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Investors losing their faith, reports say

Confidence in the markets is falling, according to a pair of investment bank reports, and investors may have a good reason to feel this way.

Investors are losing confidence in the markets, and they may have good reason to, according to a pair of reports issued by investment banks Monday.

Investor confidence has dropped to a four-year low, falling to 104 in June from 113 in May, according to the Index of Investor Optimism, garnered from a survey conducted by UBS PaineWebber and the Gallup Organization. The index was started in October 1996 and is measured monthly.

Expectations for growth in short-term returns during the next 12 months dropped to 10.7 percent from 11.7 percent in May. And hopes for a longer-term recovery were not high either: Only 44 percent expressed optimism about the prospect for economic growth during the next year, a drop from 51 percent last month.

Investors continued to express support in the Federal Reserve, with 84 percent saying they back the body and its policies. The Fed will meet later this week and is expected to announce another cut in interest rates.

A separate study released by J.P. Morgan Chase on Monday predicted that the Standard & Poor's 500 index would close the first half of the year around 1,229--the level where it finished 1998.

"Little or no net change in this broad measure of U.S. equity prices for a two-and-one-half-year period is definitely a new and different experience for most investors that are active in the markets today," analyst Douglas Cliggott wrote.

Cliggott predicted that the decline in corporate earnings would trigger a drop in stock ownership among individual investors.

"With the profit share falling back to the middle of its 40-year range, Americans are once again reducing their equity exposure. We think the current trend will continue until profit margins turn up and earnings once again grow faster than overall income," he wrote.

Economists will get another measure of investor sentiment later this week when the University of Michigan releases its June survey of consumer confidence. Economists expect that figure to dip slightly from May levels.