U.S. Economic Optimism Rises As Investors Turn Bullish

Investors are bullish on the U.S. economy, but noninvestors are not.

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May 14, 2023 • 3 min read

The new IBD/TIPP poll finds that investors have become more optimistic about the U.S. economic outlook over the last month, mirroring S&P 500’s current rally. Non-investors, however, remain in a deep depression.

The IBD/TIPP U.S. Economic Optimism Index increased 1.8 points to 45.1 in the month of February. The index was at its highest level in 10 months, but it remained pessimistic, still below the neutral 50-point mark, for the 18th consecutive month.

In the latest poll, 53% of adult respondents believe that the U.S. economic situation is in recession. This figure has dropped from 55% last week. This figure was 61% in October.

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The U.S. Economic Optimism index jumped 7.5 to a very optimistic 57.1. However, among non-investors the IBD/TIPP Index dropped 1.8 to a pessimistic 36.4. IBD/TIPP considers respondents as investors if they own at least $10,000 worth of mutual funds or stocks in their household.

Investors had good reason to smile in January as the S&P 500 rose 6.2%, while the Nasdaq rose 10.7%. Although there have been several bear-market rallies in the past, this one could be real. You can get the latest information on stock market trends by reading The Big Picture, IBD's daily column in the afternoon.

Last week, the S&P 500 reached a five-month peak after Federal Reserve chair Jerome Powell praised the decline in inflation from over 9% in June down to 6.5% in Decemeber and sounded optimistic about prospects of an economy in the United States avoiding a recession.

The Fed and investors are most pleased that wage growth is down to 4.4%, from 5.9% in March last year. Even though wage growth is approaching the Fed's target of 3.5%, hiring continues to be solid.

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Non-investors, however, have less to rejoice about. The inflation rate is still higher than wage growth. This means that the purchasing power of an average hourly salary continues to decline.

In the IBD/TIPP poll, 27% of adults said that their wages had kept pace with inflation. This is up from 21% back in January. In the meantime, 48% of adults say their wages have not kept pace with inflation. This is down from 52%. The only group that saw improvements in the last month were those who earn more than $75,000 per annum.

The IBD/TIPP Financial-Related Stress Index increased 1.1 points, to 65.8, which is a new three-month-high. Financial stress increases when the readings are above 50. Financial stress index was just below 50 prior to the pandemic and then shot up to a record of 69.8 by April 2020.

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The IBD/TIPP Economic Optimism Index consists of three subindices. The index tracks the opinions of Americans on near-term economic and financial prospects, as well as their support for government policies.

In January, the U.S. six-month economic outlook rose 3.5 points from a still gloomy 39.5. This subindex fell to 30.6 in June, the lowest since July 2008 when the U.S. was engulfed in recession.

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The subindex for personal finances rose 2.7 points, to 52.6. This is a return to optimistic territory. The IBD/TIPP Economic Optimism Index reading for July was 45.3, the lowest since February 2001. Before inflation, the views of personal finances reached a bullish reading of 59.7.

The support for federal economic policy increased by 2.4 points, to 43.1. After a low of 35.3, which was the lowest in eight years, in August 2021 it reached a high of 56.4, following more stimulus checks, and a push from President Biden for more expansive policies. The Federal Reserve has raised interest rates in an attempt to rein in inflation that stimulus caused.

The IBD/TIPP February Poll is based on online surveys conducted by 1,358 adults between Feb. 1 and 3. The results are accompanied by a credibility range of +/-2.8 points.

Follow Jed Graham @URL on Twitter for economic policy and financial market coverage.