Popular Investor Index Plummets as Fiscal Cliff Approaches

One poll shows that as the fiscal cliff approaches, investors' moods are beginning to sour .

FE_DA_121206_fiscal.jpg
By SHARE

Want more proof that the fiscal cliff is already taking its toll? Ask investors.

A new survey shows that investor optimism has plummeted to a 2012 low. The Wells Fargo/Gallup Investor and Retirement Optimism Index, which measures investor perceptions on a quarterly basis, registered at -8 last month. Earlier this year, the index had gone as high as +40.

While the index theoretically moves on a scale of +400 to -400, the index has only ever hit a high of 178 (in January 2000) and a low of -64, right before the stock market bottomed out during the recent recession. That means that while the new reading is a decline, it is far from the lowest the index has ever been. The index shows that divided government is the key factor hurting investors' outlooks.

[ENJOY: Cartoons on the Fiscal Cliff]

"I think that what it reflects is peoples frustration with Washington's inability to seem to get things done. It's really come to the fore since last year's debt ceiling debate, when there was a lot of frustration around that," says Dennis Jacobe, chief economist at Gallup. "[Politicians] keep having these things come up, and it just seems like no one can deal with it."

The poll found that 69 percent of investors say a politically divided federal government is hurting the investment climate "a lot," putting it at the top of the list alongside the federal deficit and ahead of the jobless rate and global economic slowdown.

[RANKINGS: The Best Mutual Funds]

The Congressional Budget Office has predicted that if the U.S. goes over the "fiscal cliff," it will cause a recession in 2013. However, there is evidence that businesses are already pulling back on investment in advance of the scheduled policy changes.

Jacobe says that the index tends to be a relatively reliable predictor of economic health. Though some economic fundamentals like housing appear to be rebounding, this survey signals that the U.S. may be in for worsening conditions going into 2013.

"It certainly is not unreasonable to say that basically this is talking about a weaker economy as we go into early 2013 unless something changes dramatically from where we're at," he says.

More News:

Danielle Kurtzleben is a business and economics reporter for U.S. News & World Report. Connect with her on Twitter @titonka or via E-mail at dkurtzleben@usnews.com.