A note from our CIO - Q2 2017
First quarter economic and investment results are in and they are overwhelmingly positive. So why the long faces? For many, it is the dysfunction in Washington D.C. and the fear that the other shoe is about to drop.
If you are familiar with the work of Kahneman and Tversky (I recommend Michael Lewis’ The Undoing Project if not), you know that investors are not always rational in their decision-making. We look for narratives that explain past events and give us insights into future events. We look for confirmation of our biases. For many, it is illogical that the stock market is performing well under a Trump administration. If the market sells off, that is viewed as a rational response confirming the original opinion.
In my experience, politicians can impact the markets at the margin, but they are not a driver. We tend to give one party eight years in the White House and then we turn things over to the other party. There is a pendulum effect—regulation or taxes will increase for eight years, then decrease for eight years. The markets adapt to this cycle.
Despite Washington, the current investment environment is quite good. We track 14 separate economic and market indicators, from monetary policy to leading economic indicators to stock market valuation. Of those, 11 are green (positive), two are yellow (neutral) and only one is red (negative). The one negative is consumer confidence, which is near all-time highs and is historically a contrary indicator.
At times of uncertainty, a good response is to review your financial strategy and your progress toward goals. If you are anxious about the stock market, a good step to consider is rebalancing back to your long-term targets. We can help you with this and perhaps ease any concerns.
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