Politics Shouldn’t Impact Investing Decisions

“In a period of otherwise extended market calm, ” says a New York Times article published in May, “geopolitics have been driving periodic bouts of volatility.” Citing such events as President Trump’s attempt to shut down the F.B.I. investigation of former national security adviser Michael Flynn, the article says, “Even small investors have been making bets on the impact politics can have on stocks and other asset classes.” But this isn’t a wise move, according to InvesTech Research president James B. Stack who says, “Investors should tune out political events.” He argues, “geopolitical events may be widely feared…but seldom do they have a lasting impact.”

The article also cites comments by Markus Schomer, chief economist at PineBridge Investments: “I’ve been telling even our traders with shorter time horizons that what we’re seeing doesn’t really affect the economy or monetary policy, which is more important for the markets than anything else.”

The article gives the example of the September 11th attack, after which stocks declined “sharply” but this was an “unusually bad time to sell stocks: By New Year’s Day 2002, little more than  three months after the post-9/11 low reached on September 21, the S&P 500 had gained closed to 20 percent.”

With respect to President Trump’s policy agenda, Schomer argues that a failure on this front “might not be such a bad thing for markets, given that the United States economy is already at or close to full employment and doesn’t need additional stimulus.”

But whatever happens with the administration’s policy agenda, the article concludes, the fact that no bull market since World War II has made it past 10 years means that “sooner or later, there will be another correction, and eventually a bear market.”