According to State Street’s February index, investor confidence declined by 3.7 points to 94.9 from January’s revised reading of 98.6. January’s investor confidence was also revised downward after the preliminary release last month, as investor selling throughout January was stronger than anticipated.
Developed by Harvard University professor Ken Froot and Paul O’Connell of State Street Associates, the index shows that institutional investor confidence has fallen by 14.1 points since December 2003.
“During January, growing US fiscal and trade deficits and the depreciation of the dollar has raised concerns that long anticipated growth will arrive mixed with moderately higher inflation. This has shifted investor sentiment clearly in the direction of greater caution, and this shift continues into early February. “January was about investors moving to protect their recent gains in risky securities,” says Froot.
“The large number of professional investors we track have adjusted their portfolios, but they are by no means fleeing equities,” said O’Connell.
Launched in September 2003, the State Street Investor Confidence Index combines a model of global investor behavior with information that tracks the common buying patterns of institutional investors around the world. Because the index is a quantitative measure based on the investment behaviour of thousands of institutional investors, it ostensibly provides a more objective indicator than survey-based measures. The index is not directly tied to good or bad news, or to the price of stocks, bonds or other assets, but rather reflects the general sentiment of investors towards risky assets.