Getting Clients to Buy Into the Return to Normalcy

After four years on an economic rollercoaster, advisors have been yearning for a return to normalcy.

This phrase, Warren G. Harding’s successful slogan in the 1920 presidential campaign, pledged to bring the United States back to stability and prosperity amid lingering economic damage from World War I and the Spanish flu pandemic.

Now, a century later, we’re at a similar juncture (except for the global conflict). And once again, normalcy is returning, but some clients doubt this.

Whiplash

Of course, these clients have whiplash from a relatively rapid succession of events: economic damage from pandemic shutdowns, an ensuing recession and interest rate cuts by the Federal Reserve, the comeback market of 2020-’21, followed by a bear market in 2022 and a supply-demand mismatch, exacerbated by supply chain disruptions, that propelled inflation to a 40-year high and brought vertiginous rate increases that tamped down the market.

Then came last year’s recovery, invisible for doubting Thomases until strong fourth-quarter gains.

The compression of these events and developments into less than four years was a wild ride for advisors and clients alike. But it’s over now, at least manifestly. After optimism from Jerome Powell, the Federal Reserve chair, at a news conference in December triggered big market gains, former Fed board member William C. Dudley, hardly an optimist, said: “This economy feels like February 2019.”

Clinging to the Abnormal 

Many advisors are fully aware that normalcy is at their door, and they’re welcoming it inside. Yet, like aging hippies who won’t give up their ‘70s threads, others cling to the belief that we’re not out of the woods, that a recession and a bear market still loom. These advisors assure clients that this wariness helps with wealth preservation when they should be focusing on capital appreciation as the market heads upward.

For advisors who accept the new normalcy, the challenge is to get cash-hoarding clients to see the potential benefits of putting new money into the market. For pessimistic clients, this will mean dispelling assumptions inculcated by years of negative headlines.

Assuaging Fears

Here are five fears and doubts you’re likely to be confronted with in client meetings, and some talking points for responding:

1. Recent gains will turn out to be a short-lived rally, and losses are right around the corner.

This is unlikely. Sure, the market will always flex and black swan events are always possible, but consider these factors: Corporate earnings are resilient in this Energizer Bunny economy; the Fed rate-hiking cycle has effectively ended; key inflation measures are down to below 4% – on course,  some Fed governors say, to hit their 2% goal later this year, likely meaning substantial rate cuts in 2024.

2. Market highs are perilous. 

Highs shouldn’t be feared because they’re usually followed by higher highs pretty soon. Over the past several decades, 92% of the time that major indexes hit record highs, they did so again the following year.

3. Stocks won’t get investment inflows sufficient to sustain growth.