Money managers call for calm as market turmoil worries investors

A sell-off trigged by fears over a mysterious virus coming out of China has seen the S&P 500 Index fall more than 10 per cent and bonds suffer

epa08273230 Traders work on the floor of the New York Stock Exchange at the end of the day in New York, New York, USA, on 05 March 2020. The Dow Jones industrial average closed down nearly 1,000 points as investors continued to react to news that the coronavirus is spreading to more countries.  EPA/JUSTIN LANE
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Do nothing.

That’s the last thing anyone wants to hear in a crisis, but for money managers responding to increasingly panicked clients this week it’s been the go-to response.

After a decade-long bull market that’s fattened brokerage and retirement accounts for millions of Americans, the past two weeks have come as a shock. A sell-off trigged by fears over a mysterious virus coming out of China has seen the S&P 500 Index fall more than 10 per cent and bonds suffer their worst days since the financial crisis.

In the midst of it all, financial advisers, portfolio managers and mutual fund companies are trying to preach the same message: Stay calm and don’t rush for the exits. They’ve pointed out that downturns are usually followed by upturns, that most investors are diversified across assets and even suggested now is a time to be buying, not selling. While that may work, it’s proving to be a tough task.

The extreme pace of last week’s slide unnerved clients, said Ken Nuttall, director of financial planning at BlackDiamond Wealth. He said he tried to keep their fears in perspective and remind them that short-term market swings are natural, but no amount of advice can make short-term market swings go away.

“The biggest thing is the speed,” he said. “I don’t have magic powers - I can’t stop the markets from falling.”

Fears over the global outbreak of coronavirus convulsed equity and bond markets over the past two weeks, causing white-knuckle moves not seen in a decade or more.

In each of the past five days, the S&P 500 recorded wild swings of about 1.7 per cent or more. Last week, US stocks plunged more than 11 per cent, hitting their biggest weekly loss since the global economic crisis of 2008.

Investors pulled back from credit too, withdrawing about $12.2 billion from US funds that buy corporate bonds and loans - the biggest weekly total in at least a decade, according to Bloomberg data.

The virus’s economic toll on US and European markets at first remained muted as it fanned out through China in early February. But as confirmed cases mounted outside the country, market gyrations intensified. Such cases topped 100,000 globally on Friday.

In an email to clients this week, Fidelity Investments, one of the world’s biggest asset managers, sought to allay customer fears about losses.

“We realise that staying calm through periods of market volatility isn’t easy, but it helps to consider how the markets have behaved in the past,” the company said in the email. “History shows that following market downturns, stocks have recovered and delivered long-term gains.”

Encouraging clients to stick with their plan can be tough.

“It’s human nature to live and react in the here and now,” said Karen Van Voorhis, director of financial planning at Daniel J. Galli & Associates. She has been reminding clients that it’s not just about US equities - they also hold fixed-income assets and international stocks, as well as cash.

Ms Van Voorhis said it’s harder to address fears around the meltdown because they’re compounded by what’s causing it.

“This is a double whammy because it’s not only a market downturn but it’s also a health scare,” she said. “It’s different than having a trade war. The stress level is higher because there are legitimate health concerns.”

Part of the investor response has come from not knowing the full effects of the virus outbreak on a global, interconnected economy, said Kathryn Kaminski, chief research strategist and portfolio manager at AlphaSimplex Group, a Cambridge, Massachusetts-based affiliate of Natixis with $5.8bn in assets under management.

“You have these feedback effects within our system that we might not be aware of yet, and that’s what’s frightening a lot of people like myself,” Ms Kaminski said at a media briefing on Friday. “We have systems that are very fragile, and we didn’t realize how fragile they were.”

For some advisers, “do nothing” means trying to hold back over-eager clients from buying into what could be a falling market.

“A lot of my clients see this as a buying opportunity but I’m waiting it out,” said Andrew Komarow, co-founder of Tenpath Financial Group in Farmington, Connecticut, which advises on about $100 million. “I recommend proceeding with caution - things could get a lot worse.”