Market Volatility Handholding 2.0Advice to the Advisor
Make no mistake—your clients are talking about them. No, not the scandals and shootings—it’s the ups and downs of stock market volatility. “Watching the stock market daily in 2017 made for a rather dull sport, even though it was a boon for investors as stock indexes notched record after record. Not so this year,” writes Anna-Louise Jackson in nerdwallet.com.
The talking heads are out in force, encouraging clients’ concerns: “We’ve got so many competing narratives, it will take a while for the market to find a level for all the things causing it concern.” At least that’s one market strategist’s take on stock market volatility, referring to twin worries—the Federal Reserve could raise rates too fast and the Trump administration might start a trade war leading to recession. Whichever it is, clients’ worries about market swings continue, outpacing even their fear of running out of money in retirement, according to a Russell Investments survey of advisors.
As advisors, of course, you understand MarketWatch’s more common-sense comment on market volatility: markets are gearing up for the first quarter earnings season, when corporate America will release its results for the first three months of the year.
“Advisors can ease clients’ fears by describing market swings in a long-term context,” says Fidelity Financial Advisor Solution’s president. Since when has the word ’volatility’ became code for a declining stock market? Risk and volatility are two different things, Sheaff Brock Managing Director David Gilreath reminds us. Risk involves committing resources to areas in which one has no means of obtaining information or analytics. Volatility, on the other hand, refers to upward as well as downward movements in the market.
In fact, as Anna-Louise Jackson points out in the nerdwallet.com article, “Based on analysts’ projections, companies in the S&P 500 could report earnings that are 17.3% more than those in the first quarter of 2017. If so, that would mark the highest rate of earnings growth since 2011.” Jackson quotes David Joy of Ameriprise Financial: “This kind of earnings growth is extraordinary and it’s probably going to trump any kind of economic weakness.”
Especially given those signs of strength in the economy, volatility is the friend of active portfolio managers such as Sheaff Brock, Gilreath explains; active managers can be better positioned to improve returns and reduce risk precisely by exploiting market volatility.
Remember how, in 2008, you were called upon to calm client worries about stock market swings? It’s time to enroll in Market Volatility Handholding 2.0!