The Investors Chronicle’s confidence index recorded little change in investor sentiment in October and remained dolefully depressed on -29. It was left to two of the factors of the stock market category to help bump up the overall index by just one point. This rise should not be viewed as a turning point because the monthly moving average for the index is still falling.
The Dow Jones Industrial Index, just like the majority of the world stock markets, had a good run over October. It was bolstered by positive news concerning the European sovereign debt problem and rose 15 per cent. This caused its factor for the index to rise by one point. Whether this momentum is sustainable or not is open to debate especially as the market fell 5 per cent when Greece announced it was going to hold a referendum over its continued membership of the eurozone. Likewise, the number of UK companies whose share prices rose also took off in October and for the very same reason as the Dow Jones factor above. These two increases were, however, offset by the third member of this category - the number of UK companies joining the Alternative Investment Market (Aim) or the main London stock market. The number of entrants joining in October was disappointing as only three companies decided to join Aim. As a result of which this particular factor had the lowest score possible of -5.
The rest of the factors remained unchanged from September.
HOW DOES THE INDEX WORK?
The IC's Confidence Index is the first of its kind to take into account stock market, economic and general 'feel-good' factors. It is calculated using 10 factors, split into four categories:
■ Prices (RPI, oil price);
■ Rates (interest rate levels, unemployment figures);
■ Stock market (UK new share issues and rising shares, and the level of the Dow Jones index);
■ 'Feel-good' (wages, house prices, the sunshine anomaly)
UK indices such as the FTSE 100 have been excluded from the components, but the Dow Jones is included because of its global influence. As for the sunshine factor, it's a proven fact that people feel better when the sun is shining - and this can even influence investment habits. Each factor is separately allotted a score from +5 to -5. The sum of these scores gives the Investors Chronicle Confidence Index level, on a scale from -50 to +50.