Preaching calm, veteran advisers prepped clients for market drop

Pullback had been expected as economy's strength fed inflation fears.
FEB 06, 2018

Veteran financial advisers have been talking to clients for months about when — not if — a correction in the stock market would hit. Their message after Monday's historic 1,175 point drop in the Dow: Stay calm. "First, don't panic; second, get additional context; third, have a plan," Ameriprise Financial Services Inc. adviser Eric Reinhold wrote in an email to his clients Monday evening. The conditions were ripe for such a sell-off, Mr. Reinhold noted. "Jobs were higher than expected last week. GDP projections are up. Worker pay is up. While we 'regular' people see this as a good thing, those in the investment community start to wring their hands and worry about potential increases in inflation and interest rates by the [Federal Reserve] to slow down the economy." Many advisers started their day on Tuesday hustling to field client calls in reaction to Monday's sell-off. But some seasoned advisers said they have been talking to clients about the potential upheaval in the stock market for months. Indeed, the market's downward spiral has been expected, advisers said. "We've been telling clients the broad market could move down between 8% to 11%, but we didn't know when we would see the pullback," said Rich Zito, co-founder of Flynn Zito Capital Management and an adviser with LPL Financial. "A normal correction would be about 10%. In 2016, the market was down 15% to start the year." However, Mr. Zito was sanguine about the market's future. "We don't see any recession here, and it's unusual to get tax cuts at this point in the market cycle," he said. "And corporate earnings are higher than normal, with 80% of companies beating their expected earnings." "We told clients last year we would like to see a pullback, because the sooner the better. The longer the market goes up, the worse it will be coming down," said Bill Carter, president of Carter Financial Management, who is registered with Raymond James Financial Services Inc. "The market really got overvalued and we told our clients to expect a true correction of over 10%," Mr. Carter said. "The market drop comes as no surprise to our clients. And it shouldn't. Shame on me if I let them be surprised about this." (More: 10 worst days ever for the Dow)

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