Tuning out market ‘noise’ is more important than ever, but it’s also becoming increasingly difficult to do
We’re now over 100 days into the Donald Trump administration and the economic picture south of the border doesn’t seem to be any clearer than back in November when the new president achieved his shock victory. The media noise around Trump’s impact on the markets has been relentless ever since, but how much impact can a leader like him actually have on the economy and the markets?
“From a purely economic point of view, in the grand scheme of history, politicians’ impact is less than people think,” says Jason Gibbs, Vice President & Portfolio Manager at Dynamic Funds. “In the long-term, the stock market goes up and down based on earnings, and earnings will move up and down based on the economy, which is dictated by labour force growth plus productivity. Politicians can’t do a lot to impact those two things.”
Although initially the markets reacted positively to the new president’s pro-business stance, there are signs that the Trump trade is starting to fade. The fundamentals that underpin U.S. economic performance are stronger than the impact of a controversial politician. Gibbs believes the initial market confidence on Trump’s election was overdone and that, looking forward to upcoming years, “we’re in a five per cent range for stocks”. “The labour force is slowing because of demographics and productivity has been slowing for a number of years,” he says. “I think we’re in a lower growth world than we’re used to and that means rates tend to stay lower for longer. It means you want to have a good stable of dividend stocks.”
Despite being told about the importance of sticking to the principles of sensible, sustainable investing, many Canadians have reacted rashly to the new administration south of the border. Some have made market moves they may live to regret. “From a market point of view, every year there is something. You have to block it out and focus on the long-term fundamentals of your portfolio, your asset allocations and your business,” Gibbs says. “Ignoring the noise has never been harder, though. It is a problem because those who aren’t blocking it out are getting destroyed.”
Gibbs gives the example of early 2016 when some Canadian investors were panicking about the state of the economy, oil and developments in China. “The headlines from that month were suggesting that Canada was in deep trouble but now everything appears to be good. A lot of people fold based on those macro headlines,” he says. “Investors should not be trading every day based on headlines and news; it can really destroy a portfolio.”
“From a purely economic point of view, in the grand scheme of history, politicians’ impact is less than people think,” says Jason Gibbs, Vice President & Portfolio Manager at Dynamic Funds. “In the long-term, the stock market goes up and down based on earnings, and earnings will move up and down based on the economy, which is dictated by labour force growth plus productivity. Politicians can’t do a lot to impact those two things.”
Although initially the markets reacted positively to the new president’s pro-business stance, there are signs that the Trump trade is starting to fade. The fundamentals that underpin U.S. economic performance are stronger than the impact of a controversial politician. Gibbs believes the initial market confidence on Trump’s election was overdone and that, looking forward to upcoming years, “we’re in a five per cent range for stocks”. “The labour force is slowing because of demographics and productivity has been slowing for a number of years,” he says. “I think we’re in a lower growth world than we’re used to and that means rates tend to stay lower for longer. It means you want to have a good stable of dividend stocks.”
Despite being told about the importance of sticking to the principles of sensible, sustainable investing, many Canadians have reacted rashly to the new administration south of the border. Some have made market moves they may live to regret. “From a market point of view, every year there is something. You have to block it out and focus on the long-term fundamentals of your portfolio, your asset allocations and your business,” Gibbs says. “Ignoring the noise has never been harder, though. It is a problem because those who aren’t blocking it out are getting destroyed.”
Gibbs gives the example of early 2016 when some Canadian investors were panicking about the state of the economy, oil and developments in China. “The headlines from that month were suggesting that Canada was in deep trouble but now everything appears to be good. A lot of people fold based on those macro headlines,” he says. “Investors should not be trading every day based on headlines and news; it can really destroy a portfolio.”
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