Advisors Shift Toward U.S. Stocks as Confidence Turns Positive

Advisor confidence turned positive in May, with the Financial Advisor Confidence Outlook index rising to 7 in a survey of roughly 175 advisors conducted on May 1. It is the first positive reading since January.

Thirty-three percent of advisors reported plans to increase allocations to shares of U.S. companies, surpassing 32% who favored foreign stocks this month. That reverses April’s preference, when 36% sought more overseas equity. Twenty-one percent of respondents plan to reduce cash holdings.

A FACO sub-index for advisor optimism climbed to 27 from 8, and a practice-performance index rose to 39 from 25. On the U.S. economy, 49% of respondents expect growth over the next three months, 37% expect no change, and 18% expect contraction.

An index tracking client risk tolerance improved to minus-2 from minus-27, and 70% of advisors expect clients’ appetite for risk to remain steady over the coming quarter. Just over half of respondents anticipate increased global economic volatility.

Respondents cited geopolitical tensions and higher prices for some goods as factors making clients cautious. One advisor referenced war in Iran and rising gas costs. Sentiment on government policy rose from neutral to 16; about a third of respondents expect monetary policy to help client finances in the next three months, and a similar share indicated new legislation could be beneficial.

Malcolm Polley, director of strategic market analysis at Stratos Investment Management, recommended taking some profits rather than simply adding to U.S. stock exposure. He urged investors not to let potential tax bills deter sales and mentioned tactics such as tax-loss harvesting and using tax-advantaged retirement accounts to limit immediate tax consequences. “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,” he commented.

Jordan Whitledge, lead investment advisor and strategist at Donaldson Capital Management, emphasized deciding on acceptable risk levels before markets reach new highs. “The hard work in moments like this is the unglamorous part. The time to decide how much risk you could actually live with was a year ago, not the morning a new high prints,” he added.

The FACO survey is anonymous and asks advisors about client behavior, allocations, policy impacts and firm performance. This month’s results reflect a modest rotation toward domestic equities, lower cash allocations and increased focus on risk management and tax planning as markets reach recent highs.