Confidence continues to make steady progress

For any real improvement to stock market confidence there needs to be a substantial advance in UK wages, new issues and share price rises, and a reduction in unemployment and the oil prices, which are all currently languishing on the worst scores possible.

October 11, 2012

by Robert Ansted

The IC/Confidence Index has been slowly inching its way back up the ladder and investors must take some encouragement from this fact. Over the last four months the index has risen seven points but don't get too euphoric; remember it is still recording negative figures.

Investors Chronicle Confidence Index
Month	September	August	July
Index value	-26	-29	-31

In fact, the last time the IC/Confidence Index posted a positive was back in April 2007 and you must go back even further to March 2004 when it was at its peak of +13. The 12-month moving average for our index appears to be bottoming out - which is an indication that the FTSE 100 has further to run - but it has yet to turn up.

The improvement in our overall index was down to a boost in just three of its constituent factors. The Dow Jones Industrial index perked up on encouraging news concerning labour market statistics and better than expected sales from retail stores. As a result, its score came out of the negative zone for the first time for over a year by posting a zero. Here in the UK, the retail price index had an unexpected blip in August and rose, although this indicator continued its fall in September, and caused its factor to rise by one point. The third factor was down to the sunshine anomaly, which rose by two points but is still posting negative results.

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.