Hello,
In recent weeks, we’ve seen several major stories in the news. On the political front, in addition to the arrival of the presidential election through the 2020 caucuses and primaries, we have just experienced the third presidential impeachment in American history. In international news, the latest coronavirus outbreak has hit China, now referred to as COVID-19, leading to closed borders and heightened screening at hospitals worldwide.
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It’s not so much the facts of what’s going on that are unusual – none of these matters are unprecedented – but the way that they are reported in the media can be alarming. Even frightening.
How might this affect me?
When major events make headlines, it’s easy to put yourself in the picture. Knowing, as well, how such events might affect the financial markets, it’s also easy to wonder how your investments and retirement strategy might fare.
The truth? Political ups and downs, virus outbreaks, and other circumstances might lead to some short-term volatility on US and Worldwide Stock Markets. But it’s important to remember two things: 1) Your portfolio is positioned to reflect your risk tolerance, time horizon, and goals. 2) The way we experience news has changed over the years, and not all of it for the better.
Never-ending news
On June 1, 1980, businessman and broadcaster Ted Turner debuted Cable News Network (CNN), the world’s first 24-hour television news channel. In the four decades since, other similar channels have emerged. Collectively, they changed how the world experiences news. Notably, it was the dawn of the 24-hour news cycle.
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Before 1980, news was very different. Major newspapers might have published several editions during a day, but most areas only had a morning or evening edition. Radio might offer news break updates at the top of the hour, with news programs in the morning, afternoon, and evening. Television followed a similar pattern.
The never-ending news cycle means that news organizations have an interest in continuing to report on the same news story even though little or nothing has changed. Twenty-four hours is a lot of time to fill, and they need ratings in order to be of value to advertisers. While this doesn’t necessarily mean that the news has become inaccurate or sensationalistic, it might be perceived as repetitive.
It’s also becoming ubiquitous. With our smartphones, we’re often receiving news updates immediately throughout the day.
The Is A Sign of A Healthy Stock Market
A market correction, which is a 10% drop in the stock market is part of a normal market cycle. These corrections have historically happened once a year after a rising market and help bring the market back to a reasonable price.
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We recently had a larger overall drop in the market during the final quarter of 2018 only to have the market fully recover the next quarter and go on to hit new market highs. This is not to say that we can’t have a harsher correction or that the fears around COVID-19, the election, or simply a falling stock market, won’t push us into recession and Bear Market territory. However given the recent positive statements from the federal reserve and current economic data it's more likely we could be looking at another 2011, 2015, or 2018 all of which were simply short-term market corrections.
We’ve Been Here Before… Recently
As mentioned above, we just saw something similar in 2018. The 24 Hour news cycle had locked in on the Government shutdown, the change in interest rates, and the trade war with China. These were reported on so much that the news media had us convinced that the Government shutdown would last through April 2019 and that we wouldn’t be able to file our taxes. They also reported that the change in interest rates would have an overwhelming impact on the economy rather than the fact that the change was one quarter of one percent. These things drove the market down despite a strong economic year. Anyone who sold out in that last quarter of 2018 would have missed the very rapid recovery that was experienced in January and February of 2019. We can’t say where the market will go from here but the tried and true mantra still holds, “stay the course.”
Keep informed, but don’t be rattled
Individual investors often times make investment decisions based on emotions (fear and greed). Your investment and retirement strategies have been designed and implemented using professional asset managers. The use of professional managers does not insulate your portfolios from market volatility but their focus on relevant economic and market data when making changes in the portfolios will likely give a more satisfying long term result.
So, keep yourself informed, but if you get too worried, have a conversation with us. We can help you understand what the news means for your financial life and offer you the context you need to remain confident in your strategy.
1. ScienceMag.org, February 12, 2020
2. History.com, July 27, 2019
