Cut Through the Clutter: Investment News You Can Use

Eyeglasses lying on top of newspaper

Are you feeling inundated with news these days? Especially what seems to be noise and confusion about politics, the economy and the market? If so, you’re not alone: According to a recent Nielsen Company report, the average American spends 10 hours and 39 minutes a day consuming media.* News about possible policy changes has been boosting the stock market, reinforced by positive economic and earnings results. But higher uncertainty may mean more volatility lies ahead.

Here are three headlines you won’t want to miss:

  1. Global growth shows signs of improving, which should help stocks keep rising over time.
  2. Economic policy uncertainty has spiked, suggesting more volatility may lie ahead.
  3. Understand the investments you own, and position your portfolio for growth as well as uncertainty.

Improving global economic growth

Despite the current political headlines, American consumers are feeling better and spending more. In December, consumer confidence reached its highest level in 15 years, according to the Conference Board. Retail sales were up 5.6% over the past year, a better-than-expected gain. Small-business optimism has soared. Combined with continued solid job growth, these are good indications for further improvements ahead, since consumer spending accounts for more than two-thirds of overall U.S. economic growth.

Moreover, a synchronized global rebound may have begun. In addition to better U.S. economic indicators, Europe is showing signs of healthier growth, building on improvements that started in 2016. Japan’s economy has expanded for four quarters in a row. And the Organisation for Economic Co-operation and Development projects an increase in the pace of global economic growth to 3.3% in 2017, ending a two-year slowdown.

Rising economic policy uncertainty

The pickup in global growth seems to be muffled by worries about increased protectionism, European elections and the eventual British exit from the European Union (Brexit). The expectation of rapid policy changes in the U.S. has also led to a spike in economic policy uncertainty, as the chart below shows.

The Trump administration has offered an array of significant policy changes and has started to act quickly, proposing immigration restrictions, suspension or elimination of some regulations, and consideration of a border adjustment tax with other proposed tax changes. A host of other policy changes is expected to follow. While the process could continue to be messy, rising optimism has been a boon to U.S. stocks.

Less attention has been paid to the accompanying increases in interest rates and the value of the U.S. dollar, though. And historically, rising market volatility has accompanied higher economic policy uncertainty. That’s why we think investors need to prepare for the possibility that markets could experience some hiccups along the way.

Higher Economic Policy Uncertainty chart

Source: "Measuring Economic Policy Uncertainty" by Scott Baker, Nicholas Bloom and Steven J. Davis at www.PolicyUncertainty.com.

Addressing the noise

We think many potential policy changes can improve the outlook for economic and earnings growth – and thus are good news for rising stock prices over time. But higher policy uncertainty is likely to trigger volatility along the way. How can you address rising market noise and uncertainty? Consider three actions:

  1. Reduce the noise. Just as headphones can help tune out the sounds around you, staying focused on your goals can help you avoid the media noise. Less noise can help you make better decisions aligned with what matters to you.
  2. Restraint. Don’t change your investments based on hopes or fears that specific policies will be enacted – today’s enthusiasm may lead to disappointment tomorrow. And avoid extremes by reducing any overconcentrated individual investments you may own.
  3. Rebalance. Rising U.S. stock values may have pushed them to a larger percentage of your overall portfolio, thereby increasing your risk. You may need to rebalance to the mix of stocks, bonds and international investments that’s appropriate for your risk tolerance and situation.

Market sentiment can change quickly, catching investors by surprise. Taking these actions can enhance your understanding of the role each investment plays in your portfolio, helping you stay invested when volatility returns.

Important information:

*“Americans devote more than 10 hours a day to screen time, and growing,” cnn.com, July 29, 2016.

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