The index slipped 6.7% in April, a steep reversal after five months of increasing optimism. The index fell to 108.77, a level not seen since the beginning of the year, and the first decline in the monthly reading since November.
It was largely a steep drop in advisers’ outlook on the stock market that drove the falloff in overall confidence: that component of the index dropped 8.9%. “Stocks have gotten ahead of the economy,” said Bud Abbot of Family Endowment Partners.
“The market has risen too fast and is poised for a pullback or correction,” said Edward Kohlhepp, an adviser in Doylestown, Pennsylvania. Kohlhepp cited continuing problems in the Eurozone, fears of instability of North Korea and the U.S. deficit, among other threats.
“The market appears to be about 10% to 15% overvalued,” said Clint Walkner, with Walkner Condon Financial Advisors in Madison, Wisconsin. “Earnings are starting to trend downwards, and it will likely have a snowball effect.”
While advisers are losing confidence in the near-term future of the stock market, many believe the economy overall is improving, albeit slowly. The component of the index that tracks optimism in the economy in 12 months fell by only 4%.
“$246 billion moved into U.S. stock and bond mutual funds in the first quarter of the year, propping up stock prices even when the earnings fundamentals don’t look so great,” said David Edwards of Heron Financial Group in New York. “But we are anxiously optimistic. We think economic activity in the U.S. and worldwide will build as the year goes on, so we believe stock prices will end this year even higher, even with a 5% to 7% correction along the way.”
“The U.S. is still the best neighborhood in a tough world,” Andy Knott of Wintrust Wealth Management in Chicago. “If rates rise, sovereign wealth will flow once again to the U.S. Take the long view.”
The Advisor Confidence Index is a benchmark that gauges advisers’ views on the economy and the stock market. The index captures the views of a panel of more than 300 financial advisers. The survey asks four questions: an adviser’s views on the economy and on the stock market in six months and in 12 months, on a scale from most pessimistic to most optimistic. The cumulative average is used to determine the index.