Advisor sentiment has overcome worries about Iran and uncertainty over interest rates to enter positive territory for the first time since January, the latest Financial Advisor Confidence Outlook (FACO) survey found.
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According to a survey of roughly 175 advisors conducted on May 1, advisor confidence rose to a score of 7 on a scale from minus-100 (most pessimistic) to 100 (most optimistic.) That was its first return to positive territory after hitting a neutral score of 0 in February and sinking all the way to minus-8 in April.
With the S&P 500 stock index setting record highs in recent weeks, the FACO score for advisor optimism rose from 8 to 27. Nearly half of the respondents to the survey said they expect the economy to continue growing in the next three months, while 37% expect it to stay as it is, and 18% said they think it will contract.
Jordan Whitledge, the lead investment advisor and investment strategist at Donaldson Capital Management in Evansville, Indiana, said it’s little surprise that during a time of rising markets, investor and advisor confidence would also be up.
“The hard work in moments like this is the unglamorous part,” he said. “The time to decide how much risk you could actually live with was a year ago, not the morning a new high prints.”
With markets setting records, now may be the time to sell
Asked whether they plan to change clients’ portfolio allocations in coming months, 33% of respondents said they planned to put more into shares of U.S. companies. That surpassed the 32% percent who favored foreign stocks and showed a marked shift from last month, when 36% of respondents said they would put more into overseas equities.
Malcolm Polley, the director of strategic market analysis at Stratos Investment Management, said in an interview that the rising investor confidence was likely a result of the strong earnings U.S. companies reported for the first quarter of the year. Rather than plow more money into U.S. stocks, his advice to many investors would be to cash in on some of their recent market gains.
Polley, who runs the investment arm of the RIA network Stratos Wealth, said clients shouldn’t be held back from selling stock by a fear of owing taxes next year on their capital gains. For one, they still have plenty of time to use tactics like tax-loss harvesting — selling shares that have lost value to offset those that have gained — to keep their bills in check.
Also, he said, many investors have the bulk of their portfolios in individual retirement accounts and similar retirement plans, in which assets can be sold tax free.
“So you’re just basically taking some money off the table, so that you’re playing with less of your money and more of the market’s money,” Polley said.
As for how advisors plan to decrease portfolio allocations, 21% of this month’s FACO respondents said they would dedicate less to cash in coming months. Cash allocations generally correspond with interest rates, which have been on a downward trend.
Rising risk tolerance, optimism about government policy and global economics
Even with the rising optimism, advisors who responded to the anonymous FACO survey said their clients’ nerves aren’t entirely settled.
“[W]ar in Iran and increase in product price such as gas is just making clients nervous and more cautious,” one wrote. “[T]hey perceive that these factors are causing a larger decrease in discretionary funds than they realistically are.”
Yet, even with plenty of concerns like inflation, advisors reported that clients had become more tolerant of the idea of taking risks. An index of client risk tolerance rose to minus-2 from minus-27 last month, and 70% of May survey respondents said they think their clients’ appetite for risk will hold steady over the next three months.
One respondent commented that a continuing cause of investor anxiety is that there is “Too much noise and disruptions from current political administration. It makes clients nervous and prospects afraid to make changes.”
Anonymous takes on politics aside, the survey’s index of sentiment on government policy actually rose from a score of 0 (indicating a neutral outlook) to 16. Nearly a third of the respondents said they expect monetary policy to benefit their clients’ finances in the next three months, and roughly an equal percentage said they think new legislation will also be a boon.
Advisor sentiment about their own firms was also running high. An index of practice performance rose to 39 from a score of 25 last month. Even the tumult in the Middle East did not prevent sentiment about the global economy from becoming slightly more optimistic.
The FACO survey’s index of feelings about global economic conditions rose from a score of minus-49 to an all-time high of minus-38. The previous record, a score of minus-40, was set in January 2024. Just over half of the respondents said they expect the global economy to be more volatile in the next three months, while just over a third said they think it will stay more or less the same, with 14% expecting less volatility.
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