Stocks pared gains today after Ben Bernanke warned Congress of potential harm from the European debt crisis. How does the global economic outlook impact investor confidence?
Stocks pared gains today after Federal Reserve Chairman Ben Bernanke warned Congress that the European debt crises “poses significant risks” to the U.S. economy – the latest evidence that a deteriorating global economic outlook is rattling investor confidence.
Bernanke reassured members of the Joint Economic Committee that the Federal Reserve, the nation’s central bank, is “prepared to take action as needed” to protect the U.S. financial system should stresses from the European debt crisis escalate, but his general assurances may not be enough to calm skittish investors.
The European debt crisis and the larger global economic outlook have been foremost in the minds of affluent investors during the month of May, according to Millionaire Corner’s monthly Affluent Index Series, which indicates wealthy Americans are inclined to sit on the sidelines as the euro zone crisis unwinds.
According to the index, investor confidence declined to a four-month low, while investors ranked “international problems” as the news story most affecting their investment plans. (Thirty percent of Millionaires identified the global economic outlook as having the biggest impact on their investment decisions, followed by the political environment (16 percent) and unemployment (16 percent.)
The concern is linked with an increase in investors choosing to “not invest” or “invest in cash” in May, according to the index. Investment in individual stocks edged up slightly, but investment fell in all other categories, including stock mutual funds, bonds, bond mutual funds and real estate. (Our research also indicates Americans have little appetite for international investing.) Affluent investors also expressed a more pessimistic outlook for household income, company health, household assets and confidence in the economy.
Millionaire Corner wealth studies conducted over the last quarter of 2011 and first quarter of 2012 reveals a heightened sensitivity toward global economic events in general and to the European debt crisis in particular. Seventy percent of high net worth investors – those with investable assets of $5 million to $25 million – say they are paying more attention to the global economic outlook because it is having a greater impact on their wealth, according to our first quarter survey. And, nearly three-fourths (72 percent) of high net worth investors surveyed at the end of 2011 said the European debt crisis has affected or will affect the way they invest.
Millionaires, individuals with investable assets of $1 million to $5 million, and Mass Affluent investors, who have between $100,000 and $1 million to invest, expressed slightly lower levels of concern over the global economic outlook.