Some advisors drew comfort from rate cuts, saw opportunities in the market. Though sentiment remains in negative territory, the February Advisor Confidence Index (ACI) suggests that independent investment advisors were slightly more confident in prospects for the U.S. economy and stock market. The month-over-month improvement, centered on the ACI's stock-market component, was broadly ascribed to the Federal Reserve's rate cuts in late January.

"The Fed hit the panic button, and it may have prevented this bear market from being average or worse," said Bill Ramsay of Financial Symmetry in Raleigh, N.C. "So far, from top to bottom the U.S. stock market has declined by about 20%, whereas the average [bear-market decline] is more like 26%."

Ramsey submitted this comment in the first half of February with his response to Advisorbenchmarking's ACI survey.

The ACI increased 2.6% to 94.91 last month. |image1|This came off a 6% drop in January when the ACI hit an all-time low of 92.48.

The ACI's four components were split evenly between gainers and decliners, though in aggregate the two "up" components -- the six-month outlook on the U.S. economy and the six-month view of the U.S. stock market -- were stronger.

ACI components February 2008

Current economic outlook

-5.38% Six-month economic outlook +4.49% 12-month economic outlook -0.44% Stock-market outlook +12.24%

Meanwhile consumer confidence in the U.S. economy was in retreat last month. |image2|The Conference Board's Consumer Confidence Index fell back to 75.0 (1985=100) in February from 87.3 in January.

Jim Elder of Montrose, Colo.-based ElderAdo Financial suggested why the ACI stock-market outlook was so favorable last month. "Finally the stock market is undervalued," he said. "We see great opportunities to buy into the market now before the big run up later this year."

And Keith Newcomb of Nashville, Tenn.-based Full Life Financial said the main thing we have to fear is fear mongering. Despite "a lot of talk" in the media about a recession, his clients' enterprises "seem to be doing just fine," and the market downturn hasn't effected their business-spending plans at all. "Let's not talk ourselves into a recession," he said.

David Cramer of Owings Mills, Md.-based Cramer Financial Services agreed the media is getting the economic picture wrong -- but by understating the problem, not exaggerating it. "The talking heads on television always refer to a [3% to 4%] inflation rate, but they ignore the inflation of health-care costs for seniors which are far in excess of the 'average' rate," he said. "With health-care costs soaring, gasoline skyrocketing and utilities increasing substantially, seniors are afraid that they will not have enough income to meet even their modest standard of living." And if these investors start withdrawing more than the officially stated rate of inflation from their retirement savings -- at a rate, say, of 5% to 6% -- during a bear market, "their savings will erode rapidly—a reason for being defensive with retiree's portfolios."

Advisorbenchmarking is an affiliate of Rydex Investments.-FWR

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