Talking to Your Clients About Recent Market Volatility

Nothing gets a financial firm’s phones ringing quite like market volatility – a fact about which many advisors may have been reminded lately. Investors were lulled by the relative calm we’ve had in the markets recently and now find themselves jarred back to reality as the market responds to factors such as interest rate hikes and concerns about international trade policies.

That volatility – and related investor alarm – will most likely continue as we approach midterm elections on November 6. You may see more clients reaching out to have their questions answered and gain reassurance that they’re strapped in tightly, even as they ride the roller coaster of the market.

It’s important for advisors and investors alike to keep volatility in perspective. With that in mind, here are some important points to point out to clients as you talk to them about market volatility.

  • The bad news: Elections cause jitters in the market. In late October 2016, the S&P 500 experienced one of its longest losing streaks in history when it fell nine consecutive days – just before the 2016 presidential election.1 Elections cause anxiety and uncertainty, especially in midterms where it’s possible the incumbent president’s party will lose seats.2 It’s likely that we’ll continue to see the market reflect voters’ nervousness as the midterms approach.
  • The good news: Markets are typically stronger after midterms. Since 1946, the S&P 500 has never experienced a decline in the year after midterms, and it’s seen an average fourth-quarter return of 7.9% during midterm election years.3 These midterms are fraught with especially high political uncertainty, fueled by economic issues such as taxes and trade.
  • Stock market corrections should be expected. Historically, the stock market averages a correction about every 357 days.4 While the US experienced its last market correction in February 2018, prior to that it had been nearly two years between corrections – almost double the average. Investors should also know that corrections typically don’t last long; the average correction between 1945 and 2013 lasted 196 calendar days.5
  • Our economy is currently strong. The national unemployment rate dropped to 3.7 percent in September, a 10-year low.6 Consumer spending is currently robust. While we’ve seen recent interest rate hikes – and may see another before 2018 ends – rates are still relatively low, comparatively speaking.

The good news for your clients is that they don’t have to ride the roller coaster alone. As Paul Harvey said, “Stay in your seat come times of trouble. It’s only people who jump off the roller coaster who get hurt.” You can help clients keep their seats by reminding them that what goes down must come back up and encourage them to hang on and enjoy the ride.

 

 

  1. Lewis Krauskopf. Reuters. Nov. 4, 2016. “S&P 500 losing streak extends to ninth straight day.” https://www.reuters.com/article/us-usa-stocks-idUSKBN12Z1CD Accessed Oct. 11, 2018.
  2. William Watts. MarketWatch. Sept. 8, 2018. “Will midterm elections sink the stock market? Here’s what history says.” https://www.marketwatch.com/story/midterm-elections-usually-give-stocks-pause-in-september-but-pave-way-for-later-gains-2018-09-01 Accessed Oct. 11, 2018.
  3. Anna-Louise Jackson. Nerdwallet. Sept. 28, 2018. “Stock Market Outlook: Lessons of the Fall.” https://www.nerdwallet.com/blog/investing/stock-market-outlook/ Accessed Oct. 11, 2018.
  4. The Motley Fool. “6 Things You Should Know About a Stock Market Correction.” https://www.fool.com/knowledge-center/6-things-you-should-know-about-a-stock-market-corr.aspx Accessed Oct. 11, 2018.
  5. Sean Williams. The Motley Fool. Apr. 11, 2018. “How Long Do Stock Market Corrections Last?” https://www.fool.com/investing/2018/04/11/how-long-do-stock-market-corrections-last.aspx  Accessed Oct. 11, 2018.
  6. Bureau of Labor Statistics. “Databases, Tables & Calculators by Subject.” https://data.bls.gov/timeseries/LNS14000000 Accessed Oct. 11, 2018.

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