According to the Wells Fargo/Gallup Investor Optimism Index, U.S. investor optimism fell to its lowest point since the fourth quarter of 2016 as investor confidence weakened in the 12-month outlook for the stock market and U.S. employment.

The third quarter Wells Fargo/Gallup Investor and Retirement Optimism Index is now 72, down 13 points from 85 in the second quarter and well below the post-recession high of 117 reached in the fourth quarter of 2017. This is the largest quarterly drop for the index in more than three years.

“Even before the volatility of the past two weeks, investors were rattled by the market decline at the start of the month, including a nearly 800-point drop in the Dow at the start of the survey period,” said Andy Byer, head of Client Service and Advice for Wells Fargo Advisors.

According to the Wells Fargo Investment Institute report “The Cold Winds of August – Signals to Watch,” drivers of the volatility include:

• China trade and tariffs
• Currency concerns
• Bond yield curves and credit spreads
• Consumer indicators
• Business and consumer confidence

The poll was conducted August 5–11, and captured investor sentiment in the wake of five consecutive days of market sell-offs leading up to the start of the survey. Confidence fell about equally among investors who are retired and those who are not retired as well as among those with $100,000 or more invested and those with less than $100,000 invested.

Investor optimism fell this quarter on all four components of the Index’s economic dimension, including investors’ 12-month outlook for the stock market and 12-month outlook for unemployment, both down nine percentage points. Investor optimism about economic growth dropped six points, and inflation is down five points.

By contrast, investor optimism for all three components of the Index’s personal financial dimension were essentially flat. This includes investors’ outlook for reaching their five-year and 12-month investment targets and for maintaining their household income over the next year.

Along with reduced confidence in the market, fewer investors this quarter (59%) than last (65%) say now is a good time to invest in the financial markets. This marks the first time in Wells Fargo/Gallup’s tracking of this measure (since the start of 2018) that confidence in the market buying climate has dropped below 64%.

At the same time, investors’ outlook for their own financial situation in retirement is steady, with 76% saying they feel very confident or somewhat confident they will have enough money to maintain the lifestyle they want throughout their retirement.

“With the market still up from the start of the year, recent market losses have not cut into investors’ underlying confidence in their portfolio or long-term retirement goals,” Byer said. “Even with volatile markets, investors should keep their focus on their long-term investment plans. And making sure investments are aligned with their personal risk tolerance and rebalancing portfolios to match their investment objectives.”

The Wells Fargo/Gallup Investor and Retirement Optimism Index measures U.S. investor confidence in the investing climate, including perceptions of the economy and their own financial situation. For this survey, investors are defined as U.S. adults with $10,000 or more invested in stocks, bonds or mutual funds.