The PNC-CivicScience Investor Sentiment Index (“ISI”) is a “living,” survey-based measurement of U.S. adults’ current attitudes and expectations related to the U.S. financial markets, investment climate, and market outlook. The primary goal of the ISI is to monitor changes in consumer and investor attitudes, to better anticipate investment trends, market movements, and overall U.S. economic health.
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The PNC – CivicScience Investor Sentiment Index (ISI) reflected an easing of investor sentiment in February 2018, the first monthly dip since September 2017. Investor sentiment, as measured by the poll, had been on an upward trend for the latter half of 2017 and into 2018. However, February’s poll reflected a slightly lower level of optimism versus January 2018.
Sentiment in January reached its highest level since the poll began in November 2016. February 2018’s poll results reflect a pause in optimism as the ISI declined to 52.3 from 55.1 in January. After record low volatility in 2017, markets were surprised by a quick bout of instability which hit financial markets in February. Despite the continued strong economic data and corporate earnings, markets were unhinged by various headlines surrounding volatility – specific investment products, as well as broader market uncertainties.
While we expected volatility would rise from the record low levels of last year, the swift return caught many investors off guard. It is normal for stocks to experience declines from time to time, and U.S. equities had gone longer than normal without any type of correction. In mid – February, the S&P 500® traded lower, crossing through 5% and 10% correction levels. Despite dropping more than 10%, the S&P 500 recovered some of these losses, and for the month ended 3.9% lower versus January.
As the fourth – quarter 2017 earnings season progressed throughout February, most notable was the forward guidance provided by U.S. corporations, resulting in upwardly revised expectations for 2018 earnings. The growth rate for S&P 500 earnings is now 18.0% year over year, up from the 12.0% estimate at the start of the year.
The economy continues along a path of economic expansion, with fourth – quarter 2017 GDP growth at 2.5% year over year. The job market remains on solid ground: the unemployment rate held at 4.1% in January while inflation has not realized an acceleration. The Consumer Price Index held at 2.1% year over year in January. Forecasting the Federal Reserve has also played into investor sentiment, with worries that there will be four interest rate hikes in 2018 instead of three. PNC continues to forecast three rate hikes in 2018.