For Atlanta’s money managers, the roller-coaster stock market the past two months is a test of their resolve to look beyond the daily fluctuations while constantly assessing the meaning and cause of the current ride.
There’s a lot at stake – for the economy, as well as the clients whose wealth is in their hands.
Of course, volatility is a two-way street: what goes down, can go back up.
The Dow Jones Industrial Average, which had been climbing steadily for years, fell 5.1 percent in October. Then in the past week, the market came charging back, bringing the Dow to within 1.5 percent of where it was at the end of September.
With each wild swing of the stock market, millions of dollars are ripped from the value of Atlanta portfolios, although each rebound can restore – at least temporarily – the worth of those investments.
But responding to each violent oscillation on Wall Street is a mistake, said Jim Hansberger, Atlanta-based managing director and financial advisor at Morgan Stanley Wealth Management. "I would say that the moment calls for us to mobilize the language of rational calm and send it into battle."
The Dow Jones Industrial Average closed Friday down 201.92 points at 25,989.30 for the day. In the past week, the Dow has risen 618.28 points or 2.4 percent.
The stock market is commonly seen as a barometer on American business, a crude signal about the direction of the economy.
There is a link, but the relationship should not be exaggerated, Hansberger said. "The economy and the stock market are cousins, but they are not twins. The stock market and the ownership of businesses are two different things entirely."
That makes it more important to understand – or at least guess at – the causes of the turmoil.
Experts say the recent declines could be just a natural correction, releasing steam before the market gets juiced up again. Or perhaps it’s mostly the kind of computer-generated trading that lets big hedge funds sell huge blocks of shares at profit.
Either way, it can be a problem for individual investors, at least temporarily. But it probably doesn't mean much to Main Street businesses or consumers.
But what if the sporadic sell-offs have been triggered by worries about coming economic trouble? Because there are threats: the trade war with China, the hint of inflation in the air, as well as the Federal Reserve's campaign to kill it with higher interest rates.
"The Fed will raise interest rates a few more cycles and I think that's wise," said Catherine Miller, principal in Atlanta Financial Associates. "But if inflation picks up, that could push the Fed to act more drastically."
The higher the rates, the more expensive it becomes for consumers to buy homes and cars and for companies to pay for hiring, research and expansion.
That Fed action has flipped the economy into recession before.
Atlanta Financial manages about $500 million, with the average client accounting for about $1.5 million. No one is a short-term investor, but the long-term means something different to a retiree living off savings than it does to a 45-year-old planning to work another couple decades.
The losses and gains are only on paper until an investor sells. But that doesn’t mean investors don’t care about the day-to-day value of their portfolio.
"Some clients may have a large portfolio, but feel, 'I worked hard for this and I don't want it to get cut,'" said Don Wilson, partner and chief investment officer at Brightworth. "I think there's a pretty good chance that the market bounces back, but nobody knows."
Wilson won't venture a guess as to what activated the the market volatility in the first place.
“I don’t think you can definitively say. We like to have stories, that’s the way we are built. But it’s just hard to know.”
More important, said Wilson, is for his clients to understand their own situation – do they have too much money at risk? "If someone right now is feeling nervous, it's something for them to ask: Are they appropriately allocated, or have they gotten a little bit out over their skis?"
Professional investment advisors understand that the market has cycles and investors can’t expect their portfolio to always grow.
“At some point we are going to have a bear market and when that happens, the market is going to go down a lot more than this,” Wilson said. “It’s better to make your adjustments now, if you need to. So if we are at the start of a bear market, they’re okay.”
Sam Fraundorf, principal and chief investment officer at Diversified Trust, traces the market's gyrations to remarks by the Fed Chairman Jerome Powell in early October. "When he said that we are really a long way from normal and that really spooked the markets."
And that changed the way investors looked at other problems they would have previously shrugged off. But that doesn’t mean anything important has changed, Fraundorf said.
Only once the market has been rattled, it stays rattled, he said. "I don't think that gets undone anytime soon. Whenever markets correct, they almost always do so in fits and spurts. I think it will take another several weeks to settle down."
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