Equity markets might appear unflappable as domestic politics become more turbulent, but advisors are sensing rising tension among their clients.
Advisors are reporting that domestic politics are now causing more sleepless nights for their clients than international politics, according to a recent poll of 218 financial advisors by Wayne, Pa.-based Hartford Funds, even as domestic equity indexes continue to post new record highs amid low volatility.
“The anxiety levels advisors saw from their clients regarding markets in 2008 and 2009 may exist around politics today,” says John Diehl, senior vice president of strategic markets at Hartford Funds. “These anxieties are not yet making their way into investment implications. As soon as volatility picks up, things are going to change.”
While 37 percent of the advisors in Hartford’s survey said that domestic politics were causing their clients anxiety, just 14 percent said that international politics were keeping their clients up at night.
Diehl believes that some anxiety is exacerbated by concerns over high equity valuations and an 8-year-old bull market.
“Politics aside, a segment of the population is thinking that market returns have been so good for so long, we’re due tor a correction,” says Diehl. “You have that feeling of waiting for the other shoe to drop. Then you have the current state of politics, which is being amplified by the 24/7 news cycle. They’re the perfect ingredients for increased anxiety.”
62 percent of advisors believed that client anxiety led to poor financial decisions in the previous 12 months.
The poll, fielded in April, preceded the recent shooting of House Majority Whip Steve Scalise, R-La. and the hotly contested special elections in Georgia and South Carolina, notes Diehl.
Diehl says that advisors should remind their clients that market sentiment is usually more connected with economic outlooks, regulation and investment theory rather than social and political conditions.
“Some of these things tangentally affect investor opinions, not the emotional belief or disbelief in the market and the economy,” says Diehl. “Right now we’re at a time of maximum political volatility and minimum market volatility, and that might be an educational opportunity.