News junkies have found the second quarter to be a heyday for headlines. Over the past two months, we’ve seen the ouster of FBI Chief James Comey, a special counsel appointed to oversee an investigation into the Trump administration’s ties to Russia, the election of French President Emmanuel Macron, a downgrade of China’s credit rating, a bombing in United Kingdom, and President Trump’s first foreign trip. Any one of those headlines could have moved the markets downward, but instead, the markets continued to grow. As we headed into the Memorial Day weekend, the Dow stood at 21,080 – just 35 points below its record high in March. Both the S&P 500 and NASDAQ also reached record highs.
It’s not uncommon to see headlines moving the markets, but this year, the effects have been largely short-term. Why? According to an article in Barron’s last week, the answer could be in the strength of economic news abroad. Independent strategist Jim Paulsen told Barron’s that in the past, when U.S. data would weaken, the markets would worry about whether anyone else could pick up the slack. However, good economic news from Germany, Japan and even emerging markets seem to be inoculating the U.S. against large market drops, even in the face of disappointing news at home.
More Headlines to Come
This week, Paulsen’s theory will be put to the test as we receive consumer-confidence figures and the May jobs report. An article by MarketWatch highlights concern over whether slowing wage growth could impact consumers’ ability to spend. Charles Schwab also notes that in June, the Federal Reserve could add another quarter point to the fed funds rate, and that China’s economy could continue to experience a slowdown, with interest rates rising and the inversion in the yield curve. These are just a few of the possible headlines we could face in the coming weeks!
A theme that runs through all of these articles is that – no matter what the headlines say – investors should continue to focus on the fundamentals and be prepared for potential downturns ahead. In addition to that advice, I would suggest focusing on individual goals and mitigating emotion. At M.J. Smith & Associates, we work with clients to establish a set of clear goals and objectives for their financial plans, and use those as a “true north” by which we evaluate all investment decisions. Our firm’s philosophy is never to time the market. Rather, we believe in setting goals, reviewing all relevant data, and making or changing investments based on the evidence – not on scary headlines.
In these uncertain times, the only certainty seems to be the potential for market volatility. As the Barron’s article states, “Current events don’t matter – until they do.” A competent, ethical advisor, focused on your best interests, can help you gauge the relevance of news events to your portfolio, and help you evaluate what’s best for you.
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