After falling sharply between February and May with the rapid onset of the coronavirus pandemic, investor optimism showed little improvement in August despite the market rally.

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The Wells Fargo/Gallup Investor and Retirement Optimism Index registered 18 in the third quarter survey, conducted Aug. 10 – 16 among U.S. adults with $10,000 or more invested in stocks, bonds or mutual funds. This is up from an index score of 4 in the second quarter, following a sharp drop from the 20-year high of 138 in the first quarter.

The economy continues to weigh on investors’ outlook, with more saying they are pessimistic (47%) about economic growth over the next 12 months than optimistic (40%). Investors’ evaluation of current economic conditions is also grim. About three-quarters describe current conditions as “shaky” (49%) or “weak” (25%). Just 27% describe them as “solid” (24%) or “booming” (3%).

“Despite the gains in the markets, investor optimism remains fragile as unemployment remains high and further stimulus is in question,” said Tracie McMillion, head of asset allocation strategy for Wells Fargo Investment Institute (WFII). “While we expect economic growth to resume this year, consumers continue to exercise caution on spending.”

Most investors believe economic downturn is ahead, dismissing talks of V-shaped recovery

In terms of an economic recovery, two-thirds of investors believe the road to recovery will be far from smooth. Forty percent of investors believe the economy will have multiple downturns before a recovery will take place, while another 23% believe the economy will have at least one other significant downturn before recovering — a so-called W-shaped recovery.

Only 37% of investors expect the economy to steadily improve from the low point experienced in April — essentially a V-shaped recovery that economists consider to be a best-case scenario.

Investors fear COVID-19 and the presidential election

Of the various challenges that could affect the stock market this year, investors worry most about the coronavirus (40% are very worried). The November election ranks a close second, at 36%, and the federal budget deficit third, at 32%.

Two-thirds of investors (66%) believe “the stock market is overheated relative to the economy.” Even so, the poll finds a majority of investors are significantly more concerned about economic growth (71%) than the stock market’s performance (6%) as 2020 continues to unfold.

“While there is uncertainty around the election, COVID-19, and the economic environment, investors should stay focused on planning for their long-term financial goals,” said Kim Ta, head of client service and advice at Wells Fargo Advisors. “After all, elections are the beginning, not the end, of any policy changes.”

Read the WFII Guide to the 2020 Elections.

Economy is leading factor for investors this election

Looking ahead to the presidential election, the economy is top of mind for investors among 10 issues the poll tested as potentially influencing their votes. About seven in 10 say the candidates’ positions on the economy (69%) are very important in deciding how they will vote. Healthcare (59%), education (58%), and the coronavirus (57%) vie for second.

About half of investors rate taxes (51%), racial justice (51%), and immigration (50%) as very important, but far fewer assign the same level of importance to U.S. policy toward China (39%), climate change (37%), or the federal budget deficit (36%). However, despite the importance of the economy to investors’ votes this November, most continue to believe the nation should prioritize reducing the number of COVID-19 deaths (60%) over opening the economy and getting people back to work as soon as possible (40%).

Investors feeling the financial pinch; stimulus checks bring needed relief

As the coronavirus pandemic wears on, investors are more likely now than they were in May to report that the economic disruption caused by it is financially harmful to them. Forty percent, up from 32% in May, say the pandemic is having a negative effect on their day-to-day finances.

Likewise, more investors than in May foresee this year’s stock market downturn harming their long-term financial security and retirement: 54% expect it to have a negative effect, up from 41% in May.

Eight in 10 investors report that their household received a check from the federal government as part of the coronavirus relief payments sent out this spring. Of this group, 47% say they spent it on essential goods and services or bills. Meanwhile, 31% of investor recipients say they saved or invested it.

It’s not a total bust; boom in financial planning emerges

While many nonretired investors’ day-to-day finances are being affected by the coronavirus pandemic, that does not seem to be affecting their investment decisions. Four in five nonretired investors who have a retirement account say they have not made any changes to those investments since the onset of the coronavirus pandemic in March. Those who have made changes are more likely to say they have decreased their contribution (13%) rather than increased it (7%).

