Is No News Really Good News?

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Some key economic data points – particularly GDP and productivity — are delayed because of the government shutdown. Investors seemingly are operating under the old adage, “No news is good news.” January posted the best yearly start in more than 30 years. Small- and mid-cap stocks and global real estate investment trusts (REITs) have been especially popular, up double digits so far this year. In fixed income, high yield is up more than 4.5%. A more dovish Federal Reserve and hopes for a trade deal with China by March 1 are buoying investor sentiment.

Although sparse, U.S. economic news has been good — the labor market is strong, wage growth is stable, manufacturing is humming, confidence has dipped but is still high, services sector activity has trimmed back but is still elevated. On the other hand, global risks are growing with a significant slowdown in Germany and widespread political turmoil darkening Europe’s outlook. All eyes are on China, waiting for its economic stimulus to kick in and, it is hoped, support global growth.

So as January goes, so goes the year? The trend is your friend? Don’t fight the Fed? Cash is trash? Or conversely, trees don’t grow to the sky? Stocks take the stairs up and the elevator down? The easy money has been made? If you look back over the history of the markets, clichés are a silly way to invest. After all, a watched pot does indeed boil, eventually. The only platitude worthy of consideration is don’t put all your eggs in one basket. While it does not preclude a loss, diversification can help manage uncertainty and market volatility.

Timing the market in an attempt to avoid volatility could derail your portfolio objectives. Sometimes the worst days occur within weeks of the best days. A diversified portfolio can help you stay invested during difficult times. It’s not rocket surgery, I mean brain science.

Please see page 26 of the Global Perspectives book.

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