The U.S. stock market has fallen under pressure this week amid a global equity market disruption. While Asian equities markets have experienced the greatest swings, the S&P 500 is down 4.8% in the last five days, and Wall Street’s “fear gauge,” the Cboe Volatility Index, or VIX, reached its highest level on Monday since the pandemic plunge in 2020, peaking at 55.07 at one point. (It has since receded to the mid-20s.) Meanwhile, Charles Schwab, Fidelity and other retail brokerage users reported outages on trading platforms during the height of volatility this week.
However, financial advisors interviewed by WealthManagement.com have reported few to no clients calling in panicked by the market disruption. Most advisors said the correction was something they expected and even prepared clients for. Despite the rockiness in trading in recent days, the S&P 500 is still up more than 10% year-to-date. Advisor clients are not reducing their market exposure; in fact, many are looking at the current volatility as a potential buying opportunity.
“I don’t see anything in the market today that would lead me to believe that this is a surprise,” said Elliot Dornbusch, founding partner and CEO of CV Advisors, a registered investment advisory with $11 billion in assets under management.
Dornbusch said the markets were due for a correction after an 18-month rally and that the economy is not going into a recession but rather a slowdown that the Federal Reserve orchestrated.
“It is no surprise that in the last few weeks, we have clearer evidence in the data that, in fact, U.S. growth is slowing down, and the jobs market is slowing,” he said. We were expecting that and the volatility that came with it. I’m not reducing market exposure.”
In fact, Dornbusch’s firm plans to gradually increase equity exposure for its clients over the next 30 days, particularly with companies in the artificial intelligence and technology space. His firm is exclusively invested in the U.S., steering clear of Europe and the emerging markets, and will continue to do so.
“For our individual equity strategy, we’re highly involved with the big names, big AI ideas. We have been involved with those names for years. We’ll continue to do so, and this correction is nothing that is going to deter us from the big picture idea of what’s going to become the next five or 10 years for these companies,” he said.
Charles Parks, president and CEO of CF Parks Wealth Management, an RIA in Salisbury, N.C., sent a note to clients last week stating that volatility could rise as signs of an economic slowdown increase.
“I would expect mixed economic news going forward, and I would expect more volatility as the market was extended by almost any metric,” he said. “A correction was not only needed but welcome news for some of us old-timers.”
Parks also views it as a buying opportunity but will not buy until he’s convinced it’s a correction and not a “severe economic event.”
“Market volatility is my best friend,” he said. "Having been in the business for 40 years, I have seen plenty of corrections and bull and bear markets. This is an opportunity to show clients why they pay us a fee, to navigate difficult times with a rock-steady approach that has proven to work over many generations.”
Kris Maksimovich, president of Global Wealth Advisors in Lewisville, Texas, said he’s been cautioning clients for months that the markets were getting frothy and that multiples couldn’t hold up without significant revenue growth.
“We have expected a healthy 5% to 15% correction to come in the summer months ahead of the U.S. presidential election, and we are finally getting it,” he said.
Maksimovich said he received a couple of calls and emails from clients asking if it was a good time to buy.
“There are some strategic positions we would like to add to our client portfolios at the right price, and we can take advantage of the recent volatility,” he said. Additionally, this could move up the Fed’s timetable to cut rates, making certain 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 that 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 look for 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 sold off too much.
“The faster and larger any decline, the more we would likely add,” he said. “It’s almost inevitable that central banks will be adding significant liquidity to money markets as well as reducing interest rates for the next 12 to 18 months.”
According to WealthManagement.com’s most recent Advisor Sentiment Index, over half of advisors said they anticipate a healthier stock market one year from now, while just over one-third expect darker clouds ahead.
That will come with some volatility over that time frame, as only four out of 10 advisors see a “somewhat better” market over the next six months, while 33% expect a net decline. One quarter predicts no real change despite a presidential election that promises continued chaos and heated rhetoric over the economy and national policies. When it comes to the stock market, most advisors don’t see the daily political mudslinging as having much of a long-term impact at all.