Bigger changes are seen with emergency funds, as 29% of investors say they increased their contribution to such a fund while 16% decreased their contribution.

At the same time, the pandemic may be spurring some behavioral changes among investors. Nearly three-quarters of investors with a spouse or partner (73%) say they have taken time to talk more with that person about their finances, and 60% of investors say they are doing more budgeting and short-term financial planning. Just under half have done more long-term financial planning (48%) or estate preparation (44%).

“The uptick in financial planning is a silver lining to the pandemic and suggests that investors recognize that a well-thought-out plan helps to create financial resiliency,” Ta said.

COVID-19 impacts worth watching

• The upheaval caused by the coronavirus has only reinforced investors' convictions that saving for retirement and owning your own home are important, with more than nine in 10 saying their belief these are important has either increased or stayed the same.
• A quarter of investors (24%) say the pandemic — which has forced colleges to move much of their teaching online — has weakened their belief that attending a four-year college in person is important.
• The largest segment of investors (43%) continues to identify mutual or stock index funds as what they think is the best long-term investment considering a time horizon of 10 years or more, but the proportion has slipped from 54% choosing them in 2018; the change is offset by more investors citing a belief in gold (11%) and real estate (23%) as the best long-term choices.

Visit Wells Fargo Stories to read Investors express pessimism as election approaches and pandemic continues and watch a video with Ta and McMillion about the survey findings.

About the Wells Fargo/Gallup Investor and Retirement Optimism Index

Results for this Wells Fargo/Gallup Investor and Retirement Optimism Index are based on a Gallup Panel™ web study completed by 1,094 U.S. investors, aged 18 and older, from Aug. 10-16, 2020. The Gallup Panel is a probability-based, longitudinal panel of U.S. adults who Gallup selects using random-digit-dial phone interviews that cover landline and cellphones. Gallup also uses address-based sampling methods to recruit Panel members. The Gallup Panel is not an opt-in panel. The sample for this study was weighted to be demographically representative of the U.S. investor population, using demographic targets determined from investor samples within prior Gallup national adult surveys. For results based on this sample, one can say that the maximum margin of sampling error is ±6 percentage points at the 95% confidence level. Margins of error are higher for subsamples.

In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error and bias into the findings of public opinion polls.

For this study, the American investor is defined as an adult in a household with stocks, bonds, or mutual funds of $10,000 or more, either in an investment account or in a self-directed IRA or 401(k) retirement account. About two in five U.S. households have at least $10,000 in such investments. The sample consists of 69% nonretirees and 31% retirees. Of total respondents, 42% reported annual incomes of less than $90,000; 58% reported $90,000 or more. The median age of the nonretired investor is 48 and the retiree is 69. The Wells Fargo/Gallup Investor and Retirement Index is an enhanced version of Gallup’s Index of Investor Optimism, which provides the historical trend data.

The Investor and Retirement Optimism Index has an adjusted baseline score of 100 from when it was established in October 1996. It peaked at +152 in January 2000, at the height of the dot-com boom, and hit a low of -81 in February 2009.

About Wells Fargo

Wells Fargo & Company (NYSE: WFC) is a diversified, community-based financial services company with $1.9 trillion in assets. Wells Fargo’s vision is to satisfy our customers’ financial needs and help them succeed financially. Founded in 1852 and headquartered in San Francisco, Wells Fargo provides banking, investment and mortgage products and services, as well as consumer and commercial finance, through 7,400 locations, more than 13,000 ATMs, the internet (wellsfargo.com) and mobile banking, and has offices in 32 countries and territories to support customers who conduct business in the global economy. With approximately 260,000 team members, Wells Fargo serves one in three households in the United States. Wells Fargo & Company was ranked No. 30 on Fortune’s 2020 rankings of America’s largest corporations. News, insights and perspectives from Wells Fargo are also available at Wells Fargo Stories.

Additional information may be found at www.wellsfargo.com | Twitter: @WellsFargo.

Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC, Member SIPC, a registered broker-dealer and non-bank affiliate of Wells Fargo & Company.

Wells Fargo Investment Institute, Inc. is a registered investment adviser and wholly-owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.

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