Advisors Remain in the Bullish Camp

04/17/2008 12:00 am EST

Focus: MARKETS

Howard Gold

Founder & President, GoldenEgg Investing

The credit crunch and global market sell off didn’t cut into the bullishness of individual investors polled by MoneyShow.com a couple of months ago.

But the people who tell them what to do with their money have pulled in their horns a bit.

MoneyShow.com’s latest sentiment poll shows financial advisors still bullish on US stocks: Some 62% expect the Standard & Poor’s 500 index to rise between now and the end of the year. (See results here.) 

That’s pretty good, given all that’s happened in the markets, and it’s just about even with the 60% of individual investors who were either very or somewhat bullish in our February poll.

But while individual investors’ sentiment has stayed pretty consistent over the past year, the number of bullish financial advisors has dropped sharply from the 71% who were bullish in our previous advisors’ poll last October—just when many world markets hit all-time highs. And the percentage of bears has shot up, too, to 23%, from only 15% in October.

The good news is that the proportion of very bullish advisors—those who expect the S&P 500 to gain more than 10% by the end of the year—has jumped to 20%, from 12% in last October’s poll.

That could mean that the bullish advisors have gotten even more bullish—or the big declines we’ve seen give stocks more room to advance. But in a market like the one we’ve been through, we’ll take our silver linings anywhere we can find them.

Some 151 financial advisors answered our email survey between April 7th and April 14th. The maximum margin of error is within a +/-7.9 percentage points of the proportion reported, at a 95% confidence level.

The other big news from the poll is the meteoric rise in popularity of commodities. As gold, oil, grains, and many other hard assets trade at or near their all-time highs, they have definitely gotten advisors’ attention.

Some 32% of the advisors polled name commodities as the asset class they expect to do the best between now and the end of the year—a huge jump since last fall, when 20% of the advisors liked them best. (Large-cap US stocks ranked second, chosen by 26% of advisors, slightly above where they were in the last poll. But foreign stocks’ popularity has plummeted.)

That parallels the meteoric rise of commodities markets themselves. It also dovetails nicely with the advisors’ beliefs that inflation will rise: Some two-thirds of them think the rate of inflation will increase by year-end, while a mere 7% expect it to decrease. Deflation hardly appears on the radar screen, which would probably warm the heart of Federal Reserve chairman Ben Bernanke.

On that subject, a clear majority—54%—believes the Fed will continue to cut short-term interest rates, but only 8% expect rates to rise and 38% think they will remain where they are.

Perhaps the most surprising result of the survey was the relative absence of recession fears. Given the endless hand wringing in the financial media and on the campaign trial, the advisors we polled seem a sunny bunch: Only 21% think we’ll go into a recession by the end of the year, whereas a plurality, 42%, expect gross domestic product growth to decrease, and 37% actually look for an increase in GDP growth. What have they been smoking?

That’s a sharp contrast with the more than 70% of economists who think the US is in a recession already.

It also may help explain this group’s lack of appetite for bonds—one of the best-performing asset classes over the past few months. A mere 5% of advisors expect fixed income to remain near the top for the rest of year, and only 3% favor certificates of deposit and money market funds. Cash is clearly trash to this group.

So, despite the falloff in exuberance, these advisors remain an optimistic group. Are they wearing rose-colored glasses? Will the gloomy economists be proved right? And will there be more shocks to the markets and economy ahead?

We’ll keep watching very carefully, but if you follow the advice of the people you pay to manage your money, then you’d be putting your money to work in the markets, too.

Howard R. Gold is executive editor of MoneyShow.com. The opinions expressed here are his own and do not necessarily reflect the views of InterShow.

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