Local Financial Analysts Urge Patience Amid Market Turbulence

Violent gyrations in the U.S. stock market during the last three trading days have casual and institutional investors alike wondering what’s next and how best to position themselves.

After falling more than 500 points on both Friday and Monday, the Dow Jones was down another 200 points Tuesday afternoon before rallying to close up 429 points and close at 11,239. Stocks fell sharply, more than 400 points, in the first few hours of Wednesday trading.

That kind of turbulence has local financial advisors urging 401k holders to stay the course.

“If you decide to get out, when do you decide to get back in when you have a six or eight percent swing in a matter of hours like we had today,” Peter Eckerline, managing director of investments and a wealth management advisor for Merrill Lynch, said after Tuesday's wild trading day. “Everybody is concerned. Nobody likes to see things go down, and so it has caused a lot of investor nervousness.”

Based in Wayzata, Eckerline said he’s heard from most of his clients over the last few days but stressed most understand they are seeing the trickle down effects of a shaky U.S. economic and political environment. 

“The phone has been ringing off the hook,” he said. “People are coming in who are concerned, and one thing we talk about is that we don’t want to have a knee-jerk reaction and react to short-term volatility and deviate from a long-term plan.”

Veteran local financial planner Nicole Middendorf agreed.

“I’ve always believed that you should never do anything dramatic,” she said. “You shouldn’t make decisions based on emotion—you should make decisions based upon a plan.”

Middendorf is in Chicago this week for a conference of financial analysts and said most of the talk circulating among her colleagues was anything but pessimistic.

“A majority of the analysts here are saying this could be the formulation of the bottom,” Middendorf said. “Any other time something like this has happened there have been some great months that come after it.”

Middendorf previously worked as a financial analyst for Morgan Stanley in Wayzata before launching Strategic Financial, Inc. about eight years ago. She believes the stock market’s recent violent swings are due mostly to events in Europe and other geo-political factors rather than last week’s down grade of U.S. debt by the credit rating agency Standard & Poor’s.

“I think most of it (the down grade) was mostly priced in,” she said.

Other options:

Both Eckerline and Middendorf said most of their clients are diversified and own positions in areas other than just the stock market, such as commodities and bonds.

The bond market has rallied as stocks flail to find a footing.

“It’s just unbelievable,” Eckerline said. “If you’ve got bonds—government, municipal, corporate—it’s helped soften the blow a bit. It’s a good time for investors to reassess their allocation.” 

Gold and corn have also been up sharply in recent days.

Time to buy?

The Dow finishing up more than 400 points Tuesday illustrates bargain hunters are on the prowl, and Middendorf thinks it’s for good reason.

“For people that are young, this could be a huge opportunity,” she said.

Saying he saw strength in the broad corporate landscape, Eckerline said a majority of American companies are beating earnings estimates and generally showing strong balance sheets.

“Corporate America is making money,” he said.

Companies like Apple, Google and General Electric, to name a few, are worth hundreds of billions of dollars and still show strong indications of long-term growth.

Eckerline thinks that equals entry point for the right investor.

“I think valuations are at very reasonable levels right now if you’re in for the long haul,” he said.

“There are plenty of opportunities out there right now,” Middendorf added. “Take advantage of them.”

Alternatives 

Dividends: Both Eckerline and Middendorf suggested stocks that pay quarterly dividends could help provide a partial safety net for investors skittish about the world equity markets. Stocks with guaranteed dividends can help soften a portfolio’s losses during high volatility, Eckerline said.

Commodities: While the price of oil has dropped $30 since May, other commodities such as corn, sugar, wheat, soybeans and cotton are all up year-over-year.

Cash: Eckerline and Middendorf say low interest rates have most clients shying away from instruments like CDs and savings accounts, but both noted they should occupy a slice of all portfolios.