Wobbly stk markets and worry about the economy and take a toll on sentiment. After two months of tempered optimism, independent registered investment advisors (RIAs) sent the Advisor Confidence Index (ACI) into a dive in March. The drop came largely on the back of worry about the current and six-month outlooks on the U.S. economy and a sense that risk is being factored back into investment decisions.

"The recent market decline is largely being rationalized away as unimportant," says James Dailey of Harrisburg, Pa.-based TEAM Financial Managers. "It appears to us that it is the first tremor in the natural process of risk preferences shifting back from excess speculation. We expect the recent lows to be violated and an 8% to 13% correction from the February highs to unfold during the spring."

The ACI, which is based on a monthly survey of 150 independent RIAs by Advisorbenchmarking, fell to 112.50 in March from 123.88 in February.

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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 ACI, which first saw light in April 2004, hit an all-time high of 121.41 in December 2005 and an all-time low of 106.07 in June 2006.

In March, however, the ACI saw the biggest single-month drop in the 35 months of its existence.

All four of the ACI's components declined in March. Advisors' current assessment of the U.S. economy fell by 9.36%, their view of the economy six months out fell by 13.13%, their view on the economy a year out slipped 6.91% and their confidence in the stock market's performance six months from now fell 7.07%.

The Conference Board's Consumer Confidence Index retreated to 107.2 from 111.2 in February. |image2|

Someone is wrong

Despite the poor ACI outcome in March, advisors who took part in the survey weren't universally downbeat in their assessments. Despite his view that the February market dip wasn't quite as innocent as some might portray it, Dailey says that any talk of a recession that follows on the spring correction he predicts "will be unfounded."

Steven Brill of New York-based Spielberger Dampf Brill & Levine says that positive corporate earnings will continue to carry investors over the "wall of worry" he mentioned in February. And he says consumers will start saving again "now that home-equity ATM has closed for business."

But, judging from the results of the latest ACI, the views of Robert Siegmann at Cincinnati, Ohio-based Financial Management Group may be more typical of advisor sentiment. "Our investment-policy team is concerned with the market outlook, despite an overwhelmingly positive outlook by the media and other advisory firms," he says. "We hope we're wrong, but our philosophy guides us to protect portfolios by overweighting bonds by 10% to 15% for the year."

Advisorbenchmarking is an affiliate of Rydex Investments. -FWR

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