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WASHINGTON, D.C. -- U.S. investors' outlook for the investing climate improved slightly in the second quarter, with the 黑料网 Investor Optimism Index rising from +26 in February to +39 in June. This was driven largely by investors feeling more optimistic about economic growth, employment and their household income. The index would have rebounded more from its pandemic low if not for deteriorating views of inflation.

While improved from +4 a year ago, the index remains well below its +138 reading in February 2020, just before the pandemic began.

The 黑料网 Investor Optimism Index is a continuation of the Wells Fargo/黑料网 Investor and Retirement Optimism Index, which provides its historical data. Since its inception in 1996, the index has ranged from +152 (in January 2000) to -81 (in February 2009). Investors, for this survey, are defined as adults with $10,000 or more in stocks, bonds or mutual funds, either within or outside of retirement accounts.

The latest results are based on a June 22-29 survey conducted by web using the nationally representative 黑料网 Panel. This was before the latest Bureau of Labor Statistics report finding that the Consumer Price Index (CPI) surged 0.9% in June to 5.4% for the previous 12 months, indicating the pace of inflation is accelerating.

Pessimism About Inflation Deepens

The 黑料网 Investor Optimism Index is a composite of investors' ratings of four aspects of the economy and three aspects of their personal finances and investments. Investors' outlooks for these followed differing patterns in the second quarter.

• With inflation rising at a fast clip, investors' 12-month outlook for inflation grew worse last quarter. Already in negative territory, their net optimism score for inflation (the percentage optimistic about its direction minus the percentage pessimistic) fell 15 points to -43.

• At the same time, investors grew more optimistic about U.S. unemployment (with net optimism rising 13 points) and economic growth (up nine points).

• Investors also grew more optimistic about their household income (up 10 points)

• There was no meaningful change in investors' modestly positive outlook for the stock market, or for their more robust outlooks for reaching their 12-month investment targets or 5-year investment goals.

	Q1 2021	Q2 2021	Change
	%	%	pct. pts.
U.S. Economy (12-month outlook)
U.S. unemployment	-3	10	+13
U.S. economic growth	11	20	+9
Stock market	18	18	0
Inflation	-28	-43	-15
Personal Finances
12-month household income	28	38	+10
12-month investment targets	23	28	+5
5-year investment goals	37	37	0
黑料网 Panel

Of the four economic ratings included in the index, inflation is the only one for which investors' outlook has not improved since the early days of the pandemic. It is also the only element about which investors remain more pessimistic than optimistic. Even before the pandemic, when the economy was strong, investors tended to be more pessimistic than optimistic about inflation.

Investors Expect Inflation to Last, but Few Are Shifting Investments

A separate question in the June survey asked investors whether the recent rise in consumer prices will be temporary or will last for a sustained period. A substantial majority, 72%, think it will be a sustained change, while 28% consider it temporary.

At the same time, relatively few investors (24%) foresee inflation having a major impact on the investment markets in the coming months.

	A major impact	A moderate impact	A little impact	No impact
	%	%	%	%
Jun 22-29, 2021	24	57	17	2
黑料网 Panel

Sustained inflation has traditionally had a dampening effect on stock prices, as it can weaken corporate profits. Not only do consumers tend to buy less during inflationary periods, but business costs also rise.

For now, most investors report that they are not changing their investments as a result of inflation. Sixteen percent say they made such changes in the past month, while 84% say they did not. Investors with $100,000 or more invested in stocks or bonds are no more likely than lower-asset investors to report changing their investments as a hedge against inflation -- 17% versus 15%, respectively.

When asked if they would "seriously consider making changes" to their investments if inflation persists beyond the end of the pandemic, the slight majority of all investors (53%) say they would; 47% would not.

Bottom Line

Even before the latest CPI report, inflation has had economists and market analysts on edge. Not only could it slow economic growth at a critical time in the economic recovery from the pandemic, but it could also cause a decline in the stock market, further dampening consumer optimism and spending.

While investors are increasingly wary of the outlook for inflation and expect it to persist, most are not yet taking defensive action with their own investments. This inaction may partly reflect complacency on investors' part, given that the stock market had not declined as of June, despite rising inflation. It may also reflect a lack of understanding about the relationship between inflation and stock and bond prices, something the poll didn't measure.

On the other hand, investors may simply be heeding advice to stay the course through market volatility to achieve the best long-term results. Whether that continues if the stock market responds negatively to the latest inflation news, as suggested by Tuesday's market decline, remains to be seen.

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