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NYT: Financial markets shrug off geopolitical shocks like Brexit, Trump investigation

Guevara

Member
The United States stock market shuddered last week on a report that President Trump had tried to stop an F.B.I. investigation of his former national security adviser, with the Dow Jones industrials falling 373 points in one day and drawing comparisons to the Watergate-era bear market. ... By the middle of this week, the Standard & Poor’s 500-stock index had recovered virtually everything it lost after the Trump-Russia news broke, and on Thursday it closed at a new high.

...

By and large, “investors should tune out political events,” said James B. Stack, president of InvesTech Research and Stack Financial Management, who has done a study of what he calls “crisis events” and their effect on markets. “Historically speaking, and as a seasoned investor, I’d say investors should just ignore geopolitical events like Brexit or whatever is happening in Brazil.”

The problem, Mr. Stack’s research has found, is that “geopolitical events may be widely feared, and there will often be a knee-jerk market reaction when they’re unexpected, but seldom do they have a lasting impact. Underlying economic trends and monetary policy are far more important.”

...

Of 11 major geopolitical events examined by Mr. Stack’s firm, only two — the Nazi invasion of France in May 1940, and Japan’s bombing of Pearl Harbor in December 1941 — led to market losses over one-week, three-month and one-year periods (and in the case of Pearl Harbor, the one-year decline was less than 1 percent).

President John F. Kennedy’s assassination had no discernible impact: Stocks were up more than 20 percent a year later.

As geopolitical crises go, those were pretty big shocks to markets and investor psychology. So far, nothing in the Trump administration has come close. Still, expectations that Mr. Trump and a Republican Congress would succeed in enacting business- and shareholder-friendly tax and regulatory changes are part of what has driven recent market gains.

...

If anything, history suggests that long-term investors should buy stocks after markets fall on bad geopolitical news, not sell. But that’s not to say this time won’t prove to be an exception, or that markets won’t correct for other reasons.

Whatever happens with President Trump, the United States is in the ninth year of the second-longest bull market since World War II; none have made it past 10 years. Valuations are getting stretched. Sooner or later, there will be another correction, and eventually a bear market.

https://www.nytimes.com/2017/05/25/business/stock-market-politics-volatility.html

Time the market, if old.
 
The Stock Market will do well under Trump's reign, since he's removing all health & environmental regulations and lifting corporate taxes.

He's also going to hurt unions, stifle minimum wage and allow businesses to reduce or remove employee benefits.

All that stuff means bigger profits for businesses.

You may as well buy stocks every time the market takes a tumble. Consider it a 24-hour Doorbuster sale.
 
There was a thread last week about a one day drop. I yawned. And, of course, now the markets have recovered all of it and are trucking right along.

Keep buying equities, kids. Retire one day.
 

Yaboosh

Super Sleuth
There's going to be a massive crash. And people are going to lose lots of money. And then it will recover like it always does. And people will make their money back and more unless they panic and cash out.
 

tuxfool

Banned
There was a thread last week about a one day drop. I yawned. And, of course, now the markets have recovered all of it and are trucking right along.

Keep buying equities, kids. Retire one day.

As the article notes, the markets seem to be powering on, just on the belief that things are going to magically work out. They ignore the epicenters of these shocks, but are not countenancing the long term results.

The danger here is that when these effects hit, they'll hit hard, to the detriment of everybody.
 

jon bones

hot hot hanuman-on-man action
There was a thread last week about a one day drop. I yawned. And, of course, now the markets have recovered all of it and are trucking right along.

Keep buying equities, kids. Retire one day.

yep, collect that 401k match to the max, stay diversified and generally forget about it
 

Ogodei

Member
The high volatility in response to these things is partially people eager to shortsell or try to get a good deal. It's a case where everybody's trying to outfox everyone else, creating a panic from nothing because they think it's an opportunity.

Now, there's certainly cause for politics to impact the markets. Brexit will have a substantive impact on certain industries in the United Kingdom, and a lesser but still notable impact on other industries in the EU, you do have to price that in.

The Trump thing was partially because the market was amping up in preparation for a larger boom when the tax cuts would be passed, so the decline there in response to Trump-Russia was a *real* decline because now the tax cuts are much less likely to happen, so the boom that would come with them is less likely to happen, and therefore a selloff occurs.
 
As the article notes, the markets seem to be powering on, just on the belief that things are going to magically work out. They ignore the epicenters of these shocks, but are not countenancing the long term results.

The danger here is that when these effects hit, they'll hit hard, to the detriment of everybody.

Keep buying.

At this point I just contribute the same amount to an index fund each month, and try not to pay attention.

yep, collect that 401k match to the max, stay diversified and generally forget about it

Word.
 
The Stock Market will do well under Trump's reign, since he's removing all health & environmental regulations and lifting corporate taxes.

He's also going to hurt unions, stifle minimum wage and allow businesses to reduce or remove employee benefits.

All that stuff means bigger profits for businesses.

You may as well buy stocks every time the market takes a tumble. Consider it a 24-hour Doorbuster sale.

There's short term, and then there's long term.
 

Ron Mexico

Member
There's short term, and then there's long term.

The short term is lots and lots of ebbs and flows as the markets react to different bits of news and hyper-sensitive investors cause swings to where day to day or month to month and even year to year are full of peaks and valleys.

The long term is you'll see the market appreciate it what looks like a more even, gradual line.

Like the article had mentioned although only looking short term, the impacts of politics, whether you love them or hate them, aren't going to cause the huge impact you're expecting, especially over a long enough time period.

This market has so much more to do with liquid rates being still at near all time lows but that doesn't make for a sexy discussion.
 

tbm24

Member
Shrugging off Brexit as an investor sounds like bad advice. We'll recover from Trump, the UK is in for a bad next couple of decades.
 
The people who don't understand this are usually the same people that think Bush is responsible for the recession or that recovery under Obama was because of his policy.

For the most part, the markets are logical. It takes a large political event to change the course of business and cause a huge crash or boom. The markets definitely react to politics but just usually not in a huge order of magnitude or by the time a new political development occurs it was already baked into the price.
 
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