RIAs give grudging thumbs-up to economy, markets – still wary about rates, however. After three back-to-back down months, registered investment advisors (RIA) were mildly enthusiastic about the U.S. economy and investment landscape last month, according to AdvisorBenchmarking’s Advisor Confidence Index (ACI).

“We believe the economic environment will be stronger than most people expect in the second half of the year,” says Frederick Wright of Smith & Howard Financial Group in Atlanta. As a result, he adds, his form is staying overweight equities, a position it has maintained since early 2003.

The numbers

The ACI, which is based on Advisorbenchmarking’s monthly survey of 150 independent RIAs, rose to 115.88 in April from 111.89 in March, a gain of around 3.4%. Far from signaling universal joy in the advisor space, however, it’s worth noting that the AIC is now roughly where it stood in February.

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The ACI has dropped 7% since the index was first published in April 2004. In the past two years advisors have been especially sour in their views economy over the next year. In fact, the 12-month economic outlook component of the ACI is down 12% since index debuted.

The advisor-sentiment scale goes from a “very negative” 33.33 to a “very positive” 166.67; the mid point, 100, represents a neutral outlook on the stock market and the economy. So, as it stands, the ACI is still in positive territory.

All four of the ACI’s components rose in April. The assessment of current economic conditions rose by 4.82% in April. The six-months-out view on the economy was up 1.94%. The 12-month economic outlook rose 3.70% last month. And the ACI’s sole market-related component – the view on equity markets six months from now – added 3.76% in April.

Hard to tell

Despite this mild upturn in advisor sentiment, several advisors continue to eye the Federal Reserve, wondering if the U.S. central bank will call a halt to its money-tightening campaign in time to keep the economy from slowing down too much.

“Our concern is that the Fed will tighten too much,” says Michael Sadoff of Milwaukee, Wisc.-based Sadoff Investment Management. “In all past cases of over-tightening, the Fed thought they were doing the right thing at the time,” he adds – and understandably, given the unshakable constraints the Fed’s governors have to work against. “Their job is akin to driving a car while only having the rear view mirror for guidance,” says Sadoff.

The Fed’s limited visibility means it is at least as hard for investment professionals to spot important outcomes before they play themselves out in the marketplace. “It remains to be seen if the Fed has gone too far in raising interest rates,” says Mark Danielson, an advisor with Eden Prairie, Minn.-based Intelligent Financial Strategies. “Unfortunately it may not be until later this year that we find out– and that could lead to rocky markets in the fourth quarter and into 2007.”

For now, adds Danielson, recent broad-market gains make this “a great time to rebalance portfolios and take some of those gains off the table.” –FWR

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