Market performance

Underlying issues drive it, not current events and media noise

September 14, 2017

The United States stock market declined recently after a report that President Trump tried to terminate an F.B.I. investigation of his former national security adviser’s alleged collusion with Russian authorities. The Dow Jones industrials fell 373 points that same day.

In France, investors were overjoyed that Emmanuel Macron beat the far-right National Front leader, Marine Le Pen. An upset Le Pen victory would very likely have made the market reaction to Britain’s decision to leave the European Union last summer look tame. And, of course, the so-called Brexit vote sent European stocks down 7% the day after the surprise outcome.

Consider what actually happened. The Standard & Poor’s 500-stock index recovered virtually everything it lost after the Trump-Russia news broke, and it closed at a new high.

Within a month of Brexit, European stocks had recovered nearly all their losses. This year European stock markets have been notching new highs.

Underlying economic trends and monetary policy

The principal drivers of market performance are underlying economic trends and monetary policy, not political events. As a wealth manager with a long time horizon, I try not to be distracted by political and media ‘noise’ and I strongly advise my clients to follow the same path.

Second guessing a robust strategy can lead to short-term – and potentially disastrous – portfolio modifications. The financial media are especially talented at stirring up trouble. Trouble sells newspapers and builds TV audience ratings, but the damage the influence of transient, sensationalist commentary can do to long-term investment performance is incalculable.

The fundamentals can be boring, but they are – always – what counts in the end

I focus on the fundamentals. And that means doing my homework. Here are some company-specific factors that can affect the share price:

  1. News releases on earnings and profits, and future estimated earnings
  2. Announcement of dividends
  3. Introduction of a new product or a product recall
  4. Securing a new large contract
  5. Employee layoffs
  6. Anticipated takeover or merger
  7. A change of management, accounting errors or scandals

At The Funke Group, we spend a great deal of time selecting actionable information out of a wide range of publicly available comment and prognosis. But we also scrupulously assess its validity against our own proprietary research, analysis and seasoned judgment. The trouble with ‘the news’ is that by the time it goes public, the information it conveys has all too often been built into market pricing. In a recent blog post I observed that politics and investing are incompatible bedfellows. It’s a sentiment worth repeating. Stop worrying about things you cannot control.

Geoff Funke, Senior Wealth Advisor, Scotia Wealth Management, 604.535.4721.