Well, you’ve survived the latest government scare to your portfolio. What would investors focus on if not these periodic “this could be the big one” political cliff-hangers? Hard to remember a time when government policy decisions were only an occasional interruption to the stuff the investment community was typically focused on. But there I go sounding like an old man again.

Now that we’ve got the political issues put to rest for a short while, what are the other factors driving the market? Peter Boockvar offers a solid summary of the bullish and bearish cases.

Here’s my summary:

Bullish — The Fed is keeping monetary fire hose wide open.

Bearish — Everything else.

In all seriousness though, even if that was the only bullish case to be made, it’s a pretty solid one. Bull markets generally don’t end until monetary policy begins to tighten. And we’ve had two very clear indicators that monetary policy isn’t going to tighten any time soon.

Exhibit A: Janet Yellen, one of the most vocal proponents of QE and dovish monetary policy, being named the new chair of the Fed.

Exhibit B: the failure to begin QE tapering with even a token gesture last month, despite the fact that the markets couldn’t have been more receptive to such a move.

And more importantly, it’s worth remembering that the market rarely does what the experts expect anyway. Think back a year ago. The dominant, all-consuming topic of the day was the fiscal cliff that we were about to go over January 1. The combination of automatic tax increases and spending cuts was supposedly going to be the ruin of us all.

Even those who believed the fiscal cliff would somehow fail to return us to a medieval barter economy were rightfully concerned about the fact that the economy seemed to be sputtering — at best. The well-respected Economic Cycle Research Institute was actually saying the economy had already slipped into recession in the 3rd quarter of 2012 (oops). The best case scenario seemed to be a weak start to 2013, with maybe a stronger second half. And, of course, November’s elections added to the bad vibe many on the right were already feeling about the year ahead (reinforcing the case to not let politics influence your investing decisions).

So much for that! The stock market has roared ever since. Our Fund Upgrading strategy is up 26.9% over the past year (through 9/30). It paid handsomely to stick with stocks over the past year, despite the uncertainty.

Even when the bearish case seems compelling, it usually pays to stick with your plan and force the market to dictate your course adjustment (and by that, I mean pre-determined changes within your plan, like a Dynamic Asset Allocation strategy asset class change). Otherwise, you’ll get talked out of investing again and again. More often than not, that usually turns out to be a mistake.

Mark Biller

By Mark Biller

Mark Biller is Sound Mind Investing’s Executive Editor. His writings on a broad range of financial topics have been featured in a variety of national print and electronic media, and he has appeared as a financial commentator for various national and local radio programs. Mark is also the Senior Portfolio Manager of the SMI Funds.

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