Election Year—Not just USA
It is important to remember that markets hate
uncertainty. The fact is that major
leadership across the world may change hands throughout the next 12
months. In addition to our own
presidential election, heads of state in Russia (already changed), China, and
France may all see a change of leadership at the top. This, of course, leads to potential
operational policy changes in 4 of the 5 UN Security Council member countries.
No News is Good News
Two moderate news stories have fueled the recent pullback in
the last week. The first was the fact
that the employment numbers domestically are beginning to improve, but that
they are favoring the older generation.
This report came in during the market’s closure for the holiday weekend
last Friday. Rather than focusing on the
brighter side of the news, Dow Futures immediately dropped and Monday’s open
saw a -200 point decline.
The end of this past week had a report that China’s economy is
growing by an annualized rate of 8.1% for the first quarter—down from the 8.9%
seen in the fourth quarter of last year.
Markets had a similar reaction,
dropping over 100 points, and contributing to the worst week of the year so
far. I use these two stories as examples
because neither was particularly bad/negative, but they contribute to the idea
that the economy will not recover at lightspeed—and that maybe the recent 5
month rally is a tad overbought.
Obamacare & Taxes—Uncertain Domestic Policies
The constitutionality of the hallmark accomplishment of
President Obama’s first term is being argued in the Supreme Court. This only provides more question marks for
American businesses as they prepare for added employment cost. Combine this with the fact that the current
tax regime is set to expire at the end of the year, and it makes longer term
business planning and hiring very difficult for small and medium sized
businesses. Further clarity on either of
these issues would encourage businesses to invest in growth.
These and other factors will continue to contribute to the ebb
and flow of investment markets.
Volatility alone is not a reason to pull your money from a long-term
investment plan and bury your head in the sand.
Trying to time the market’s ups and downs is a losing proposition. Take a risk-managed approach and be sure you
are allocated in a multifaceted strategy.
