War in the Middle East. Rock-bottom oil prices. A plunging Chinese stock market.
Should U.S. investors be concerned?
While investors should always be mindful about their portfolios, they shouldn't make decisions based merely on the events dominating the current news cycle, says Paul Christopher, Head Global Market Strategist at Wells Fargo Investment Institute.
"Twenty-four-hour news can be overwhelming," he says. "We advise investors to focus on fundamentals, not assumptions and fear."
Behind the headlines, however, there are real changes afoot in the global economy that are worth noting as you consider your wealth management strategy, Christopher says.
China in transition
The Chinese economy is transitioning from depending heavily on manufacturing and construction to being more focused on services. The country's policy-makers are also encouraging companies to be less reliant on debt and to seek out more equity, Christopher says. At the same time, regulators are learning — sometimes the hard way — how best to regulate their financial markets and currency as equity activity increases.
"China doesn't have a great deal of experience managing those kinds of markets, certainly not as much as they do managing the manufacturing industry," Christopher says.
"We think that lack of experience led to some stumbles in the second half of 2015 and into 2016 as the country sought to moderate stock market swings," Christopher adds. "That sort of attempt to control markets on the way up or the way down was not met well by global investors."
China likely risks economic problems — layoffs, banking problems, and the possibility of bond holders not getting repaid — if it moves too fast transitioning its economy to a service-based one. But those risks aren't new, Christopher says.
"It's a risk, but it's one we think is manageable," he says.
Turmoil in the Middle East
War continues to roil the Middle East. The fate of the region over the next several years is uncertain at best. Christopher says he expects an "ongoing and pretty steady deterioration, politically and socially, where I think the borders in the region will be redrawn." He's also concerned about the risk of a regional, religious civil war between Sunni and Shiite interests.
"If the borders are going to be redrawn, we have to wonder what happens to oil production," he says. "What happens in the Middle East affects the price of oil."
If you've been to a gas pump anytime in the last year, you know oil's been cheap. Often, consumers link low oil prices with the perception of a weak economy. But Christopher doesn't believe the perception is justified, and thinks oil prices may soon start to reflect that.
"With the low price of oil finally starting to discourage production, global supply growth is now slower than demand growth for the first time since 2014," according to Christopher. "We expect this trend to cause prices to rise gradually. You may spend slightly more at the pump this year, but new stability in oil prices will likely bode well for global economic sentiment and activity in 2016."
So what should you be considering in your wealth management efforts?
For 2016, Christopher believes U.S. stocks have the strongest growth prospects, followed by stocks in other advanced economies, such as Europe and Japan. He also believes investors should favor stocks over bonds. The global difficulties don't change that suggestion, although the overall growth could be lower than originally expected.
And even when the headlines are worrisome, investing fundamentals still apply. Work closely with your investment professional to determine what changes you may want to make to your investment strategy. Market volatility can also be an opportunity, Christopher says. "Take some cash and put it to work ... slowly, in planned, deliberate intervals," he says.
Just don't let the 24-hour news cycle make your investing decision for you.