Elections are times of uncertainty and often high emotion, both of which can affect investors’ resolve to stick with their plan when it comes to how they approach the markets.
But what do such times do to financial advisors’ perception of the markets? Will they catastrophize about possible outcomes, or stand firm on taking the market as it comes? Hartford Funds surveyed advisors two weeks before the election to get an idea of what they thought might happen in the markets based on a range of election outcomes.
Not even 8% of advisors anticipated increased likelihood of a bear market if there was a split in the control of Congress — which in the wake of the election has become a reality. Respondents were asked which among other scenarios would make a bear market more likely, and just 27.27% felt that a bear market would occur should the Democrats take control of Congress.
If Republicans kept control of both houses, a bear market was likely, according to 14.88% of respondents, while 50.41% said that politics wouldn’t generate the beginning of a bear market.
In a Hartford Funds blog post, advisors were reminded of a few techniques to use with clients who turn out not to be so sanguine about election results. Pointing out that dramatic headlines draw the most readers, advisors can remind clients that any connection between the election and market volatility is probably engineered — and offer clients a breakdown in the numbers to reassure them.
Another suggestion for panic-prone clients is to point out that “history shows that the stock market (as represented by the S&P 500 Index) generally marches higher regardless of which party is in charge.”
And remind clients that surrendering to election panic, even if during volatility, can cause them to miss out on the long-term effects of being invested in the market — since “markets inevitably bounce back.” And since the long term is — or should be — what they’re really interested in, it pays to sit tight and wait for the turbulence to pass.