August 30, 2011

Advisor Confidence Falls to Lowest in a Year as Consumer Fears of Recession Grow

Many independent RIAs have been moving clients to cash, though they remain somewhat upbeat on the markets

The Advisor Confidence Index slipped 5.75% from July to 98.33 in August, its lowest level since August 2010, Rydex/SGI AdvisorBenchmarking said Tuesday. The benchmark, which gauges advisor views on the U.S. economy and stock markets wiped out the ACI’s slight gains in July, when the index made its first positive move in six months.

August’s reversal in sentiment dropped the index to a level nearly 20% lower than January’s closing mark. (The ACI is based on surveys of 150 independent RIAs and is managed by Rydex/SGI AdvisorBenchmarking.)

(Click here to enlarge chart)

The 150 independent RIAs participating in the survey were highly skeptical about the U.S. economy in the immediate term and the global economies over the longer term, according to Rydex/SGI. Fear of a recession pushed the “current economic outlook” component of the ACI down 12% from the previous month. 

Meanwhile, confidence among U.S. consumers in August hit its lowest level in more than two years, based on Americans’ deeply negative outlooks for employment and income levels, the Conference Board said Tuesday.  

The Conference Board index declined to 44.5, the weakest level since April 2009, from a revised 59.2 reading in July. This represents the largest point drop since October 2008.

“The debt ceiling and debt downgrade circuses in Washington are a sideshow relative to the global economic slowdown unfolding,” said James Dailey of TEAM Financial Managers, in a statement. “The slowdown and the risks of a transition to a new recession in 2012 remain our analytical focus.”

Advisors’ outlook for stock prices, though, was quite different from their view of the economy. After declining by 1.2% in July, advisors’ stock-market outlook improved 2.44% in August, mostly in response to the market’s fierce volatility during the period.

“The market is severely oversold after the recent waterfall decline,” said Michael Sadoff of Sadoff Investment Management in a press release. “After a bounce-back rally, the question is whether or not the stock market will continue to advance.” 

Some 60% of respondents said they have made recent changes to their allocation mix. Roughly 16% shifted to more fixed-income exposure, with a similar percentage of RIAs shifting to more equities.

The largest number of those making changes, 24%, switched to a higher cash position.  

“The recent crash brought investors' vision into focus,” added Dailey, “but an inevitable oversold rally can make that fleeting.”

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