Amid Market Whiplash, Advisors Say Customers Generally Stay Calm
“Obviously people get nervous but it’s not as bad as you might think,” a 20-year advisor who also has managed several wirehouse and regional firm complexes said of the market’s wild ride over the past week. “You’ve still got to remind clients that we had an amazing run.”
“When I get the client call saying ‘I can’t take it anymore, bail me out,’ it’s time to buy call options on the indexes,” said Clark Kendall, founder of an eponymous advisory firm in Rockville, Md., that manages $300 million in assets. “I haven’t seen that happen yet.”
The Fed announced the emergency rate cut early morning, sparking a short-lived rally in which the S&P 500 jumped 1.5% before tanking after Fed Chairman Jerome Powell explained to reporters mid-morning that the spread of the coronavirus “poses evolving risks to economic activity.” The S&P ended trading on Tuesday down 2.81%, the Dow Jones Industrial Average was off 2.94% and the Nasdaq Composite fell 2.99%.
Fears that the Fed was also running out of rate-cutting ammunition with its new benchmark target range of 1.0% to 1.25% sent investors scurrying to bonds. Yields on the ten-year Treasury fell below 1% for the first time ever.
Advisors wavered between the temptations to tell clients to consider opportunistically buying stocks on the dip to—when they could—reminding them that by holding disproportionately high amounts of cash they were avoiding some of the devastation.
Ken Van Leeuwen, an LPL-affiliated independent wealth manager in New Jersey who manages about $260 million in client assets, said he uncharacteristically sold some stocks as markets were plummeting last Thursday and on Friday plowed some cash back into Adobe Inc. share purchases, which rose by about 1%.
“We normally are not sellers when we see market corrections,” he said, “so we let our clients know that we did sell a little bit, and they were actually pleased to hear it….Now they’re asking, ‘What should we be buying.’ They’re all staying positive, honestly.”
Aaron Brachman, a founder of The Washington Wealth Group, a Steward Partners affiliate in the nation’s capital that manages $450 million in client assets, said he has been pulling out the reassurance card with his small group of clients by making proactive calls.
“They’re asking if this is something I should be nervous about and our response is you’re probably not going to run out of money in retirement, so let’s talk about being opportunistic here and taking advantage of some of the fear.”
Several advisers said that were advising clients to sit tight, noting that volatility was exacerbated by uncertainty over which Democratic candidate would prevail in the SuperTuesday primary elections.
One financial advisor, speaking on condition of anonymity, said Raymond James chief investment officer Larrry Adam has been telling clients that markets usually rise in the last year of a presidential cycle.
“I think the underlying economy is strong,” said Kendall, who has been an adviser since 1983 and contrasted the pandemic-inspired nervousness with fundamental liquidity issues that devastated markets in the 2008-2009 financial crisis. “We actually brought over some money at the beginning of the year that wasn’t invested, and some (clients) called up and said, ‘Go ahead.’ So it’s interesting.”
When it came to their own portfolios and to the disproportionate fall that the rate announcement took on bank and other financial stocks, some advisors at large firms were less sanguine. The SPDR Financial Select Sector exchange-traded fund was off 3.8% in late afternoon trading, and down more than 7% over the last five trading days. Shares of Merrill Lynch parent Bank of America fell 5.6% on Tuesday, Morgan Stanley was off 4.5% and Wells Fargo & Co. were down 4.2%.
“I’ve never seen anything like it,” one 30-year veteran of Merrill Lynch and Raymond James said of the week’s gyrations. “It could go a lot lower, who knows.”
—Jed Horowitz contributed to this story.