Easing Client Anxiety From the ‘Econotalk’ Maelstrom

If last year was the winter of clients’ discontent from the bear market, this year has so far been the spring of their anxiety over new investment. Underlying this anxiety is profound economic and market confusion.

Clients are caught up in a relentless media maelstrom of sparsely informed speculation about inflation and interest rate hikes by the Federal Reserve to counter it — to the point of bewilderment and portfolio paranoia. Some are so afraid of bigger rate hikes that they’re ironically rooting against the economic growth that their portfolios need to flourish.

For many clients, mentally dwelling in the weeds of “econotalk” makes the prospect of investing new money distasteful, so they keep excess cash on the sidelines.

And despite their advisors’ best educational efforts to the contrary, many long-standing clients beset with this anxiety are losing sight of basic investing principles instilled during onboarding.

Here are a few talking points for coaxing these clients off the emotional ledge:

Ignore the noise of econotalk.

The weeds and mire of economic speculation are more the milieu of short-term investors. Worrying about when to invest sideline cash is not only a form of market timing, but it’s also short-term thinking.

The long-term arc of the equity market has always been upward on average.

The best time to invest is when you have the money, and the best time to be in the market is now. Study after study has shown that the market truly rewards investors on precious few days. As there’s no way to know when those days will occur; sectors and strategies aside, you need to be in the market on key days to reap those gains. And to the extent that your portfolio is well structured, the more you have in it, the more gains you reap.

The market looks forward while economic data looks backward.

Current forward vision is creating a nascent bull market. That’s the view of a growing contingent of prominent analysts and economists, including Dr. Ed Yardeni of Yardeni Research and Dr. Jeremy Siegel of Wharton. Historically, bulls have tended to start running before the end of the Fed rate-hiking cycle, meaning last October’s low for the S&P 500 may have been this cycle’s lowest point. Contrary to the desultory bear view, the trend lines of declining inflation indicators suggest that we’re now at such a point.

Silicon Valley Bank’s failure might not be a bad sign.

Instead, it could be viewed as a positive harbinger. There’s a lot of hairpulling over the presumably negative market implications of Silicon Valley Bank’s collapse, predictably viewed by bears as an omen of larger doom. Yet they’re overlooking the historical pattern that such events typically occur late in rate-hiking cycles. The media obsession with SVB’s failure is eclipsing the reality that financial stocks, especially regional banks in rural areas, are generally good investments, having become a good value play for their low price-to-earnings ratio and strong prospects.

This is an especially bad time to index.

In markets like the current one, indexing is a return killer, and the case for active management is now especially strong. The market recovery, now in its infancy, is and will continue to be quite uneven, posing peril for those relying on cap-weighted indexes. Instead of being jerked around by the megacap tech stocks that dominate the S&P 500, this is a time to choose the best stocks from that and other indexes.