Financial advisers brushed off the Dow's mini-meltdown Thursday, saying that they had already prepared clients to expect the increased market volatility investors are witnessing now.
The Dow Jones Industrial Average, which has yet to recover from the 10% correction that started Jan. 26, tacked on a 420.22-point loss, or 1.68%, to the 680 points it shed in the previous two trading days. Stocks had opened higher, but started to fall as President Donald J. Trump announced he would impose a 25% tariff on steel imports and a 10% tariff on aluminum imports.
Steve Janachowski, CEO of Brouwer and Janachowski, said he hadn't gotten increased calls from clients, and wasn't particularly worried about Thursday's decline. "The big story isn't what triggered it," he said. "The metals industry is tiny: USX has a market cap of $8.1 billion, which would make it a mid-cap stock."
The larger story, he said, is the return of volatility to a once-bloodless market. "There are a lot of traders at work," Mr. Janachowski said. "They love volatility — that's how they make money."
The administration's move to impose tariffs, which was lauded by the steel and aluminum industries, raised fears of a trade war with China — and, to those with long memories, of the Smoot-Hawley Tariff, which is widely blamed for worsening the Great Depression. The tariffs sparked retaliation by U.S. trade partners when the nation desperately needed markets for its goods. Canada, for example, slapped tariffs on U.S. goods and increased trade relations with Great Britain.
The market may also have been worried about Federal Reserve Chairman Jerome Powell's testimony to the Senate Banking Committee today. But Sam Stovall, chief investment strategist for CFRA. "We're seeing large-company stocks do poorly relative to small-cap stocks, which means it's more of a multinational situation," he said.
Thursday's market action is likely to spread around the world. "It's like a tsunami — it soaks them as well," Mr. Stovall said. "And since it has to do with trade and exports, it could adversely affect international stocks as well."
Ric Edelman, founder and executive chairman of Edelman Financial Services, said his clients are taking the stock slide in stride after months of reminders that they shouldn't expect volatility to remain as low as it did in 2017.
"The few clients we have been hearing from have been asking if they should add money to their accounts," he said. "We're taking advantage of these opportunities for rebalancing our client accounts. We regard volatility as your friend. It's something exploit, not something to fear."
Eric Aanes, president and founder of Titus Wealth Management, said he hasn't gotten any client calls yet. He's speaking to clients who have a higher cash balance and also using the recent volatility as chance to invest in equities.
"This is not enough of a correction for us to warrant reaching out to our clients," Mr. Aanes said. "I've been doing this for 25 years and I've seen a lot worse. This is nothing that will keep someone from hitting their goals."
Scott Bishop, a partner and executive vice president of financial planning at STA Wealth Management, also said he hasn't heard from anybody. He said he started talking to his clients last year about volatility to get ahead of market corrections before they happen.
Realizing that volatility was coming this year, Mr. Bishop did some rebalancing earlier in 2018 to reduce risk in portfolios before corrections occurred.
"Clients have been very happy in the slight de-risking of our portfolios," he said. "The discipline gives them a good feeling that we're watching out and looking out for them."
"I have been telling my clients to prepare for a correction for so long that they are not surprised," Jimmy Lee, founder and CEO of The Wealth Consulting Group, wrote in an email. "I believe managing client expectations can keep them from making the unwise decision to sell in a panic. We know that sending timely communication, in a proactive manner, helps to ease investor concerns during volatile times. That is what we did last month, and what we will continue to do. We expect a lot more volatility than what we have had over the last few years."
Bond prices rose and yields fell, which is useful to point out to clients with a diversified portfolio. The yield on the benchmark 10-year Treasury note fell to 2.80% from 2.87% Wednesday. iShares Core US Aggregate Bond ETF (AGG) gained 0.09%.