Family Office

Advisor confidence up in August

FWR Staff August 29, 2005

Advisor confidence up in August

RIAs hopeful despite higher energy prices and rising interest rates. Registered investment advisors (RIAs) felt slightly more confident about the U.S. economy and the stock market in August, according to AdvisorBenchmarking’s monthly Advisor Confidence Index. The latest result marks the fourth straight month of improved outlook among advisors.

Advisor confidence, as measured by AdvisorBenchmarking’s survey of 150 independent RIAs, increased 0.79% to 123.79 in August from 123.0 in July. The index scale goes from a “very negative” 33.33 to a “very positive” 166.67; the mid point, 100, represents a neutral outlook on markets and the economy. The index remains in broadly neutral territory, though now with an increasingly positive bias.

Meanwhile the Conference Board’s Consumer Confidence Index slipped at last measure. In contrast to advisors’ more favorable assessment of the economy in August, consumer confidence – based on a survey of 5,000 U.S. households – saw its first decline since April, dipping to 103.2 in July from 106.2 in June.

Fuel and the Fed

The August rise in advisor confidence came on the back of rising current and near-term economic outlook (up 2.16% and 1.81% respectively). When advisors were asked to rate the stock market 12 months out, however, sentiment (down 0.12) cooled. The 12-month view of the economy (down 0.91%) was even frostier.

Some advisors worry about the effect on the economy of rising energy prices. “I find it difficult to expect the U.S. markets as well as the U.S. economy to growth with the constant rise in crude oil prices,” says Gary Clemmons of Baytown, Texas-based Texas Capital Management. “The negative effect of rising crude oil prices has yet to be reflected in the current forecast for economic growth,” he adds.

But Curt Weil of Weil Capital Management in Palo Alto, Calif., says there's little need to fret about the economic effects of rising petroleum prices. “The energy cost per dollar of [gross domestic product] has dropped dramatically over the last 20 years,” he says.

Meanwhile Michael Sadoff of Milwaukee-based Sadoff Investment Management sees rising interest rates as a significant threat to economic growth. “The Federal Reserve will not stop raising interest rates until they see economic data that the economy is slowing down,” he says. “By that time higher short-term interest rates will likely cause a financial crisis or a recession.”

Terry Siman of Executive Financial Services in Memphis, Tenn., disagrees with that assessment, however. “Despite increases in the Fed funds rate and short-term interest rates in general, the consumer is healthy and corporations are spending,” he says. In the near- and mid-term future at least, Siman sees reason for “more hope than pessimism.”

Modeled after the Consumer Confidence Index, the Advisor Confidence Index gauges advisors' views on the economy. Participating advisors answer four multiple-choice questions every month reflecting their views on the economy. Three questions gauge their views on the economy for the current time period, the subsequent six-month period and the subsequent 12-month period. The fourth question gauges their outlook on the stock market for the subsequent six months. AdvisorBenchmarking is a research affiliate of Rydex Investments. –FWR

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