As with most market declines, the financial press featured commentators who painted gloomy pictures of weakening U.S. exports, declining commodity prices, and slowing global economic growth. For advisors, such instances are opportunities to provide value by helping soothe the concerns of nervous clients and help them avoid panic-selling.

Yet, many advisors fail to use a powerful tool to accomplish that goal—their quarterly market commentaries. Commentaries are frequently used as marketing tools to demonstrate a financial advisors’ expertise of capital markets. Yet, advisors should avoid limiting the use of the documents for that purpose, especially during times when equities are
volatile and clients are scared because of potential market corrections.

Broadly speaking, commentaries typically provide advisors’ views of capital markets. At the same time, they provide reasons for why advisors are managing clients’ portfolios with conservative or aggressive strategies.

Advisors who are bullish, for example, have been citing encouraging U.S. economic data, such as a strengthening real estate market, declining unemployment, and improving consumer sentiment. At the same time, some advisors have maintained that savings from low fuel prices will encourage consumers to spend more and increase their traveling.

The Federal Reserve, meanwhile, has been continuing with its accommodative stance and even when it starts to normalize its policies, interest rates will probably stay low because extremely low or negative fixed-income yields in some countries are enticing foreign investors to pursue the relatively attractive yields of U.S. debt instruments.

U.S. corporations, meanwhile, have record high levels of cash on their balance sheets. Corporations are also highly profitable and are generating strong free cash flow. With growing dividends and increasing merger and acquisition activity, corporations are also returning capital to investors at an impressive pace.

Broadly speaking, market volatility, including the turbulence in August, frequently results when investors panic and overlook strong corporate fundamentals and encouraging macroeconomic data. Once panic subsides, investors eventually return their focus to fundamentals and embrace equities, which can often cause equity rallies.

For advisors, the challenge is to convince clients that short-term periods of panic typically don’t reflect a
weakening of positive economic developments and corporate fundamentals. When markets decline, therefore, advisors should reach out to clients and refer to prior market commentaries that have argued that equities have potential for generating strong gains.

During client conversations or in written communications, advisors should provide an analysis of what market conditions or economic indicators have changed since the publication of past commentaries and how those changes may impact equities.

For the most part, however, advisors will be able to maintain that favorable corporate fundamentals and economic factors still exist. For example, while some analysts say China’s depreciation of its currency may harm U.S. exports, not much else has changed after equities hit a high in May. Even though equities have been rocky this year, favorable macroeconomic factors including a strengthening labor market and a real estate recovery haven’t weakened.

By emphasizing that favorable conditions for equities are continuing, advisors can help their clients to stay the course and avoid selling at the bottom of markets dips.