Should you respond to market-moving headlines?

Investment Strategies

Key Points

  • Geopolitical events in the news can stir up short-lived market volatility.
  • Ask three questions to help determine whether an event may trigger sustained change.
  • Work with your advisor to make decisions based on your investment plan and goals.

Major news stories often elicit an emotional response, whether it’s worry about a recent government decision or sympathy for people in crisis. When it comes to investing, such reactions to newsworthy events can cloud judgment.

Most big news events don’t have a large impact on the global economy, even if they’re a cause of significant short-term turmoil — but some do.

If you’re unsure about whether an adjustment to your investment portfolio based on a market-shifting event in the news headlines is warranted, begin by asking yourself three questions. To guide you:

  • If the answer is yes to any of these questions, there could be a longer-term effect on asset values.
  • If the answer is no, the news story — and its effect on your portfolio — will most likely pass.

 

1. Is a superpower involved?

If a global superpower — the U.S., Russia, China, Germany and the U.K. are the top five — is involved or has the potential to be quickly drawn into a situation, there’s potential for longer-term concern. It’s possible sustained changes in the stock market could occur if:

  • A conflict escalates quickly with other countries.
  • Political tensions lower consumer confidence.

2. Is there a risk to oil prices?

Oil is the most important commodity in the world, providing fuel that keeps industry and transportation systems moving and economies growing. Prices could spike upward if:

  • Turmoil in oil-producing regions causes a significant disruption to supplies.
  • Oil supplies are blocked at a critical maritime chokepoint such as the Strait of Hormuz, a major oil shipping waterway in the Persian Gulf.

Any sustained increase in oil prices is likely to drive down economic growth through a combination of lower corporate investment, lower consumer confidence and higher inflation. This could have a longer-term impact on investments.


3. Is there a risk to the global financial system?

Another essential element to keeping the world economy moving is the global financial system. Major problems in one country can quickly spread to another. The global economy could begin to seize up if:

  • An event looks likely to undermine confidence in systemically important banks.
  • Key global currencies and banks can’t take deposits, lend money, facilitate payments or support cross-border trade.

When considering your investments, this could be cause for greater and longer-term concern.

Bottom line

It’s good to be aware of risks and breaking news. The key is knowing when to react and when to wait out what’s most likely a short-term spike in volatility. Evaluating current events through the lens of these three questions can help you avoid making investment decisions in reaction to temporary volatility.

You can also access your advisor’s website for timely insights and commentary from our market strategists and economists.

Talk to us

Your advisor can help you develop a diversified investment plan appropriate for your risk tolerance, investing timeframe and goals. Having a plan in place can help you make appropriate, informed shifts when market conditions change.

 

This article was adapted from content the Columbia Threadneedle Investment Team originally published.