Do Headlines Really Matter to Investing?

Growing up, I spent a lot of time watching television. I grew up in a single- parent household, and my mom was usually working at least two jobs.

We moved around a lot, so there were long periods of time where I didn't have many friends. The TV, though, was always there for me!

To this day, the first thing I do when I walk into a room in my house is turn on the TV. It's not uncommon for me to have two or three TVs on simultaneously.

This habit only continued when I started my career on Wall Street, and I've been an avid watcher of CNBC for my entire career.

My family will even put it on in the background when I'm traveling because it makes her feel like I am still home!

Many people are critical of CNBC (and the media in general), and I don't necessarily disagree. For me, though, listening to this coverage allows me to understand the psychology of the market and the topics it is interested in at a given time.

For instance, right now you'll hear a lot about inflation, interest rates, the economy in China and massive spending by the Federal Government.

All of these are major news stories that involve billions (and sometimes trillions) of dollars. As a result, you might think they'd play a major role in your investment results and influence your investment strategies.

That is why the talking heads spend so much time on them...

Over the years, though, I began to understand that these talking points were generally not the real drivers of what was happening in the asset markets.

The reality is that the markets move, and then the pundits need to ascribe a reason to the move. Whether or not there is a real, tangible relationship between the reason and the move almost doesn't matter.

In fact, the more interesting and even scary the "reason," the more engaging it is for the audience. This is why the Weather Channel spends so much time on hurricanes and tornadoes and not bright sunny days.

Most often, the real reasons the markets move are difficult to pinpoint... It all comes down to the amount of money in the economy, the general liquidity, and the economic climate.

So... do the headlines ever matter? Yes!

All of the current headlines we discussed above are real and affect the global economy and asset markets.

The key, though, is understanding the magnitude of these effects.

Take China as an example... If China were to truly experience a deep and prolonged recession, then it absolutely would affect the global economy. It would drag down both U.S. and European economies.

The same could be said for inflation. If it were to go back up much higher from here, then it absolutely would have a negative effect on asset prices.

However, right now, it is our view that these factors are important, but not large or sustainable enough to really change the bullish underlying dynamic in the stock market.

This could change at some point, so we will continue to monitor the situation and keep our readers updated.

Do you think headlines matter? Let us know in the comment section online (scroll to bottom of post for comment section).

Ultimately that is the key when thinking about the headlines – you should always pay attention, but you still need to determine when they matter to your investment strategy and when they don't...

Check out Enrique Abeyta’s conversation with Whitney Tilson on the HX Podcast.