The firing of Director Comey did not spook the markets; the possibility that the President may have obstructed an FBI investigation did.
We recently commented that the stock market is being driven by earnings, not by Washington. Over the past month most of the S&P 500 companies reported their first quarter results. For analysts and investors, the earnings reports provide the data most important when making investment decisions for the future. Earnings season is coming to an end which means that traders and other short term investors will focus on news and events outside of the financial markets. On Wednesday May 17th, the reports that the President may have attempted to obstruct an FBI investigation became the clear focus for traders and many of them took profits in positions that had run up since President Trump took office.
As long term investors, we choose not to become sidetracked by the noise. Rather, we focus on the worldwide economic recovery that is occurring. The United States and much of the world is in a period of economic expansion. For years the world’s central banks allowed countries, businesses and individuals to borrow inexpensively with the hope that the low cost of money would spur growth. It did. Europe is expanding. China has stabilized. The US is growing at a pace not seen in a decade. Unemployment is at extremely low levels. Jobless claims are down. Profits are rising. The economic fundamentals have supported the rise in the market.
There is a possibility that this investigation will go on for months. The economic impact of this investigation is that Capitol Hill abandons its pro-growth agenda. The best run companies and their leaders will continue to focus on growth and not allow the business to get sidetracked by Washington “noise”. These are the companies PWA invests in and believes in for long term growth. Volatility, be it up or down, ultimately gives way to the economic fundamentals.
As investors, we understand that short-term volatility is normal. The event that triggers the volatility is always different but there is typically some trigger. When the trigger event occurs, the market reaction is usually swift and violent. And in every case the equity markets recover. Investors that look through the noise and see the current underlying economic activity see a world filled with investment opportunities. Traders, always focused on the short-term events, see a reason to take the short-term profits.
The mission at PWA Wealth Management is to lead our clients along the path that allows them to achieve their goals and objectives. Those goals are achieved over a lifetime. That is our investment time horizon.