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Chapter 3. The Most Influential U.S. Eco... > UBS Index of Investor Optimism - Pg. 104

104 Chapter 3 · The Most Influential U.S. Economic Indicators UBS/G ALLUP I NDEX OF I NVESTOR O PTIMISM Market Sensitivity: Low for now, but can increase in the future. What Is It: Measures changes in investor confidence. News Release on the Internet: www.ubs.com/investoroptimism Home Web Address: www.ubs.com Release Time: 8:30 a.m. (ET), with data published the fourth Monday of the month being covered. Frequency: Monthly. Source: UBS and the Gallup Organization. Revisions: No revisions are done. W HY I S I T I MPORTANT ? One of the most intriguing economic indicators also happens to be one of the least known. It's called the UBS/Gallup Index of Investor Optimism and it measures the atti- tude of private investors. What is special about this measure is that it has real potential to be an effective leading indicator of consumer spending. The reason for this is the remark- ably close correlation that has emerged between changes in key stock market indices, such as the NASDAQ and the S&P 500, and their effect on consumer expenditures. This relationship has been firming since the 1990s, when, for the first time, stocks began to account for most of the value in household financial assets. Back in 1983, less than 20% of households in America owned stocks. Today more than 50% do. Most of these house- holds are in the 35­64 age category, a group with the highest income levels, the most invested, and the greatest propensity to spend. Thus, you can bet with reasonable cer- tainty that sharp swings in the stock market will affect future consumer spending behav- ior. This increasingly important link between stock market performance and household expenditures makes the UBS/Gallup Index of Investor Optimism a promising forecasting tool. H OW I S I T C OMPUTED ? The Index of Investor Optimism was launched in 1996 in a joint project by UBS, a global financial services firm, and the Gallup Organization, a worldwide polling company. The survey assesses the mood of a limited but growing segment of the population: households with investable assets of at least $10,000. That demographic segment accounts for nearly 40% of all U.S. households and more than 80% of the financial wealth in the U.S. Within this population group, about 800 households are randomly selected from across the coun- try and are interviewed by phone in the first two weeks of each month. They are asked to