Have you ever heard the expression, “It’s a headline risk for the markets?” Headline risk is the chance that an unsettling news event – anticipated or a surprise – can add volatility to the financial markets.
Be prepared for some “headline risk” the next couple of weeks as Congress looks to pass a budget bill by October 1 for the 2024 fiscal year. The Senate has completed much of its work for the new federal spending plan, but the House of Representatives still has a lot of work to do and only a tiny window of time to complete it. The schedule has House members returning to DC by September 12. Keep in mind that a short-term bill may get passed, too.
Nobody wants a repeat of May 2023, when lawmakers engaged in high-profile, high-stakes talks over the debt ceiling. The stock market was held captive to the ebb and flow of updates, falling when talks faltered and rising when an agreement seemed near. It is likely that lawmakers will come to a resolution with little drama this time around, with the memory of the debt ceiling talks fresh on everybody’s minds.
Headline risk is nothing new. For example, the market was on pins and needles for several weeks in August, building up to Fed Chair Powell’s Jackson Hole speech. And it seems like the market “holds its breath” every month before each inflation update. However, we encourage long-term investors to not worry about headline risk so much.
We consider headline risk a type of short-term risk, not necessarily something that derails a long-term strategy. Simply consider the name of the term itself; “headline risk” implies news headlines. By nature, those are usually short-lived and often play on emotions. We believe long-term investing has a way of smoothing out headline risk because history tells us the markets are efficient and reward patience.