May 2016 – Geo-Political Risk Creeping into Market…
The news of President Trump’s abrupt firing of the FBI director and suspicion it was motivated by the FBI director’s investigation of his administration’s activities with Russia are unsettling. But it’s not all bad, nor likely to tarnish the President in the end— though General Flynn may be another question. Here’s why. First there is the impact of this news on the US dollar which is pushing it downward giving US goods a tailwind—and that is good for US trade. Secondly, the turmoil around the President will shift near term media focus away from healthcare and tax reform, giving the Republican majority additional, out-of-the-spotlight time to craft better policies.
The bad effects are likely to be near term market volatility and/or modest decline in the stock market and greater international tension as North Korea and ISIS in Syria could jump-on the turmoil to test the President’s meddle. On balance though, the stock market is at all time highs and a short term reversal would be normal anyway. In fact we are monitoring the technical health of the market and see early warning signs. This new development requires closer monitoring and yet we think the prospect of greater opportunity for US sales overseas “trumps” the negative—assuming war doesn’t break out. The end game of having US economic growth accelerate with leaner regulation and tax incentives are both appealing and a certain catalyst for continued market appreciation, albeit in select sectors and for certain well-positioned companies.
That said, now is the time for all Indexers and those relying on auto-rebalancing programs to get off auto-pilot. Passive investors should have learned by now that Risks must be actively managed, as must portfolio security selection in order to buy into opportunities that any decline during market turmoil affords. Now is a good time to closely monitor company fundamentals in addition to technical indicators of the markets and geo-political events. Doing so permits good capital allocation and the opportunity to reinvest sidelined cash when purchases can be made at favorable prices. For the present we continue to remain optimistically cautious letting our 360Portfolios discipline guide our way.