Interest rates, inflation, politics & war are all weighing on investors’ confidence right now.

As always, some investors are wary about the market outlook in Canada and the U.S., for various reasons. One is today’s seemingly high cost of the U.S. dollar. This, though, is more like a short-term fluctuation than a serious risk.

Taking a long-term perspective: compared to the Canadian dollar, the U.S. dollar is trading very roughly in the middle third of the range it has stayed in for the past half century. It’s hard to think of that price range as “too high.” It’s more like “about average.”

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Recent outbreaks of inflation and rising interest rates have weighed on the profits of many companies. This has undermined the confidence of some investors, particularly baby boomers. They remember the last big bouts of inflation and rising interest rates in the 1970s and 1980s.

However, demographics played a big role back then. Baby boomers were in the early years of adulthood, launching careers and families and borrowing heavily to buy houses.

Today, many baby boomers have retired. Many more will do so in the next few years. Retired baby boomers may invest much more cautiously than they did back in their working years. They may sell off long-time stock holdings and switch into fixed-return investments, for the higher yields now available.

We have emerged from a long period of unusually low inflation and interest rates. I doubt that we are going back into 1970s or 1980s levels of inflation or interest rates. The recent surge in inflation and interest rates may be due to politics. These surges may have been normal fluctuations than last a few years, rather than the effects of demographic hurdles that can go on for decades. Still, this rattles investor’s confidence.

Presidents Biden and Trump, the two likeliest candidates in next year’s U.S. presidential election, are much older than past presidents. This leaves them vulnerable to unpredictable health and cognitive issues. Worse, both are suspected of disreputable if not criminal activity, especially by supporters of the opposing party. All this undermines investor’s confidence.

Of course, it’s reassuring that a younger generation will take over both parties in the next few years. We just don’t know if they’ll be better or worse than today’s old-timers.

War weighs on the confidence of investors

Following the Hamas terrorist attack on October 7, some investors became concerned about war. They worry that the Axis powers of World War II are slowly being reincarnated in the bodies of China, Russia and Iran, along with bit players such as North Korea and Hamas, plus organized hordes of illegal immigrants and criminals streaming across the southern U.S. border.

However, Hamas thought its vicious massacre would energize its neighbouring Islamic countries and spur them to join in its attack on Israel.

This, though, was pre-Abraham Accords thinking. So far, it doesn’t seem to have worked out that way. Iran, China and Russia have also toned down their threats against the U.S. (although Iran is backing attacks by its proxies against U.S. bases in the Mideast).

Maybe they’re all waiting to see how the 2024 U.S. election turns out.

Following the 2024 election, U.S. foreign policy may shift, but not by all that much. The U.S. is likely to remain reluctant to invade any foreign countries, except perhaps to assist fellow NATO members if they are under attack.

No matter how the election turns out, the U.S. is likely to remain generous in its gifts of weapons and military supplies to democracies and NATO members that are under attack by dictators or authoritarian regimes.

Meanwhile, whenever you’re making investing decisions, use our three-part Successful Investor approach to pick the best stocks on the market:

• Hold mostly high-quality, dividend-paying stocks.
• Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
• Downplay or stay out of stocks in the broker/media limelight.

How do you think war weighs on your investors’ confidence?