Disturbing Headlines, Strong Equity Markets: Why the Disconnect?
Finally, the growing populism - evident in the outcome of recent European elections - raises the risk of misguided policies that could add drag to an already sluggish recovery. To be sure, none of these potential long-term effects are likely to hurt markets in the near term, but ironically investors are becoming more acclimated to the risks at a time when their cumulative impact may be starting to impact global growth, risk premiums or both.
For investors wondering how to respond to the potential long-term impact of world news headlines, there is no single answer, but I would suggest three rules of thumb: diversify, have some small portion of your portfolio allocated to "cheap insurance" assets that should do well in a crisis, and emphasize value.
On the latter, it's not that cheaper assets will be immune when and if this year's headlines lead to next year's crisis. Rather, it's probably easier to avoid a meltdown in your portfolio if you own assets that reflect the world's imperfections.
Sources: BlackRock, BloombergRuss Koesterich, CFA, is the Chief Investment Strategist for BlackRock and iShares Chief Global Investment Strategist. He is a regular contributor to The Blog and you can find more of his posts here.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV