The news has been pretty grim lately. I believe “every day is a blank canvas” but if you listen to the morning news on TV, you want to get back into bed and pull the covers over your head. What are we worried about? The long list includes the war in Ukraine, rising interest rates, the persistence of Covid-19, the return of inflation and a declining stock market. If you, as a financial advisor are worried, imagine how worried your clients are right now! They want some guidance from you. You cannot accurately predict the future, but you can go through some “what if” exercises that may encourage them to follow your advice and be proactive.
1. What if…things calmed down in Ukraine? This could happen for any of several reasons. It would no longer be the lead news story on TV. The situation was somehow resolved.
Possible: Would volatility in the stock market lessen? Would the reduction in global tensions be good for business? Would wheat, gas and oil production be positively impacted?
2. What if…subsequent variations of Covid-19 were less severe and vaccines provided adequate protection? Are things headed in this direction? Countries are reopening their borders. Mask mandates are being lifted, at least for the short term. Large-scale conferences and events have returned. Life is getting back to normal.
Possible: Would a relaxation of rules lead to an increase in consumer confidence? Will consumers continue to spend and head to shopping malls on weekends? Has your client been to a shopping mall on the weekend recently?
3. What if…the Federal Reserve’s policy of raising interest rates tamed inflation? It has worked before. That’s the way it is supposed to work. The Fed puts the brakes on the economy to tame inflation. Suppose the Fed gets the result it wants and inflation either slows or retreats?
Possible: Would the Federal Reserve postpone or scale back planned rate increases? Would the stock market see this as a good sign?
4. What if…higher interest rates stayed around long enough for you to lock them in? People have been asking for higher rates on retirement savings for years. One of the reasons many people are facing an income shortfall in retirement is fixed income returns are so low.
Possible: Suppose your client could lock in 4% or even 5% in a longer-term bond with a reasonably degree of safety? Suppose that rate was only available to a short time before rates declined again?
5. What if…high oil prices caused U.S. oil production to dramatically increase? It is understood we should be moving towards green sources or energy. The U.S. has wanted to be energy independent for decades. Wouldn’t the U.S. like to be an energy exporter? Resources like shale oil and fracking did not make economic sense when oil prices were low. They make more sense if prices get high and stay high.
Possible: New supplies of oil in the U.S. help bring down the price of oil on the world market. Oil prices and economic activity often move in tandem.
6. What if…American companies reported good earnings during the earnings season? Companies put out advance guidance for what earnings should look like. Many U.S. companies have weathered economic cycles before. They know how to reduce costs and how much they can raise prices. The price of stocks (and the market) is supposed to be determined by P/E ratios.
Possible: Companies report better than expected earnings. The stock market often goes up.