The Number one question on the lips of every American with assets tied up in the markets is, “Will the bull market continue its heady climb, or are we on the brink of financial Armageddon?”
What makes answering this question so difficult is that there are two schools of thought, one for each possibility, each with its credible experts, public promoters and conspiracy theorists.
Interpreting the Impact of Geopolitical Events
For anyone examining the behavior of the markets just over the past 30 days, various external geopolitical factors caused markets to seesaw daily. Here are just some of the influential events that took place in that short period:
- On-again-off-again, flip-flopping China trade negotiations, and tariffs.
- The bombing of Saudi oil production facilities and fluctuating oil pricing.
- Fed funds interest rate lowered a quarter-point without clear future guidance: what next?
- The Fed’s urgent rush to cover a shortfall in the repurchase market.
- The momentarily Inverted yield curve; too short to matter?
- The drumbeat of Presidential impeachment.
- A promise of a messy Brexit.
Depending on what information sources you follow — what cable channel, financial media company, or newsletters — every day could lead to financial whiplash as you interpret how each event might impact the market and your portfolio. And lead to worry.
That is, unless, you have a trusted wealth advisory team that has prepared you to deal with volatility — which is what Los Angeles-based HCR Wealth Advisors would do.
Relying on Ratios and Indices
Investors have their favorite signals to indicate where the market is heading and whether it is time to abandon growth strategies in favor of protective postures. Among the many are the Buffett Indicator, the Schiller Price-to-Earnings Ratio or the level of Margin Debt. They also look at indices that gauge investor fear or confidence — even if those indices at times give off conflicting signals. Here are just two:
The CBOE Volatility Index, or VIX, is known as the ‘fear gauge.’ In August it was at the year’s highest level as the trade war with China escalated, and fears of a recession flared. It coincided with a very bad day for the Dow Jones Industrial Average, as bond markets flashed similar recession signals.
At about that time, the yield curve inverted, the manufacturing sector showed signs of weakening and the stock market oscillated between ‘heading for record highs’ and ‘a major pullback.’ But, another indicator offered a countering view. Even with its slight fluctuations recently, the Conference Board’s Consumer Confidence Index has stayed surprisingly high. Despite the naysayers in the business media, consumers remain enthusiastic. And, as consumers account for 70 percent of the economy, how they ‘feel’ matters.
Diverging Expert Views Add to the Push-Pull of Opinions
Investors often turn to experts of different persuasions, from bank CEOs to hedge-fund founders, from investment firm leaders to former Fed chairmen. The following comments — all of them recent — prove how diverse their viewpoints can be.
Jamie Dimon, chairman and CEO of JPMorgan Chase, recently opined, “Recession will happen ‘but my own gut tells me it’s not imminent.’” He said he was optimistic about the state of the U.S. economy, and that it could go on for years: no law says it has to stop. The consumer is in good shape, as are balance sheets. People are going back into the workforce, and companies have plenty of capital.
Ray Dalio, famed founder and CEO of the world’s largest hedge fund Bridgewater, is an expert in the capital markets, Wall Street and the workings of the U.S. economy. While he leaned more heavily towards predicting a recession last year, he has now dropped the odds to only 25 percent in 2019 or 2020.
Stephen Schwarzman, co-founder of the investment firm Blackstone Group with over a half-trillion dollars in assets, says about recession, “It’s unlikely now, but that doesn’t mean we won’t have a lower growth rate.” He balances the signs of a slowing economy and China trade issues with low-interest rates, a strong labor market, and healthy consumer spending. If the consumer continues spending, “we’ll have a longer run.”
Alan Greenspan, former Fed chairman, says the most significant recession risk to the U.S. economy in late 2019 depends on the stock market and the ‘wealth effect,’ where falling stock prices lead consumers to reconsider their spending plans. Entitlements, he feels, are draining gross domestic savings, which in turn undercuts capital investment. The economy is eroding, even if not yet caving. However, the negative rates found elsewhere will eventually spread to the U.S., and any stock market disruptions will be felt with no lag or warning.
Qualified wealth management companies have teams of experts who research and analyze market data in-depth to remove the doubt created by conflicting views of the market. At HCR Wealth Advisors, each customer’s team will typically include a lead advisor, a financial planner, and an analyst to integrate their knowledge and analysis into a unique, individualized wealth management strategy.
The Internet’s Ubiquitous ‘Sky is Falling’ Video Sales Letters
As if we didn’t have enough conflicting pieces of information, in recent years financial publishers have perfected the video sales letter, several of which are bound to land in our inboxes each week. While it is easy to become riled by their writing, laced with convincing arguments, charts, and data points, a bit of historical perspective will show that most of the past breathless projections did not occur. (“But it still will,” they claim.) Eventually, they may be right.
The more recent warnings? “A new panic is about to grip the markets — unlike anything we’ve seen in 20 years.” “Insider Is Sounding The Alarm Bells And What He’s Doing To Protect His Family And Finances…” “There are cracks in America’s economic foundation.”
Of course, each hour-long video ends with a promoted investment strategy that will not only protect your assets but will also make you massive profits — benefiting from instability, whereas others will suffer.
So, How Should You Respond to Stock Market Volatility?
There is no question that volatility is prevalent. And, for many, the typical response to volatility is to lighten up on stocks and shift to more stable bonds. However, we are living into our 80s and 90s, so it may not be that simple. To avoid running out of money, we may need to take more stock market risk than our parents did.
The key is to work with a professional wealth advisor such as HCR Wealth Advisors to develop a plan that acknowledges such volatility, but is customized to your circumstances and goals. By identifying your present level of assets, projections of lifetime income sources (such as Social Security, pensions and income-generating assets) and your cost of living, HCR can project your long-term needs.
Any future shortfall can be avoided by restructuring your holdings. As HCR does not sell financial products, its advice can be focused entirely on your success.
HCR: The Role of the Advisor in Creating Stability
The antidote to today’s market volatility is to find a source of stability that allows you to observe daily events, reflect on their impact, but know that you have taken a proactive position assisted by qualified advisors.
The role of the advisor goes well beyond performance, as shown in the Vanguard Center for Investor Research’s recent report on the perceived value of financial advice, based on client data. While volatility is worrisome for investors of all ages, it amplifies for those approaching retirement. The median age of the investors studied was close to 65, and the median portfolio balances for the group ran $250,000–500,000.
Investors ranked three aspects of advisor value:
- actual portfolio outcomes;
- assistance in financial decisions beyond the portfolio; and
- the emotional security that underpins an investor’s feelings of financial well-being — resulting from interacting with a trusted advisor.
Surprisingly, the last aspect — the emotional aspect of the advisory relationship — garnered 45 percent of the total value allocated by investors. ‘Trust in an advisor’ was followed by ‘having a personal connection with an advisor,’ then ‘reassurance in down markets.’
What is clear is the importance of identifying a wealth management firm that:
- aligns with your values,
- provides the expertise to create a wealth strategy unique to your needs, and
- encourages direct access to a trusted advisory team.
Those are the precise goals of HCR Wealth Advisors.
*This article is for informational purposes only and should not be considered investment advice.