Advisors, Pass It Along: Recent Market Pullback Very “Precedented”

Advice to the Advisors

Sheaff Brock Investment Advisors | woman with a bad cold on the couch

Advisors, Pass It Along: Recent Market Pullback Very “Precedented”

“Dow plunges 1,033 points and sinks into correction,” the money.cnn.com headline practically jumped off your clients’ computer screens February 8th. Now what? They’re wondering. Is this the beginning of The End?

Whoa….Stop that anxious caller or visitor right there. This “correction”?  The word “unprecedented” is simply misplaced in describing the volatility we are now experiencing. The pattern for the S&P 500, you need to explain, has been to correct every 18-24 months, with the last correction event having occurred 25 months ago! The current sell-off is hardly unprecedented, Sheaff Brock Managing Director Dave Gilreath comments. In fact, you can assure your jittery clients, it’s pretty run-of-the-mill.

But how can you assure them—how can anybody offer assurances—that this is a bad cold, rather than a lethal flu? Severe bear markets have typically been associated with recession, hardly a near-term likelihood given the current economy, marked by high employment, new job creation, and corporate earnings. Non-recession “pullbacks” such as the one we are now experiencing have historically averaged 17%, followed by an average one-year gain of 30%!

Examples of past (non-recession) falls in U.S. shares greater than 10% (Source: Bloomberg, AMP Capital) include:

  • April 1971–November 1971            14% drop        30% one year gain from the low
  • October 1979–November 1979    10% drop        29% one year gain from the low
  • July 1998–August 1998                 19% drop        38% one year gain from the low
  • April 2011–October 2011                19% drop        32% one year gain from the low
  • May 2015–February 2016              14% drop        27% one year gain from the low

“The economy is strong, but investors are worried about inflation, and the possibility that the Federal Reserve will raise interest rates faster than expected to fight it,” Matt Egan of CNN commented. Those factors notwithstanding, Ryan Vlastelica pointed on marketwatch.com, “This week’s heavy volatility—in contrast to the historically quiet markets seen over 2017—is the norm for equities.” The trick, he advises, is to avoid making portfolio decisions based on short-term swings and movements.

And what about the clients who aren’t frantically calling your office?  “A stock market tumble allows competent and confident advisors to shine,” writes financial planner Allan Boomer in Financial Planning magazine. Clients need reassurance. Some need hand holding, he observes. “Clients look to us to not just be a steady hand on the portfolio, but also a therapist and voice of reason,” Bonner adds.

As wealth managers, Sheaff Brock has represented a “voice of reason” over the years, emphasizing what we believe to be the very “precedented” truth: The stock market rewards the wise and punishes the fool. Disciplined investors focus on building long-term wealth, ignoring short term “noise.”

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