 100 is neutral. At this level, investors aren’t increasing or decreasing their long-term allocations to risky assets.

Are investors confident about the U.S. economy?

“Despite a bout of risk aversion driven by geopolitical tensions in the early days of August, global institutional investor confidence remains resilient,” said Jessica Donohue, senior managing director and head of research and advisory services, State Street Global Exchange.

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The State Street Investor Confidence Index for August—released on August 26—was boosted by expectations for accommodative monetary policy. Investor confidence was up by seven points to a very strong 122.8 index level—compared to the 115.8 index level in July. There are three Index components. This month’s strength was led by Asia-Pacific. It was followed by Europe. North America remained mainly unchanged from its previous reading.

Market implications

Confidence in the economy and capital markets is a critical driver of economic and financial fluctuations. The confidence also drives the business cycle. When confidence increases, consumers and investors want to buy consumer goods and durables at prevailing prices. This bodes well for consumer discretionary exchange-traded funds (or ETFs) like the Consumer Discretionary Select Sector SPDR Fund (XLY). The XLY includes companies like McDonald’s Corporation (MCD), Amazon (AMZN), and Nike Inc. (NKE) in its portfolio. Another consumer discretionary ETF is the SPDR S&P Retail ETF (XRT). When confidence decreases, spending and risk-taking usually decrease.

Adding to the evidence of a strengthening U.S. economy, the Reuter’s/University of Michigan’s Consumer Sentiment Index, the Conference Board’s Consumer Confidence Index, and the Bloomberg Consumer Comfort Index all gained in terms of index points in August.


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