Big news seldom fazes markets, but keep an eye on smaller stuff

While preparing for a review meeting with a client earlier this month, we waited for President Donald Trump to address the nation. It was the morning after Iran had fired missiles at U.S. military bases in Iraq. Although tensions in the Middle East have simmered down (relatively speaking) since the first week of January, it seemed Trump's first official public comments were worthy of our attention.

A few minutes into his speech, we had to abandon the news conference to commence a regularly scheduled client meeting. "Are you watching the president?" we asked the client after greetings were exchanged. "Why would I?" was his response. "You guys told me none of that stuff matters to my portfolio."

Countless times to countless clients, we have communicated the facts that presidential elections and geopolitical events might move markets in the short term, but rarely have meaningful long-term effect.

On the day a U.S. drone targeted and killed Iran Maj. Gen. Qassem Soleimani, the S&P 500 fell 0.71%. The Dow Jones industrial average lost 234 points. After four days — a period that included Iran's retaliation and missile firings — the major equity indexes were back at all-time highs. If the stock market had a Richter scale, the entire episode would hardly have registered a tremor.

In an age where most of us carry internet access in our pockets, it's more difficult than ever to ignore the troubles of the world. Political dysfunction and military conflict may not be any more prevalent in 2020, but they sure feel more saturating. It's important to acknowledge these events and consider their real world consequences. Just don't allow them to influence major investment decisions.

Before the pop-up conflict with Iran, our country's trade war with China was the international battle most difficult for investors to ignore. Earlier this week, American and Chinese representatives signed "Phase One" of a formal agreement, marking the unofficial end to a chapter in this ongoing saga.

It has been 18 months since the first U.S. tariffs were imposed on Chinese goods by the Trump administration. In that time, the S&P and Dow have risen 15% to 20%. That's better annualized performance than historical averages and nothing remotely close to the economic banana peel some predicted.

A Republican-controlled Senate, of course, is seen as unlikely to convict the president. But even in the most extreme scenario — Trump being evicted from office — his successor would step into a divisive environment during an election year with no realistic shot at effecting meaningful change.

In the weeks to come, impeachment will fill the calendars of U.S. senators and further worsen the brutal inefficiencies of government. As it turns out, however, political gridlock is not a bad thing for the stock market. The S&P 500 is coming off calendar-year gains close to 30% and corporate earnings will once again post year-over-year growth in 2020 now that 2018 earnings juiced by corporate tax cuts are no longer the measuring stick.

Gridlock means more of the same, and in this economic climate, that's something stocks have celebrated.

To be clear, political dysfunction and global conflicts are not justifiably enough to drag markets significantly lower on their own. But they can certainly contribute to a growing sentiment of negativity.

Many people are under the impression that a single major event will be the cause of the market's next big correction. More likely, however, it will be a convergence of several smaller factors that become too heavy to bear.

Many stocks, in other words, bounced in 2019 due to the anticipation of better results to come in 2020. Companies have yet to deliver on those expectations.

Those are genuine reasons to express concern about equities in the year ahead. As for the other stuff, the market knows better.