Broker Check
Geopolitical Risks Increase Uncertainty Around Policy

Geopolitical Risks Increase Uncertainty Around Policy

| April 11, 2017

Geopolitical Risks Increase Uncertainty Around Policy

In our most recent market outlook, Transitioning to a Faster Growth Economy, we noted that we are generally constructive on financial markets, but our optimism is tempered by the increasing uncertainty around the timing and impact of potential drivers of growth going forward. In particular, we noted uncertainty around policy decisions, both foreign policy and Fed policy, would be influential to market returns. Over the past 24 hours, we have seen two examples of potential policy events likely to impact markets – President Trump’s decision to launch missiles at Syria and the disappointing March employment report. 

Starting with foreign policy, Trump ordered a missile strike on a Syrian air force base which is believed to be the base where Syria launched a chemical weapon attack. While the strike was limited to this one base, an escalation of this conflict increases the possibility of foreign policy missteps that we highlighted in the risk section of the outlook. Russia, who has been an ally of the Syrian government, has called this strike an act of aggression that violates international law. If the Trump administration does not articulate a clear strategy regarding this conflict, the ramifications could be adverse for global financial markets.

Also in respect to foreign policy, Trump is currently meeting with Chinese President Xi Jinping. Compounding the implications of this situation, the Chinese have sided with Russia and Syria in this conflict. In addition, the United States has wanted more assistance from China in dealing with their neighbor North Korea. North Korea has been testing their missile capabilities and has been able to launch them at increasingly further distances. This issue is arguably more concerning than the Syrian crisis as South Korea shares a peninsula with North Korea, which has nuclear weapons aspirations. We expect financial markets to carefully watch Trump’s foreign policies.

Another cue we highlighted in our most recent outlook was the potential impact of Fed policy on market returns. Today, in its monthly reading of the labor market, the government reported that the U.S. economy created only 98,000 new jobs in March, marking the smallest gain in nearly a year. This report is important to investors as it generally represents one of the first looks at the domestic economy in the prior month. While bad weather likely impacted this report to some extent, the overall result was disappointing and below the consensus forecast. Despite this disappointing report, investor reaction has been more positive than we anticipated. We suspect the equity markets are pointing to the fact that weakness in job growth may give the Federal Reserve reason to pause on its next increase in U.S. interest rates. 

Despite the potentially market-jarring overnight news surrounding U.S. military action in Syria and the consequential impact on Russian-American relations, along with the disappointing March jobs report, investor reaction has been somewhat positive. Not surprisingly after the missile strike news, equity market futures initially sold off sharply while safe-haven assets such as gold and Treasuries were positive. However, after the payroll report which increased the chances, albeit slightly, that the Fed may pause its interest rate normalization policy, U.S. equity markets opened flat to slightly higher. Investors are balancing these recent events with recent positive economic data and a hopefully optimistic beginning to the corporate earnings season. 

Recent events and data remind us that policy risks continue to persist. From a portfolio investing standpoint, we continue to recommend a bias to domestic securities as a core position. However, to mitigate unforeseen volatility, we believe it is prudent to retain an allocation to alternative investments that have low correlations to traditional core investments and remain well diversified among asset classes. From an implementation perspective, we prefer managers with flexible investment styles that provide the discretion and ability to move nimbly within their mandates in the face of this changing economic environment that we foresee. 

This report is created by Cetera Investment Management LLC 

About Cetera Investment Management® 

Cetera Investment Management LLC is an SEC-registered investment adviser owned by Cetera Financial Group. It provides investment research, portfolio and model management, and investment advice to its affiliated broker-dealers, dually registered broker-dealers and registered investment advisers.

About Cetera Financial Group®

Cetera Financial Group (Cetera) is a leading network of independent retail broker-dealers empowering the delivery of objective financial advice to individuals, families and company retirement plans across the country through trusted financial advisors and financial institutions. Cetera is the second-largest independent financial advisor network in the nation by a number of advisors, as well as a leading provider of retail services to the investment programs of banks and credit unions.

Through its multiple distinct firms, Cetera offers independent and institutions-based advisors the benefits of a large, established broker-dealer and registered investment adviser, while serving advisors and institutions in a way that is customized to their needs and aspirations. Advisor support resources offered through Cetera include award-winning wealth management and advisory platforms, comprehensive broker-dealer and registered investment adviser services, practice management support and innovative technology. For more information, visit

"Cetera" refers to the network of retail independent broker-dealers encompassing Cetera Advisors, Cetera Advisor Networks, Cetera Investment Services, marketed as Cetera Financial Institutions, Cetera Financial Specialists, First Allied Securities, Girard Securities, and Summit Brokerage Services.


The material contained in this document was authored by and is the property of Cetera Investment Management LLC. Cetera Investment Management provides investment management and advisory services to a number of programs sponsored by affiliated andnon-affiliated registered investment advisers. Your registered representative or investment adviser representative is not registered with Cetera Investment Management and did not take part in the creation of this material. He or she may not be able to offer Cetera Investment Management portfolio management services.

Nothing in this presentation should be construed as offering or disseminating specific investment, tax, or legal advice to any individual without the benefit of direct and specific consultation with an investment adviser representative authorized to offer Cetera Investment Management services.The information contained herein shall not constitute an offer or a solicitation of any services. Past performance is not a guarantee of future results.

For more information about Cetera Investment Management strategies and available advisory programs, please reference the Cetera Investment Management LLC Form ADV disclosure brochure and the disclosure brochure for the registered investment adviser your adviser is registered with. Please consult with your adviser for his or her specific firm registrations and programs available.

No independent analysis has been performed and the material should not be construed as investment advice. Investment decisions should not be based on this material since the information contained here is a singular update, and prudent investment decisions require the analysis of a much broader collection of facts and context. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The opinions expressed are as of the date published and may change without notice. Any forward-looking statements are based on assumptions, may not materialize, and are subject to revision. 

All economic and performance information is historical and not indicative of future results. The market indices discussed are unmanaged. Investors cannot directly invest in unmanaged indices. Please consult your financial advisor for more information.

Additional risks are associated with international investing, such as currency fluctuations, political and economic instability, and differences in accounting standards.

While diversification may help reduce volatility and risk, it does not guarantee future performance.

Investors should consider the investment objectives, risks and charges, and expenses of the fund carefully before investing. The prospectus contains this and other important information about the fund. Contact your registered representative or the issuing company to obtain a prospectus, which should be read carefully before investing or sending money.

Related Links