The State Street Investor Confidence Index confirmed that investors’ faith in the financial markets continues lackluster this year, declining by 0.6 points in May from April’s revised reading of 92.0.
Even so, April investor confidence was revised upwards by 1.2 points.
Developed by Harvard University professor Ken Froot and Paul O’Connell of State Street Associates, the index shows that institutional investor confidence has been essentially flat at 91.4 for the past two months, having declined substantially from its recent high of 109.0 in December 2003.
“Professional investors made substantial downward adjustments in the risk of their portfolios in the first few months of 2004, but are now clearly in a holding pattern awaiting fresh news. By cutting risk, they prepared their portfolios for possible early increases in rates by the Federal Reserve,” said O’Connell.
“In the fourth and fifth months, professional investors rested. Right now it’s a war of attrition, with recent positive earnings surprises battling against Asian overheating, prospective US Fed rate increases, and soaring commodity prices”, said Froot. “Professional investors know the risks, and their prior efforts to take risk off the table anticipated this struggle.”