Investors, don't panic

Kiplinger's Personal Finance

Financial markets have had their pick of key ingredients for a full-on panic (or at least a U-turn to bearish sentiment), starting with the terrifying scenes of hurricane storm damage, saber-rattling by North Korea and the devastation caused by wildfires in the West.

Yet, so far the preponderance of traders and investors haven’t taken the bait. Even as Harvey drenched Texas and Irma bore down on Florida, stock indexes stood firm. Bonds rallied. World markets were mainly in the green.

I’m telling you all this because my role is to be a voice of reason. These story lines buttress my conviction that your best portfolio strategy is to carry on with what’s working, which is almost everything except the suffering energy sector.

This is consistent with an unexpected and underreported development in 2017, one that has helped minimize the market’s reaction to natural disasters, Washington chaos and North Korean bombs: Financial markets have lost some of their legendary power over political, economic and even military decision-making. Traders are less able (and less willing) to try to force the hands of governments and central bankers by selling in a snit.

That’s why we are not suffering in 2017 from “taper tantrums” in conjunction with expected Federal Reserve tightening, stock-and-bond buyers going on strike or instant corrections. The securities markets prefer to be left alone to benefit from low interest rates and low inflation, decent economic growth (foreign now, as well as American), and rising earnings and dividends.

Traders have decided they will wait for a crisis rather than cause one. That’s why I’m not at all shocked to see prices for Treasuries and other bonds galloping higher as interest rates on issues dated longer than seven years stay flat or fall. And as long as credit is cheap and ample, stock prices can hold at or near record levels.

That’s balm for your IRAs, 401(k)s, and bond and other income holdings, including sectors I’ve often recommended: tax-free bonds, utilities’ shares, preferred stocks, and property and mortgage real estate investment trusts.

When I share my view — that the markets have built a wall of their own and declared independence from black swans du jour — here’s what men and women who manage billions of the public’s dollars tell me: They’re comfortable carrying on, paying attention to the basics.

For Aaron Clark, who runs portfolios of dividend stocks for GW&K Investment Management, that’s corporate profits. “Earnings are the driver of dividends, and earnings have been pretty good,” he says.

My talks with bond experts become shared commiserations about needless negativity regarding a market that’s doing just fine.

Jeffrey Kosnett is a senior editor at Kiplinger’s Personal Finance magazine. Send your questions and comments to moneypower@kiplinger.com.

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