Wealthtech Insider: After Markets’ Rough January, Orion’s Outlook Is Optimistic

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Only a month into 2022, financial markets in the U.S. and abroad have taken investors for a ride, but there are brighter days ahead.

That’s the market outlook for the investment watchdogs at Orion Advisor Solutions and Brinker Capital Investments, who recently held a webinar to address the volatility.

Markets have been volatile across the two primary traditional investment asset classes, with equity indexes like the S&P 500 down more than 10% in January, and fixed income markets reacting to potential monetary tightening from central banks and the specter of prolonged inflation.

“Pullbacks and volatility are never fun, and it’s been a bumpy start to the new year,” said Tim Holland, Chief Investment Officer at Orion Advisor Solutions, noting the S&P 500’s decline. “This is not a wholly unexpected pullback; volatility is part and parcel of investing.”

That idea was echoed by Thomas K.R. Wilson, Senior Vice President, Head of Wealth Advisory at Brinker Capital Investments.

“From a historical perspective, volatility is normal, drawdowns and pullbacks happen all the time,” he said, noting that a lot of investors are skeptical when told not to try to time the market. In the S&P 500, every calendar year with a positive return also posted a drawdown at some point during that year at least registering into the “upper single-digits,” percentage-wise. Yet the largest annual drawdown in a calendar year was only around five percent.

Orion and Brinker Capital merged in 2020, wedding a leading provider of end-to-end technology for wealth management firms with one of the largest and most widely used turnkey asset management platforms.

The most common question about downturns is what to do during a market downturn, said Wilson, who noted that making emotional decisions, investment-related or otherwise, usually causes individuals to make bad decisions.

Investing with discipline is the key, said Wilson.

“In our investment advisory, we also invest money for institutions…but we have not received a single call from an institution asking if they should go to cash, dramatically lower risk, or increase risk,” he said. “The reason we’re not getting calls from institutions is that they have discipline, and they stick with it.”

Not only is it impossible for most investors to time the market, said Wilson, but often no moves are necessary during volatility, as the managers of their funds and strategies have already done most of the heavy lifting for them. Trading in and out of funds and strategies may also incur additional costs that eliminate any advantage gained.

Orion’s open-architecture platform allows advisors and managers to actively seize opportunity and avoid risk on behalf of their clients, said Holland, by choosing the investment vehicles they believe are the most appropriate for the current market cycle.

The presentation turned to a conversation about the Federal Open Market Committee (the Fed) and the direction of interest-rate policy over the most recent cycle. The Fed establishes baseline interest rates in the U.S. by setting the Federal Funds Rate. After the global financial crisis and “Great Recession,” the Fed set interest rates at or near zero for several years before raising it to a peak of 2.5%.

“The Federal Funds Rate is the most powerful tool that our central bank has for stimulating the economy or trying to rein it in,” said Holland. “When the pandemic set in, it was quickly taken to zero. Then, as the pandemic kept going and the economy shut down, the Fed not only sent interest rates to zero, but it also bought fixed income securities month-after-month with an eye towards stimulating the economy.”

These policies helped foster 2021’s rebound and reopening, said Holland, and interest rates remain near zero. Real interest rates, which take into account inflation, have become negative as inflation has heated up. Negative rates tend to be supportive of economic and market growth.

Still, volatility is typical in the early stages of an interest-rate cycle, he said, and “we’re seeing that now. Markets tend to find their footing and move up.”

Holland also believes that the worst of the Omicron wave of the Covid-19 pandemic peaked in January.

“Clearly Omicron has impacted consumer behavior…but growth should accelerate as the case count comes down—as we hope and expect”, he said

Orion predicts that earnings will also grow. Holland said during the webinar that trailing 12-month S&P 500 earnings came in at $186 a share, but forward 12-month earnings would likely be “well north of $200.”

Market indicators are also favorable for investors, said Amy Magnotta, Head of Discretionary Portfolios at Brinker Capital Investments. On one side are momentum and market trends, which are sending mixed signals as some equity indexes have moved below their 200-day-moving-averages.

On the other side is investor sentiment, which Magnotta views as a contrarian indicator.

“When investors feel the worst, very bearish about the market, that’s oftentimes a very good entry-point for investing,” she said. “Today, what we’re seeing are investor surveys with a significant amount of bearish sentiment.”

Communicating with Clients Amidst Market Volatility

Communicating effectively with your client is always important—but especially during times of market volatility, when they may have additional concerns or simply need reassurance from an expert, it’s critical to be accessible and responsive.  Here are a few communication factors to consider:

  • Be proactive; don’t wait for your clients to reach out first. Let them know you’re thinking about them.
  • Address expectations for future market changes. When you speak with your clients about their concerns, help them understand that during difficult times, historically, the markets have bounced back.
  • Stay informed. Clients will be looking to you for thoughtful market insights, not the same information they’re hearing on the news.