Omicron, Fed, Trigger Investor Confidence Collapse

State Street Global Markets’ Investor Confidence Index (ICI) fell 25.9 points to 85.6 in December.

The fall was led by European , with that region’s ICI plunging 27.8 points to 67.6. North American and Asian ICIs were also down double digits, with the North American ICI falling 14.0 points to 96.4, and Asian ICI falling 12.4 points to 95.2.

The Investor Confidence Index was developed at State Street Associates, State Street Global Markets’ research and advisory services business, in partnership with FDO Partners. It measures investor confidence or risk appetite quantitatively by analysing the actual buying and selling patterns of institutional investors. The index assigns a precise meaning to changes in investor risk appetite: the greater the percentage allocation to equities, the higher risk appetite or confidence. A reading of 100 is neutral; it is the level at which investors are neither increasing nor decreasing their long-term allocations to risky assets. The index differs from survey-based measures in that it is based on the actual trades, as opposed to opinions, of institutional investors, State Street says.

“Investor sentiment soured notably at the end of the year with the Global ICI registering its largest monthly decline in the history of the index,” observes Marvin Loh, senior macro strategist at State Street Global Markets. “The sudden emergence of Omicron and the hawkish pivot from the Fed drove some of most volatile swings in the equity markets all year. Sentiment in Europe was the weakest, with many EU countries again implementing travel and mobility restrictions, while North America registered its 7th biggest monthly decline. Despite weakening sentiment, other equity indices are ending the year near their all-time highs, as recent signs emerge that Omicron is less virulent than previous variants. Positive Investor sentiment will nonetheless be challenged by tightening financial conditions, high inflation and fiscal headwinds as we start 2022.”