I have always said that, “with much volatility comes great opportunity.” Well, there was certainly a great deal of market volatility during the month of August (typically a quite uneventful trading month each summer). This volatility, in my opinion, creates attractive opportunities for financial advisors and their clients. In addition to global economic contagion fears related to ongoing activities in China and market impact fears over what was presumed to be a likely interest rate hike by the Fed in September (which I contend may still happen), we, at SmartTrust®, believe that a large part of the recent market pullback can be attributed to the overwhelming market belief that we are long overdue for some form of a market pullback or correction. As a result, investors may be using recent market volatility to take some profits and reallocate risk based assets to other areas of the market under the presumption that this is “the big market correction” that everyone has been anxiously awaiting.
On the other side of this downward momentum is all of the cash that has been sitting on the sidelines waiting for the aforementioned pullback to occur before allocating more investment dollars to the market.
It is important to remember that pullbacks are not uncommon and this one may actually be constructive for future market growth potential. In fact, looking back to 1996, the stock market, as defined by the S&P 500 index, historically has finished the calendar year with a positive annual return 14 different times when it experienced either an intra-year pullback of greater than 5% or a correction of greater than 10%. While 2015 may prove to be different, a turnaround by year end is not without historical precedent.
Regardless, this pullback creates the need for advisors to present solutions to their clients. Building diversification into client portfolios including asset classes, geographies and sectors of the market that are not perfectly correlated with U.S. large cap stocks, in my view, is critical in the next phase of this secular bull market run as the heightened market volatility we witnessed in August is not behind us just yet.
Disclosure: Hennion & Walsh is the sponsor of SmartTrust® Unit Investment Trusts (UITs). For more information on SmartTrust® UITs, please visit www.smarttrustuit.com. The overview above is for informational purposes and is not an offer to sell or a solicitation of an offer to buy any SmartTrust® UITs. Investors should consider the Trust’s investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information relevant to an investment in the Trust and investors should read the prospectus carefully before they invest.