Investment advisor sentiment improved in August

Thomas Coyle

1 September 2009

Most RIAs see a recovery underway -- but several wonder about its strength. After a slip in July, the uptrend in independent RIA confidence in the U.S. economy and stick market continued in last month, according to AdvisorBenchmarking's Advisor Confidence Index . The ACI rose 9% to 104.05 in August from 95.51 in July.

The recession is over, says Bill Ramsay of Raleigh, N.C.-based Financial Symmetry. "However, it is still uncertain whether we will have a typical self re-inforcing upturn. It does appear the |image1|recovery will be stronger than many expect, but bad debt and retrenching U.S. consumers will continue to be a headwind."

David Cramer of Owings Mills, Md.-based Cramer Financial Services, sees recovery taking wing on the back of a decline in the political fortunes of the U.S. Democratic party, which occupies the White House and dominates Congress. "My positive view on the market is based on my belief that healthcare initiative will either be defeated or significantly diluted so as not to cause additional stress on an already stressed economy," he says.

Based on a monthly survey of independent investment advisors, the ACI 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 reached an all-time high of 121.41 in December 2005. It hit an all-time low of 79.07 in October 2008.

July aside, the ACI has been moving north since February. The S&P 500, a gauge of U.S. large caps, has advanced around 50% from 10-year lows in early March.

All four of the components used to calculate the ACI were in positive|image2| territory in last month, with the present view and the six-month outlook on the economy leading the charge.

Meanwhile, the Conference Board's Consumer Confidence Index , which is based on a representative sample of 5,000 U.S. |image3|households, advanced to 54.1 in August from 47.4 in July.

"Consumer confidence, which had posted back-to-back monthly declines, appears to be back on the mend," says Lynn Franco, director of the Conference Board's Consumer Research Center. "The improved considerably and is now at its highest level since December 2007."

Leading indicator

Though the mood among advisors, as reflected in the comments they submitted with last month's ACI survey, is generally upbeat, several of them continue to take caution as their watchword.

"The commercial real estate shoe has yet to drop," says Kenneth Graves of Atlanta-based Capital Research Advisors. "Banks are playing 'extend and pretend' with business loans: extend beyond current terms since businesses cannot get loans refinanced, and pretend that there is not really a problem."

And Peter Wheeler of San Diego-based Wheeler-Frost Associates sees rising unemployment and a general reluctance on the part of consumers to spent putting a damper on any recovery at this stage. "The recent stimulus," he says, referring to a spending package passed by Congress early this year, "is nothing more than tax dollars poorly applied and will prove illusionary."

But the most representative comment on the the state of the U.S. economy and stock market last month may that of Kenneth Landgraf of Austin, Texas-based Kenjol Capital Management. "The eye of the storm has passed," he says. "The market as a leading indicator correctly forecast just like in all other recessions."

AdvisorBenchmarking is a subsidiary of the Rockville, Md.-based asset manager Rydex-SGI. -FWR

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