When you look at the news, you may have noticed that things are moving very quickly. You begin to focus on illegal immigrants being deported, and then there is a headline on tariffs. You begin to lament that your investments took a hit, and then the next day that is reversed and all is well. Everybody wants waste and fraud cut from the government, but then you see a headline about the process and what will be involved and then you are not so sure.
So, my advice to you in this time of “Trump Speed” government action is this: Don’t be like a dog in the backyard every time they see a squirrel. Stay focused on your plan. Here is my opinion on why this is the best course.
Tariffs and Markets
In 2018 when the first ‘trade war’ with China on tariffs occurred, and there were two US government shutdowns, Brexit negotiations and of course the usual political nonsense going into a mid-term election, what happened? The end of the world didn’t happen. What did happen was that the S&P index suffered as much as a 19.4% drop from September 20 to December 24, and then was up 31.1% in 2019 as trade deals were agreed upon and of course, consumers spent money again. We don’t know what will happen going forward, but I am fairly confident that deals will be made and much sooner than you think these issues will be in the rearview mirror.
Do Markets Recover?
Typically, equity markets have recovered quickly. This will continue to be a highly volatile market. However, historically the average 12-month return following a 15% or greater decline is 52%. That is why when some clients want to bail out when the markets move down, we urge them to sit tight.
Below is a chart showing these numbers:
Sources: S&P and Capital Group
Bear markets have averaged 12 months, while Bull markets average about 67 months. Related to the Bull/Bear issue is the idea that a recession is coming. I am not sure that this fear is warranted, but I also note that once policy can become more certain (i.e., trade agreements, Congress making the tax package permanent, and the Fed maybe even lowering rates sometime this year) both business and consumer spending will very likely resume at a pace that will promote growth and therefore profits and therefore higher stock prices.
Waste and Fraud and Abuse, Oh My!
It’s not a secret that fraud, spending abuse, and waste have long been speculated in many government programs. While the media focuses on the extremes, here is the bottom line: these are long entrenched issues that cannot be solved overnight. Again, you see headlines that tell you that your program is going to be cut, etc. I think that as long as you are not illegally obtaining a benefit, you will be alright. I am pretty sure that the last thing that Washington wants is a couple hundred thousand retirees down there because they cut social security or any other program of that sort. However, I also can see the benefit of cutting out the waste, fraud, and abuse to ensure that these programs remain viable for us all. What's important is staying informed about how these changes may impact you. Don’t let the headlines distract you.
Immigration
This is another issue with divisive opinions that the media uses inaccurate and sensationalistic headlines to get you to read the article. It can add to your angst, so unless you are directly impacted/involved, ignore it.
The Bottom Line
As long as you have a plan in place and are following it, then the headlines should not have you turning your head back and forth like a puppy chasing squirrels. Just remember the old newspaper adage: If it bleeds, it leads. Keep your focus, stay on plan, and think about 5 years from now instead of 5 minutes from now.