News & Noise

Our 24/7 news cycle produces both news and noise that filter through the markets. It can be difficult for investors to distinguish between the two and stay focused on their primary investment objectives. As a result, investors tend to make emotionally driven investment decisions, which leads to volatility, and volatility drags on portfolio returns.

Back in March the Federal Open Market Committee (FOMC) made quite a bit of noise when it changed its wording. The committee removed the word “patient” from its guidance regarding when monetary policy might be changed. Although the move generated much commentary, it really was nothing more than a symbolic step towards a potential rate increase. There was no change in monetary policy. It was just noise and the S&P 500 dropped -2.75%.

But there are other, and perhaps more consequential, factors at play that have contributed to this year’s volatility. The strong dollar for example, has put pressure on corporate earnings. A strong dollar impacts a company’s international operations and slows growth as their products become more expensive overseas. Falling oil prices and the uncertainty that resulted from the mixed messaging around it has also led to volatility.

Other factors such as economic growth, company-specific factors and industry conditions all play a role in contributing to the overall volatility. Just as falling oil prices drag on the earnings of energy companies, they drag on earnings for the energy sector overall, which in turn hurts earnings of the S&P 500.

All of this gets oversimplified in the headlines leaving people to sort out the news from the noise. In the end, it does not require a great investment of time to distinguish between the two and make good investment decisions as long as there is a disciplined process to ensure the ability to hone in on what is important.