Daily Commentary

MarketMinder’s View: Please note our interest here is only in the titular discussion; the news roundup following it is beyond our scope. We highlight this because it encapsulates the market fears currently swirling. (Also, as it mentions specific companies, we remind readers MarketMinder doesn’t make individual security recommendations.) So what is supposedly eating investors? According to the article: 1) “the return of overt hostility in the Middle East,” 2) potential IPO indigestion and 3) “... the most important factor driving market nerves is probably also the most ‘routine’ one. All else being equal, markets don’t like it when interest rates go up.” Although all three developments can weigh on sentiment, only one is a fundamental factor we think is worth watching: the second. IPO hype—and an equity supply glut—are certainly some things to watch for since areas where reality may underwhelm 3 to 30 months ahead can face headwinds. That they are centered in AI and Tech highlight the high sentiment confronting these stocks today. But outside those categories, expectations are far more subdued—there is plenty of room for positive surprise to drive the global bull market, particularly outside America. Beyond this, the Iran war may ding sentiment occasionally but lacks much punch. From markets’ perspective, regional wars aren’t bear market fuel and the resumption of Persian Gulf hostilities has loomed for months—it isn’t shocking—and anticipation is mitigation. Last, but not least, rising rates’ threat is an old, “routine” myth that has never held water. Simply, rates don’t drive stocks, which move on the gap between earnings’ fundamentals and how well markets have priced them. Rates hardly enter into that equation. Then, from a higher level, ask: When has stocks’ big picture backdrop not looked “messy”? From this vantage point, the wall of worry looks high—reason enough to remain bullish.

MarketMinder’s View: This article provides an in-depth look into the Social Security Trustees’ annual report, which warns the Old-Age and Survivors Insurance Trust Fund will now become “insolvent” in 2032, a year earlier than expected, “triggering automatic benefit cuts of 22 percent, as mandated under current law.” In doing so, however, these shifting projections inadvertently show why you shouldn’t take them to the bank. The report gives three reasons for moving forward Social Security’s insolvency date: 1) The One Big Beautiful Bill Act “reduced the program’s revenues,” 2) immigration restrictions’ creating “a smaller workforce and lower payroll tax revenues” and 3) “Lower projected fertility rates.” That may sound daunting, but here is the thing: Those variables aren’t set in stone. Legislation changes—indeed, that is why Social Security didn’t go insolvent in 1983. Congress tweaked taxes and benefits slightly, kicking the can all the way to *checks notes* 2032(-ish). When constituents’ and voters’ livelihoods are affected, there is every reason—and all the incentive—for Congress to act again. The same goes for immigration policy, which blows with the political wind. Lastly, fertility may be waning, but longevity is rising—alongside seniors’ workforce participation. Straight-line demographic projections oversimplify the many moving parts that confound long-term forecasts. All this to say: Reports of Social Security’s insolvency are greatly exaggerated.

MarketMinder’s View: China’s May exports skyrocketed 19.4% y/y thanks to the global AI investment boom (semiconductor exports surged 110% y/y). External demand rose across the board, as Chinese shipments rose to America (35% y/y), the Association of Southeast Asian Nations (24%) and the European Union (7.6%). Alongside strong imports (27% y/y), the headline numbers are indeed robust. That said, this coverage points out a couple caveats worth considering, namely, the disconnect between trade values and volumes. “Almost none of May’s increase came from higher volumes of shipments, but rather from higher prices for semiconductors amid a continuing shortage of memory chips. In volume terms, semiconductor exports rose by just 6% in May from the year-earlier period, said Abhijit Surya, an economist at Capital Economics. China’s rare-earth exports more than tripled in dollar terms, soaring 237% in May from a year earlier, according to data from the customs bureau. That reflected skyrocketing prices for the valued inputs into high-tech products, since rare-earth exports actually fell in volume terms from a year earlier, the data showed.” As the article also notes, though Chinese imports of crude oil rose on a value basis (due to higher prices), they fell -29% y/y in volume terms. Volumes better represent how much “stuff” is moving between partners whereas values reflect prices (which other variables may affect, including inflation). Now, demand out of the world’s second-largest economy still looks solid, and the country stocked up on oil in the months before the Iran war, so a slowdown in volumes should be expected. But trade likely isn’t as gangbusters as May’s headline results indicate—worth keeping in mind when forming expectations.