There are investors who put a great deal of attention on the news cycle and the latest market hot topics. However, we believe understanding market risk relative to one’s time horizon is more critical to a portfolio’s success. The news cycle tends to focus on issues that are short-term in nature. While this may be extremely relevant for traders, it is less so for longer term investors.

Many investors are encouraged to take a long-term perspective as they are working towards long-term goals like retirement, a child’s post-secondary education, or leaving wealth for the next generation. This contrasts with a short-term trader that may be seeking daily or weekly gains. Understandably, the financial media has a bias towards alarming headlines as it can drive greater traffic to their content. “The higher the VIX, the higher the clicks,” is a catchy phrase that suggests higher volatility (VIX) leads to more media views. Therefore, investors first need to assess the potential motivation of a headline and then differentiate whether this news may have a short or long-term impact on one’s portfolio.

In our opinion, most of the news is distracting noise for investors. The frequently published debate about whether the Fed will cut rates in the beginning or end of the summer is an example of a seemingly meaningful conversation but could just be splitting hairs for long-term investors.  Yes, an announcement to delay interest rate cuts could affect bond and equity pricing as markets tend to reflect updates in real time. However, the core question is ‘how long lasting will this impact be?'

Understandably, a delay in rate cuts could result in a rise in the yield market and cause bonds prices to fall. However, according to RBC’s Portfolio Advisory Group, a full one-year delay to the interest rate path that is embedded in the futures market may impact yields by only 20 basis points (0.20%). If this were to be true, the impact on bond prices should not prove to be a meaningful threat to the long term. Just looking back a month ago, a 0.20% move in yields occurred between Feb 7. to Feb 13, with most investors not noticing. Hence, long-term bond investors should not lose sleep from all the discussion regarding the timing of rate cuts.

The same could be said for long-term equity investors as our most recent memory tempts us to feel that equity prices are very responsive to interest rate movements. However, it is important to put interest rate policy in context. We would submit that what is fundamentally more important is that we are at the end of the hiking cycle and trending towards looser monetary policy. This bodes well for corporate earnings and economic clarity. Overall, rates staying higher for longer should have less impact if corporate earnings and the economy remain resilient.

The point is not that investors should ignore the Fed or that macro-economic conditions do not matter. Afterall, investors with shorter time horizons or approaching a liquidity need should pay more attention to the day-to-day noise. However, the degree of attention paid to particular inputs should vary with the individual. Those with a long time horizon can likely look past the daily news cycle, including the first rate cut debate. Speak with one of our advisors to help you narrow in on what we believe are the key market and cycle fundamentals to monitor.