The US stock market has come under pressure this week amid a global stock market rout. While Asian stock markets have seen the biggest swings, the S&P 500 is down 4.8% in the past five days, and Wall Street's “fear gauge,” the Cboe volatility index, or VIX, hit an all-time high on Monday since the pandemic downturn in 2020, peaking at 55.07 at one point. (It has since fallen into the mid-20s.) Meanwhile, Charles Schwab, Fidelity and other retail brokerages reported outages on trading platforms during the height of volatility this week.
However, financial advisors interviewed by WealthManagement.com have reported few or no customers calling panicked by the market disruption. Most counselors said the correction was something they expected and even prepared clients for. Despite the choppiness of trading in recent days, the S&P 500 is still up more than 10% year-to-date. Advisory clients are not reducing their market exposure; in fact, many are seeing the current volatility as a potential buying opportunity.
“I don't see anything in the market today that would lead me to believe this is a surprise,” said Elliot Dornbusch, founding partner and CEO of CV Advisors, a registered investment adviser with $11 billion in assets under management.
Dornbusch said markets needed to correct after an 18-month rally and that the economy is not heading into a recession but into a slowdown orchestrated by the Federal Reserve.
“It's no surprise that in recent weeks, we have clearer evidence in the data that, in fact, U.S. growth is slowing and the labor market is slowing,” he said. We expected it and the volatility that came with it. I'm not reducing market exposure.”
In fact, Dornbusch's firm plans to gradually increase equity exposure to its clients over the next 30 days, particularly with companies in the artificial intelligence and technology space. His firm has invested exclusively in the US, shunning Europe and emerging markets, and will continue to do so.
“For our private equity strategy, we're very involved with big names, big AI ideas. We have been dealing with those names for years. We will continue to do that, and this correction is nothing that will detract us from the general idea of what the next five or 10 years will be for these companies,” he said.
Charles Parks, president and CEO of CF Parks Wealth Management, an RIA in Salisbury, NC, sent a note to clients last week stating that volatility could increase as signs of an economic slowdown increase.
“I would expect mixed economic news going forward, and I would expect more volatility as the market extended by almost every metric,” he said. “A correction that was not only necessary, but welcome news to some of us old timers.”
Parks also sees it as a buying opportunity, but won't buy until he's convinced it's a correction and not a “severe economic event.”
“Market volatility is my best friend,” he said. “Being in business for 40 years, I've seen many corrections and bull and bear markets. This is an opportunity to show clients why they pay us a fee, to navigate tough times with a sustainable approach that has proven to work for many generations.”
Kris Maksimovich, president of Global Wealth Advisors in Lewisville, Texas, said he has been warning clients for months that the markets are getting frothy and that multiples can't last without significant income growth.
“We have been waiting for a healthy 5% to 15% correction to come in the summer months before the US presidential election and we are finally getting it,” he said.
Maksimovich said he received several calls and emails from customers asking if it was a good time to buy.
“There are some strategic positions that we would like to add to our clients' portfolios at the right price and we can take advantage of the recent volatility,” he said. Additionally, it could increase the Fed's timetable for cutting rates, making some interest rate-sensitive positions more or less attractive.
Alan Rosenfield, managing director at Harmony Asset Management in Scottsdale, Ariz., said his firm has been defensively positioned for many clients ahead of this move and that they are looking for buying opportunities.
“We believe the markets have been overvalued for some time, and this is a deleveraging that is actually very healthy in the long term,” he said. Many accounts have significant cash/fixed income positions, which are defensive in nature and allow us to seek opportunities from other people's panic.”
Arthur Salzer, founder and CEO of Northland Wealth Management in Oakville, Ontario, says his firm also sees the correction as a buying opportunity, but it will be more of a process over the next 30 to 90 days, adding exposure to areas of the portfolio that were oversold.
“The faster and bigger the decline, the more we would add,” he said. “It is almost inevitable that central banks will add significant liquidity to money markets as well as lower interest rates over the next 12 to 18 months.”
According to WealthManagement.comS ' Latest Advisor Sentiment Indexover half of advisers said they foresee a healthier stock market a year from now, while just over a third expect darker clouds ahead.
That will come with some volatility over that time frame, as only four in 10 advisers see a “somewhat better” market over the next six months, while 33% expect a net decline. A quarter predict no real change despite a presidential election that promises continued chaos and heated rhetoric on the economy and national politics. When it comes to the stock market, most advisors don't see the daily political mudslinging as a long-term influence at all.