Market Volatility & Politics

Politics can increase market volatility and uncertainty leading up to an event.

However, just because a political event spooks the market doesn’t mean investors should rush to sell. Quite the opposite: That might be the time to buy if fundamental trends are pointed in the right direction and unchanged by policy outcomes.

Savvy investors tune out the noise and remain focused on the trends.

Take for example the United Kingdom’s investable outlook with Brexit looming later this month. AMG recommends investors consider the shape and direction of government policies after Brexit, rather than focusing on Brexit itself. A lot of the U.K.’s long-term financial success has resulted from the nation’s substantial economic freedom, so government policies post-Brexit are more important in determining the British economy’s future and investments in it.

Other examples include the U.S. impeachment proceedings and America’s trade dispute with China. These events dominate the media now, and investors are told to pay attention to specific upcoming dates. Financial-market uncertainty is quantifiably higher as a result.

Nonetheless, the long-run fundamental picture has not materially shifted for the markets as a whole. Tariffs have had a limited immediate impact on the economy, and AMG continues to expect economic growth of a little over 2% for this year, in line with long-term potential GDP (the combination of labor-force growth and productivity growth in an economy). At the same time, we cannot immediately discount a shift in policies that might change the country’s long-term economic wellbeing as a result of impeachment proceedings.

The bottom line is to ignore the noise and focus on the long-term fundamental picture when making investment decisions.