Look Past the Panic and Start Over-Communicating with the Street

March 9, 2020

After one of the most volatile trading days on the U.S. bull market’s 11th anniversary, it’s important to take a step back and understand just where we are in the market today. This morning, the S&P 500 opened down 6%, and quickly fell to down 7% just minutes after the bell rang, triggering a market circuit breaker that halted trading activity across the entire market for 15 minutes. As a reminder, circuit breakers were introduced after the Black Monday crash of 1987, and are a market-calming mechanism designed to quiet markets in periods of intensified volatility. Prior to today, the only other time the circuit breaker has been triggered was in 1997, when the Dow Jones Industrial Average fell 7.2%.

While bordering levels of “uncharted territory”, today’s market volatility is only a continuation of the extraordinary instability that wreaked havoc on the market last week, in which the Dow Jones Industrial Average experienced four consecutive point moves of greater than 750 points. Put all of that together, and today’s move lower has broader implications for the U.S. stock market, which is holding on for dear life to the longest bull market in U.S. history.

Today’s S&P close at 2746.20 (-7.61%) is just over 37 points, or 1.36%, from reaching a 20% decline from its all-time high, a threshold commonly referred to as a bear market – a market environment we haven’t seen since the global financial crisis. The last bear market ran from October 2007 to March 2009 and saw the S&P 500 shed 56.4% of its value.

To quell concerns from current investors about what’s happening in your business, management teams need to be in constant communication with the Street. Remember that your investors are seeing risk in every nook and cranny of your business, whether it’s warranted or not. And that alone makes this a crisis.

The reality is fundamental investors are not driving the market today, rather hedge fund and algorithmic traders are. Fundamental investors are instead waiting on the sidelines for the less volatile markets, and as a result, the Street still needs reassurance. Now is the time to speak up. Hearing a clear, consistent message from your management team has never been more critical given the rising level of uncertainties.

Here are some practical tips for tailoring your communications and investor relations program for the current environment:

  • Maintain an open dialogue with current shareholders – be responsive and direct. Ensure that you are being responsive to inbound calls and emails from current investors. While there may not be new news to share, talking them through past communications, as well as areas of increasing worry, will go a long way towards quelling near-term concerns.
  • If there are misunderstandings in the market, get ahead of them by putting out a statement.  In many cases, certain macro factors, particularly the impact of the plunge in crude oil prices, are being treated by investors as potentially catastrophic for all companies with an equal impact on every business. However, because of unique business models, limited exposure, or alternative sources of energy, some organizations will not be affected as much or at all by these factors. It is important for those companies to get out quickly with a public statement clearing up the misinformation.
  • Be transparent.
    • Provide increased transparency about the supply chain.Investors are demanding a better understanding of the risks within your supply chain, particularly as they relate to China. Will the disruption due to the novel coronavirus impact parts deliveries, production times, or overall manufacturing risk? Be as clear and as forthcoming as possible with this information.
    • Understand feedback and sentiment from customers. What are customer-facing teams hearing from current investors and prospects – both in words and actions – that illustrate their confidence levels and/or any areas of concern? Are they nervous and pulling back from spending or major projects? Or is business status quo?
    • Confirm the management team has a Plan B in place. Specifically, what cost levers can you pull in case of emergency? Reassure investors that your company has a viable plan for responding quickly to control costs and reduce investment risk if the need arises.
  • Be ready to target new investors. With the pullback happening across the board with travel, new investors who usually use conferences and NDRs to get to know your company may now be turning to the resources available on your IR site. Make sure your “Company 101” section of the site is up to date, that resources are polished, and that your online communications are conveying the same messages you are currently sharing with the Street. 

Above all else, it is critical for companies to emerge from their defensive crouch and begin to directly address the most acute points of vulnerability with current and potential new investors. The more information you can provide and the more straightforward you can be, the less space there is for harmful conjecture.

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