They don’t call it the “fear index” for nothing.
The S&P 500 is down around 10 percent in the past week, falling into bear market territory as markets wrestle with the impact of President Trump’s tariff plans. The CBOE Volatility Index or VIX, often referred to as the “fear index,” meanwhile, has surged 130 percent over the same period as investors, to borrow the technical term, freak the heck out.
The anxiety reflected in the VIX can also be seen in another, less quantitative, but still salient indicator, and that is the number of fearful client phone calls, texts and emails to their financial advisors.
Sevasti Balafas, CEO & founder of Goalvest Advisory, for one, said the level of anxiety among her client base has increased significantly over the last few weeks. On a scale of 1 to 10, she approximates it jumping from a level 3 to a level 7. The way she measures their emotional state is based on the types of questions she receives and when the calls come in.
“At first, concerns were being voiced during regularly scheduled calls, then I started to receive more requests to set up calls specifically to talk about volatility, then it progressed to emails, texts or calls asking if we should be selling equities in our portfolios. The percentage of clients asking about selling is still small but it has increased over the last few days,” Balafas said.
As for her response to frenetic customers, Balafas said she first tries to deduce their real concerns. Things like: Do they have a cash need coming up? Are they worried about their job and potentially getting laid off? Or, is it simply the recent market volatility that is upsetting them?
Balafas said her answer generally depends of the client’s specific concern. But she does remind all her clients about the diversification of their portfolios, as well as the individual companies and asset classes to which they are exposed.
“I also remind them on the average drawdown statistics of the market to help put in context the drawdown that we are seeing today. For those with cash needs coming up, I remind them of the cash we already set aside in their portfolio,” Balafas said.
When it comes to portfolio adjustments in the eye of the storm, she has already been shifting to a more defensive equity posture. For her that means increasing dividend and international stock exposure while reducing small-cap allocations.
“Now is a time to protect the downside versus capture the upside which we view as limited in the near term,” Balafas said, adding she has also bolstered her private credit and private equity allocations to “shield clients from the volatility of the day-to-day market.”
Elsewhere, Dory Wiley, president & CEO at Commerce Street Holdings, carries an institutional and a retail client base in the form of institutional 401ks. He said anxiety is clearly up given the uncertainty about the tariff issue. Nevertheless, he is reminding clients that the market went through this recently in 2018 with a 25 percent tariff on Chinese goods and still bounced back.
“Many manufacturers were less diversified then compared to now and while there was short-term volatility, the bull market continued with the index gaining 31 percent in 2019. Markets often overreact initially and then adjust,” Wiley said.
As to what investors should be doing in the short term, Wiley recommends those near retirement or having a large immediate need for their money and have not adjusted their allocations before the downturn do so now. If that’s not the case, he is telling clients to stick with their current allocations.
And for those aggressive types seeking some short term individual stock plays during the market’s dislocation, Wiley said there are opportunities to pick up energy stocks, community banks and even Nvidia (Ticker: NVDA) on the cheap.
Moving on, Peter Salkins, financial planner at Integrated Partners, said the amount of phone calls and meeting requests from clients have indisputably ticked up over the last couple of weeks, clearly reflecting the step up in anxiety among investors.
The primary questions from clients, according to Salkins, revolve around the future of Trump's tariff strategy, as well as the potential for the economy to slip into a recession.
“All valid concerns that we just do not know the outcome of at this point,” Salkins said.
Salkins welcomes the calls, even in the current messy circumstances, saying times like these are important for clients to revisit their financial plans and be reminded that “we have prepared for times like this.”
Anecdotally speaking, Joseph Rorke, investment management partner at Callan Family Office, said most of his discussions have centered around areas where he sees opportunities going forward, as opposed to talking frightened clients off a ledge. In fact, Rorke said he even had one client check in on him to make sure he was okay with all the market action.
“It appears that they are also watching the news, but they are confident that we are on top of it,” Rorke said.
Because Rorke employs tax-loss harvesting as a strategy, he is taking advantage of the market volatility. However, he does admit that the fluidity of the tariff situation makes it difficult to make adjustments.
“From a planning perspective, this selloff does provide us with an opportunity to use GRATs in cases where we have concentrated positions,” Rorke said.
Finally, Chuck Etzweiler, senior vice president of research at Nepsis, said his inflow of nervous client calls over the past week has been virtually negligible. He attributes the calm among his customers to his constant reminders that a 15 percent decline in stock prices can hit at any time.
And when they do call, Etzweiler said their questions are what they have been trained to ask: “Are you looking at great companies where the fundamentals have not changed and scooping them up at discounted prices?”
For his part, Etzweiler said he is.
“We are both buying into several companies we already own at cheaper prices in addition to looking at new companies and taking advantage of this opportunity as always,” Etzweiler said.
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