The quiet doldrums of summer don't appear to be the norm as July turns to August and bulls turn to bears. Stocks ended August 5th on a mixed note after violently whipsawing throughout the day. The Dow had a massive trading range of 400 points as investors scrambled to make sense of a whirlwind of news from Europe and the United States.
Late on August 5th, long after the market closed, Standard & Poor’s pulled the trigger by cutting America's long-term credit rating from AAA to AA+. Monday, August 8, 2011 was the first trading day since the news of the downgrade and the magnitude of the stock market decline is testing everyone’s resolve. Last week, on Thursday alone, the Dow dropped 512.76 or 4.3% to 11,383.68, essentially erasing the year's gains. The decline solidified almost two weeks of negative trading. The Dow fell roughly 11% from its April 29th high. Clearly ending last week in a "correction" mode with today’s trading leading us toward "bear territory" - typically defined by a 20% decline. Once the dust settles, attention should turn back to the economic fundamentals.
The current market storm revolves around the combined concerns of the loss of our AAA credit rating, Washington's embarrassing last minute fight over the debt ceiling, a massive federal deficit and the sovereign debt crisis in Europe - are all contributing to current global economic concerns.
The Chicago Board of Exchange Market Volatility Index, or VIX, a measure of volatility often coined "the fear index" rose an amazing 45% over the first few weeks in August to its highest level since June of 2010. The 10 year treasury has also decreased to 2.36%, which is lower than what insurance companies consider the benchmark to price products.
In this challenging market, it is important to educate prospects and clients about the best options. For many, the immediate benefit of protecting principle in a volatile market is reason to make a move into a fixed annuity right now. In an article published August 9th by AARP, there are seven good moves to make during a market slump. Number two on the list is “Go look at the statements for your bank CDs, or your fixed annuity statements, or your bond funds. They made money today. Congratulate yourself for being so smart as to own some.” According to a recent study by the Government Accountability Office, Americans can avoid the risk of outliving their assets by saving more, working longer, investing wisely, delaying Social Security and buying an annuity.
The most successful agents will effectively position the benefits of index annuities by being the calm amongst the storm. They know how to educate clients and prospects on current conditions to set realistic expectations. What is most important right now is protecting hard earned assets. Investors can’t simply wait for markets to eventually recover. In a 2008 article published by AARP, Martin D. Weiss, president of Weiss Research and editor of Safe Money Report Newsletter states, “The reality is that bear markets can last for years. And during all those years, your money is dead in the water.”
