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  1. ETF Strategist Channel
  2. Once More: Headlines Could Use a Warning Label
ETF Strategist Channel
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Once More: Headlines Could Use a Warning Label

RiverFront Investment Group   Jun 15, 2023
2023-06-15

by DOUG SANDLER, CFA

There is a Difference Between Newsworthy and Investable

There is rarely a dull moment in the 24/7 news cycle and the first half of 2023 has been no different. From rising fears about another banking crisis to worries about the debt ceiling, investors have been inundated with heavy headlines lately. Yet, despite all the negative news, most major stock indexes have increased significantly in value throughout the year. Thus, it is natural to ask… “To what extent should ‘the news of the day’ affect my investment plan?”

After many years of following the headlines and monitoring their impact on stock prices, we have concluded that most of what appears in the headlines does not require immediate adjustments to long-term investment plans for three reasons:

  1. Little Relevance: Many news stories making headlines such as minor political scandals, organized public demonstrations, or natural disasters are ‘non -investable’ in our view, meaning they have little or no direct investment implications. That is not to say they are not important, but rather that there is little clear connection between the news story and corporate earnings, in our view.
  2. Too Late: News with clear investment implications, like the failure of several regional banks in the first few months of 2023, tends to impact asset prices immediately. In other words, prices have often already fallen (or risen) significantly by the time the news is disseminated. It is also common for the market to overreact to initial headlines and the impact to dissipate over time.
  3. Too Early: Often the hottest news, like the news relating to an upcoming election, is often too incomplete, too inconclusive, or subject to too many unknown variables to allow an investor to make an informed investment decision. For example, the president’s legislative agenda is not decided in a vacuum, which is why it can differ materially from what may have been discussed on the campaign trail. Ultimately, an administration’s agenda will be influenced by the make-up of Congress and by the macro-economic environment present when they take office.

For this reason, we may want to consider putting warning labels on newspapers, radios, televisions, computers, and mobile phones, like those seen on other potentially dangerous products. A suggested warning label might read: DANGER Headlines Can Impair Investment Decisions. Consult Professional Before Portfolio Adjustment.

That being said, not all news should be ignored. Our process is designed to identify the news that could affect the long-term trajectory of corporate earnings, or the value that investors place on those earnings.

Bottom Line: We believe that the best investment decisions are made when investors can tune out the noise and focus on the news that is most likely to carry meaningful investment implications. The final arbiter of news, in our opinion, is the market. Everyday millions of individuals determine what news is important and what is not through the buying and selling of stocks and bonds. James Surowiecki’s seminal book The Wisdom of Crowds (2004) concluded that the collective insights of the many are superior to those of the few. Therefore, while we have theories about what news matters and how it should be interpreted, we must always recognize the market’s message, especially when it conflicts with our own. As we wait for additional clarity and ultimate resolution of many of today’s headlines, we will stay vigilant, adjust our portfolios accordingly and continue to focus on ‘process over prediction.’

By clarifying the limited investment value in staying on top of the latest news, one can redirect their time and energy to more productive pursuits.   After all, few people ever say: ‘When I’m in my golden years, I hope to watch more financial and political news’, when dreaming of the perfect retirement!

For more news, information, and analysis, visit the ETF Strategist Channel.

Risk Discussion: All investments in securities, including the strategies discussed above, include a risk of loss of principal (invested amount) and any profits that have not been realized. Markets fluctuate substantially over time, and have experienced increased volatility in recent years due to global and domestic economic events. Performance of any investment is not guaranteed. In a rising interest rate environment, the value of fixed-income securities generally declines. Diversification does not guarantee a profit or protect against a loss. Investments in international and emerging markets securities include exposure to risks such as currency fluctuations, foreign taxes and regulations, and the potential for illiquid markets and political instability. Please see the end of this publication for more disclosures.

Important Disclosure Information: 

The comments above refer generally to financial markets and not RiverFront portfolios or any related performance. Opinions expressed are current as of the date shown and are subject to change. Past performance is not indicative of future results and diversification does not ensure a profit or protect against loss. All investments carry some level of risk, including loss of principal. An investment cannot be made directly in an index. 

Chartered Financial Analyst is a professional designation given by the CFA Institute (formerly AIMR) that measures the competence and integrity of financial analysts. Candidates are required to pass three levels of exams covering areas such as accounting, economics, ethics, money management and security analysis. Four years of investment/financial career experience are required before one can become a CFA charterholder. Enrollees in the program must hold a bachelor’s degree.

Information or data shown or used in this material was received from sources believed to be reliable, but accuracy is not guaranteed. 

This report does not provide recipients with information or advice that is sufficient on which to base an investment decision. This report does not take into account the specific investment objectives, financial situation or need of any particular client and may not be suitable for all types of investors. Recipients should consider the contents of this report as a single factor in making an investment decision. Additional fundamental and other analyses would be required to make an investment decision about any individual security identified in this report.  

Stocks represent partial ownership of a corporation. If the corporation does well, its value increases, and investors share in the appreciation. However, if it goes bankrupt, or performs poorly, investors can lose their entire initial investment (i.e., the stock price can go to zero).  Bonds represent a loan made by an investor to a corporation or government.  As such, the investor gets a guaranteed interest rate for a specific period of time and expects to get their original investment back at the end of that time period, along with the interest earned. Investment risk is repayment of the principal (amount invested). In the event of a bankruptcy or other corporate disruption, bonds are senior to stocks.  Investors should be aware of these differences prior to investing.

RiverFront Investment Group, LLC (“RiverFront”), is a registered investment adviser with the Securities and Exchange Commission. Registration as an investment adviser does not imply any level of skill or expertise. Any discussion of specific securities is provided for informational purposes only and should not be deemed as investment advice or a recommendation to buy or sell any individual security mentioned. RiverFront is affiliated with Robert W. Baird & Co. Incorporated (“Baird”), member FINRA/SIPC, from its minority ownership interest in RiverFront. RiverFront is owned primarily by its employees through RiverFront Investment Holding Group, LLC, the holding company for RiverFront. Baird Financial Corporation (BFC) is a minority owner of RiverFront Investment Holding Group, LLC and therefore an indirect owner of RiverFront. BFC is the parent company of Robert W. Baird & Co. Incorporated, a registered broker/dealer and investment adviser.  

To review other risks and more information about RiverFront, please visit the website at riverfrontig.com and the Form ADV, Part 2A. Copyright ©2023 RiverFront Investment Group. All Rights Reserved. ID 2949284


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