For those who remember the portfolio carnage during the Great Recession, fear lurks in the background of their investment decisions today. For sure the political backdrop has been front and center, but so far most of the developments have not moved the markets and volatility has remained lower than one might expect despite wide intraday swings.

Consumer sentiment, according to a survey by the University of Michigan, is at 99.7, the second-highest number in 20 years. Remember that consumer spending accounts for 70 percent of the U.S. economy, so their optimism is key to the future. The tax reform bill has put more funds in their wallets each payday. Consumers know the economy keeps adding jobs, even if wages are not rising.

Despite what you hear on the financial talk shows, consumers are not expecting much of an increase in inflation over the next five years. On the other side of the equation, investors fear higher interest rates.

The Federal Reserve is focused on raising rates at a pace that will accommodate normalizing interest rates but that is not so fast that it will crimp economic growth. Rates should not become a problem until the Fed's funds rate rises to about 3 percent, twice its current level, or until long rates fall below short rates.

More than rates, however, investors should focus their attention on the Fed’s moves to shrink its balance sheet to more normal levels from the $4.5 trillion it reached after years of Quantitative Easing after the Great Recession. Over the last year, the Fed has begun selling off $6 billion in Treasuries and $4 billion in mortgage-backed securities each month. Those numbers will rise every three months this year until they reach $30 billion of Treasuries and $20 billion of mortgage-backed securities per month. It will still take years to get the number down to $2 trillion, the stated goal.

What could disrupt consumer optimism? Three items are on my radar:

1. Political turmoil: Last week, Gary Cohn quit as chairman of the Council of Economic Advisors over his opposition to President Trump's tariff proposals. The market dropped for a day and then resumed its recovery from January's 10 percent correction. This week, Secretary of State Rex Tillerson was fired after months of denials that he was on the way out. Initially, the markets rose.

2. A mistake by the Fed and its new chairman. Or excessive debt issuance by Uncle Sam.

3. A disruption of global economic growth. Tariffs could cause this. Or a dramatic protectionist move away from the world's global interconnections.

Earnings are the best salve for investors and reaffirm their confidence in the stocks they hold. Most companies reported great earnings for the December quarter and are looking forward with optimism. So far, the scale is still tipped toward growth, and consumers are optimistic.

Joan Lappin CFA has been called an “investment guru” by Business Week and a “top manager” by The Wall Street Journal. The Sarasota resident founded Gramercy Capital Management, a registered investment adviser, in 1986. Email her at