RIAs reflect growing view that the U.S. economy is on the road to recovery. Independent RIA confidence in the U.S. economy and stock market rose to levels unseen since October 2007, according to AdvisorBenchmarking's Advisor Confidence Index (ACI). The ACI increased from 93.59 in April to 100.48 in May, to breach the 100 mark and enter positive |image1|territory for the first time since late 2007, when the S&P 500 was 41% higher, and a long and severe recession -- though looming -- wasn't seen as a dead certainty.

The ACI has in fact advanced in all but one of the past six months, with larger-than-usual jumps -- each of 7% -- in April and May. In its first months, this recovery in confidence was linked to a sense that, though the economy was still on the ropes, stocks had been beaten down enough to a share-price recovery likely.

Though the S&P 500 is up about 5% for the year to date, it has clawed out a 40% gain since early March -- when, be it noted, the Financial Accounting Standards Board made it clear it would ease "mark-to-market" accounting rules to give companies scope to put creative valuations on derivatives (including mortgage-backed securities) in time for the first-quarter reporting season.

Less negative

"It is looking more and more likely that we will be out of recession soon, though it will not be officially recognized until probably next year," says Bill Ramsey of Raleigh, N.C.-based Financial Symmetry, noting that many financials saw their November 2008 lows hold up against the broad-market retreat of February and early March 2009. "At this point, there is a higher chance of an upside surprise to the economy, which is beginning to be anticipated by the stock market."

But Jim Elder of ElderAdo Financial in Montrose, Colo., isn't so certain that happy times are nigh. "[Although] we are beginning to see some green shoots of improvement, we aren't out of the woods yet," he says. "The good news [is that there is] improving profitability, production, improving real estate, etc.; the not-so-good news [is that there is] high unemployment, weak banks and [a rising] federal debt."

All three of the ACI's economic components were up in May, but the present view on the economy rose a staggering 27.14%. Meanwhile outlook on the stock market for the next six to 12 months -- the ACI's principal support in recent months -- was down nearly 6% last month.

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Meanwhile, the Conference Board's Consumer Confidence Index (CCI), which is based on a representative sample of 5,000 U.S. households, increased from 40.2 (adjusted) in April to 54.9 in May -- it's highest point since September 2008, when alarming news of Fannie Mae, Freddie Mac, AIG and Lehman Brothers pounded the U.S. financial system and sent the stock market into sharp retreat.

"After two months of significant improvements, the Consumer Confidence Index is now at its highest level in eight months," says Lynn Franco, director of the Conference Board's |image3| Consumer Research Center. "Continued gains in the Present Situation Index indicate that current conditions have moderately improved, and growth in the second quarter is likely to be less negative than in the first."

The ACI is based on a monthly survey of independent investment advisors. It goes from a "very negative" 33.33 to a "very positive" 166.67. Its mid point, 100, represents a neutral outlook on the stock market and the economy. The index achieved an all-time high of 121.41 in December 2005; it hit an all-time low of 79.07 in October 2008.

Advisorbenchmarking is a subsidiary of Rydex Investments. -FWR

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