If you watch CNBC, Fox Business, or Bloomberg TV, or if you follow the financial markets regularly, does it seem to you that the markets focus in on one geopolitical event and trade up or down based almost solely on that news? And, if you see this, do you think markets are overreacting to said news of the day? Currently, it seems that the markets are trading substantially on news about trade and China, including the arrest in Canada of the CFO of Huawei. Before, it was interest rates. Before that, it was the murder of Khashoggi. Now, I agree that issues with China and trade are newsworthy and may have an impact on aspects of the US economy and US companies, but should these issues provide the sole impetus for the direction of all stocks, with the effect of minimizing other issues such as corporate profits?
My point, if you haven’t yet figured it out, is that financial news outlets try to condense the news into small memes or soundbites. Investors and even institutional traders pick up on these news and try to trade and profit on their perception of investor sentiment based on these news memes. Then, if markets move too much in one direction, algorithmic trading programs kick in and exacerbate the issue. I don’t think there is much fundamental about it; what you have (or can have) is a bunch of memes spread end-to-end on one another, with the meme spreaders perhaps forgetting from day to day what yesterday’s meme was. “It looks bad today, but yesterday it looked good, so is today worse than yesterday was good? Should I sell today even though I bought yesterday?” It can get very confusing.
Take a Step Back
As with all other forms of news, if you want to move forward with your sanity intact, sometimes you have to take a step back, take a breath of fresh air, and turn off the financial news. Financial news is addicting, but like other forms of addiction, it can and probably will do you harm at some point during the process. Instead of letting the financial news control you, you need to take control of your own financial news. Buy in when you see a good opportunity, and maybe think about dollar-cost-averaging your position so that you spread out your basis and therefore buy at a reasonable average price over time. Don’t get sucked in by the financial media. Today’s China Trade story will morph into a different story tomorrow, whether it is interest rates, the unemployment rate, or the next election cycle. Imagine the hugest supertanker in the world, times 100: This is the US economy, which is about 24% of the world economy. It doesn’t turn on a dime and it continues to churn in a certain direction despite the hits it takes from the outside. You should invest and financial plan based on the pace of that supertanker, not based on the little insects that might run into it from time to time.
The China Trade story is significant but what we are seeing now is just a bunch of posturing or negotiating tactics by both sides. Both the US and China’s best interest is in keeping a lid on any escalating trade battles. Despite what you may read and feel, both countries are acting rationally, if a little overdone. Remember that US corporate earnings are strong and are projected to remain strong for the next year, if not perhaps as strong as they have been in the past year. Earnings, more than headlines, will drive stock performance, and the future with earnings looks rosy.