FA Playbook

Eight out of 10 financial advisors see markets diving lower, survey finds

Key Points
  • Eighty-one percent of financial advisors think markets have yet to hit a bottom, according to a survey by Ned David Research.
  • NDR says the sentiment may drive a move to cash and less risky assets by advisors on behalf of clients.
  • CNBC Financial Advisor Council members Diahann Lassus and Tim Maurer, on the other hand, are advising clients to stick to their existing long-term plans.
Photo by Ariel Skelley via Getty Images

Markets have been a roller coaster ride in the weeks since the coronavirus pandemic reached the U.S.

Most of the country's financial advisors think we haven't hit bottom yet, a survey finds.

Despite periodic rallies — like Monday's more than 7% rise of both the Dow Jones and S&P 500 — 81% of advisors polled by Ned Davis Research said stocks will still eventually sink lower than the S&P's March 23 level of 2,237, when it was down 34% from its Feb. 19 peak.

More than half of advisors surveyed expect the market low to be reached by May 31, while 25% expect markets to bottom even later. NDR found that just 19% of advisors believe the bottom had already been reached by March 23.

Given those sentiments, advisors are likely to remain "cautious about deploying their clients' assets back into stocks," said Brian Sanborn, NDR senior vice president of wealth management solutions.

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"Until the dust settles, we are likely to see greater allocations to cash and less risky assets," he said. 

However, certified financial planner Diahann Lassus, president and chief investment officer at Lassus Wherley, a subsidiary of Peapack-Gladstone Bank in New Providence, New Jersey, said that while she's encouraging clients to have the cash they need on hand, they should stick to their existing long-term investment plan. 

Lassus said she doesn't believe anyone can call the bottom on the market.

"We focus on the long term and continue to gradually add dollars to asset classes that are underweight, such as U.S. large cap and U.S. small cap stock," she added. "We know that gradually buying at these low prices and maintaining our focus on the longer term will work."

NDR's findings suggest advisors have moved funds from stocks that have lost money to cash and less risky assets. They will miss the market rebound that, if history is any guide, will begin well before financial soothsayers deem the market restabilized, said Charleston, South Carolina-based CFP Tim Maurer, director of advisor development at Buckingham Wealth Partners.

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"This means the advisors referenced in this [NDR] report may be falling prey to the same behavioral error attributed to mass investors," he added.

Maurer pointed to research from DALBAR, which he said shows investors are underperforming the very investments they themselves hold (by roughly 50%) "because they are driven out of the market when it gets volatile and wait too long to get back in."

"Remember, when you sell during volatility, you have to be right twice — when you sell, and when you buy back in," Maurer said. Investors with a "well-conceived" portfolio attuned to their time horizon and risk tolerance should stay the course and rebalance and/or consider harvesting tax losses after "extreme bouts of [market] volatility."

Ed Clissold, NDR's chief U.S. strategist, says the market's "bottoming" process typically has four stages: "oversold," "rally," "retest" and "breadth thrust." The three-day rally after March 23 likely signaled a move to Stage 2, rally, according to an NDR statement, and the market may bounce between there and Stage 3 "until it sees a successful retest with less total volume, less downside volume, fewer stocks making new lows and fewer stocks below their moving averages."

When you sell during volatility, you have to be right twice — when you sell, and when you buy back in.
Tim Maurer
director of advisor development at Buckingham Wealth Partners

"The volatility we've seen over the past few weeks will make it into history books, but it's likely we haven't seen the end of it," said Clissold, in the statement.

Pessimism among advisors surveyed could be attributed to their views on the "limitations of fiscal policy," NDR found. The survey found that 75% believe fiscal stimulus will only ease some of the damage the pandemic has wrought on the U.S. economy. And 7% think stimulus won't have any effect — or even a negative one.

"The U.S. government's fiscal response is tailored to this specific crisis, with a greater emphasis on loan guarantees and unemployment support that reflects the extreme drop in economic activity," said Alejandra Grindal, senior international economist at NDR. "However, it will take some time to implement and we may need more stimulus down the road."  

NDR's poll was conducted March 26 with more than 750 U.S.-based financial advisors.