As geopolitical and policy uncertainty pick up, it can be tempting to react, but doing nothing may be the best course of action for now.

Global economic uncertainty has been increasing in the past month and shows no signs of abating. Contributing factors include mixed signals from the Federal Reserve, stalled China-U.S. trade talks and potentially destabilizing geopolitical events in Europe, Hong Kong, Iran, Argentina and Brazil. The Baker, Bloom & Davis U.S. Economic Policy Uncertainty Index, a barometer of perceived uncertainty, recently jumped to a three-year high.

These risks haven’t had a major impact on the S&P 500, the benchmark of the broader U.S. market, which is down 4% from July’s all-time high but remains up 17% for the year to date through August. While economic uncertainty can become self-fulfilling, leading to decreased business and consumer confidence, I think investors should sit tight for at least the next couple of months and wait for clarity. Below are key areas to watch:

  • Fed Policy: Investors seem to be confident that the Fed will continue to cut interest rates to counter a global slowdown. But the Fed issued some contradictory guidance about its plans when it cut rates in late July. If the Fed shows any signs of increased hawkishness, investors may be disappointed.

  • Trade friction: Investors are expecting an eventual trade deal with China, but negotiations are stalled. While the likelihood of a constructive pro-growth resolution in the next 12 months seems to be dwindling, any improvement would be welcome.

  • Currency moves: China’s renminbi (RMB) has depreciated by about 5% against other major global currencies, over the past three months, a deflationary move that contributes to the relative strength of the dollar, making business conditions tougher for U.S. exports and emerging markets, many of which export commodities and other goods that are dollar-denominated. More RMB depreciation would likely spark worries about global deflation.

  • Geopolitical risks: Investors are now contending with a litany of global events, including rising odds of a no-deal Brexit, political unrest in Hong Kong, a threat of sovereign default in Argentina, new rhetoric around Iranian sanctions, a collapse of Italy’s coalition government and increasing anxiety about the long-term costs of fires in Brazil’s Amazon rainforest. Adverse developments in any of these areas could have implications for currency, bond, credit and commodity markets.

These risks have contributed to an increase in market volatility and are clearly reflected in global currency, bond and commodities markets. So far, U.S. stocks have benefited from a “buy the dip” mentality, but a worsening of geopolitical events or increased economic uncertainty that dents U.S. consumer and corporate confidence and leads to slashed profit forecasts could break that pattern.

For now, I think it’s best for investors to consider holding the course for at least the next six-to-eight weeks and watch for signs that policy clarity is helping to stabilize confidence.