Investors and market-watchers listened carefully to Federal Reserve Chairman Ben Bernanke’s Congressional testimony. Following the idea, last month, that bond tapering will be a reality given current economic conditions, markets around the world reacted negatively giving investors reason for pause.
And while in yesterday’s testimony he added that tapering was not necessarily on a “preset course,” the very mention of it has made markets rather jumpy, although somewhat calmer.
This unevenness in the markets is mirrored by some of the leading indicators which have also been sluggish at best. Gross Domestic Product annualized growth in the first quarter of this year was 1.8% down from an earlier estimate of 2.4%. Housing however has been gaining some momentum. Home prices rose by 12.2% year-over-year earlier this spring – the largest annual gain since 2006.
Jobs are also strengthening. In June, the U.S. created 195,000 net new jobs – well above expectations. Revisions to April and May added 70,000 jobs to older estimates.
Advisers should be taking note of all of these numbers, indicators and comments from the Fed. The lack of clear trends or direction is exactly the environment in which investors are seeking advice and assistance and therefore an opportunity for advisers.
In the case of large pension funds, bond tapering and a gradual rise of interest rates has and will help reduce their pension liabilities. The volatility has a positive impact in that regard but still plays havoc with fund and risk management.
For individual investors, uncertainty often leads to withdrawals and/or a lack of proper diversification (if they are too worried about volatility). The opportunity to reach out to clients and prospects, and explain market conditions is important at this moment.
Several news stories have reported how advisers have been warning their clients about the current bond market conditions. But bonds are not the only story. For savvy investors, China and Latin America have become interesting stories in as much as their growth has been muted lately. In time, your clients will see the value-add once the volatility subsides.
Increasing your clients’ understanding and ability to cope with fluctuating markets will grow trust and need for future services over time.
Joel Kranc is Director of Kranc Communications, focusing on business communications, content delivery and marketing strategies. He has written and worked in the retirement and institutional investment space for 17 years covering North American markets, large institutional pensions and the adviser community.
