Some RIAs agree with the view that March was the low point of the downturn. RIA confidence in the U.S. economy and stock market improved for the second month in a row this month, mainly on the sense that events in March marked the nadir of a market downturn fueled by the sub-prime-mortgage crisis and related credit crunch, a falling U.S. dollar and sharply rising energy prices, according to Advisorbenchmarking's latest Advisor Confidence Index (ACI).

"We believe the lows of March, culminating with the collapse of Bear Stearns and domination of 'gloom and doom' magazine covers, mark the bottom for the year," Kent Hickey of Allentown, Pa.-based Journey Financial Advisors said in a written statement he submitted along with his response to the ACI. "The market looks ahead and seems to be telling us that the worst is behind us with the credit crisis. This is all a game of confidence and right now the scale has tipped back from the catastrophic collapse some have feared."

Keep this in mind though: the ACI is a gauge of investment-advisor sentiment based on a survey of independent investment advisors that is conducted in the first half of every month. The S&P 500 ratcheted up to an three-month high on 19 May 2008, but it has fallen back a bit since then.

In May the ACI rose 10.5% to 100.00 in |image1|May from 90.37 in April.

The ACI goes from a "very negative" 33.33 to a "very positive" 166.67. Its mid point, 100 -- where it stands now -- represents a neutral outlook on the stock market and the economy. The index hit an all-time low of 86.90 in March 2008. It reached an all-time high of 121.41 in December 2005.

All four of the ACI's components increased in May.

ACI components

May 2008

Current economic outlook

Six-month economic outlook
+12.87%

12-month economic outlook
+6.11%

Stock-market outlook
+6.80%

Meanwhile consumer confidence |image2| in the U.S. economy slipped for the sixth straight month in May. The Conference Board's Consumer Confidence Index fell to 57.2 in May from 62.8 in April (1985=100) -- a 16-year low.

For all the comparative optimism reflected in the latest ACI, some advisors didn't think we were in the clear by mid May.

"The requisite bear market rally appears to have terminated near a 50% retracement of the initial decline," said James Dailey of TEAM Financial Managers in Harrisburg, Pa. We suspect that the credit crisis will enter its third stage as "Alt-A" and prime mortgages take center stage and the risk of a very deep recession developing is likely."

Advisorbenchmarking is an affiliate of Rydex Investments.-FWR

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