By Ben Carlson, A Wealth of Common Sense, 3/18/2024
MarketMinder’s View: Here is a good look at how “Cash balances are high. Stock prices are high. Home equity has never been higher. Yields are at the highest levels they’ve been in well over a decade. Investors, savers and consumers alike are in good shape.” However, we quibble with the implied logic here that because cash is pouring into money market funds and households are sitting on historically high heaploads (the technical term) of cash—on either end of the wealth spectrum—that this somehow means markets aren’t complacent or “flashing red” right now. While we happen to agree that sentiment still seems broadly skeptical, perhaps verging on optimism, alleged cash “on the sidelines” can’t tell you that, as we discussed last week. For one, the charts here make a strong case that the rush to money markets came not from stocks, but from bank accounts and other forms of cash. Two, saying stocks’ rise is justified because Americans are wealthier strikes us as rather circular. Stocks are part of that wealth. Household balance sheets are useful to look at when assessing claims about consumer health, the potential for high defaults on auto and other consumer loans and things in that vein. But they don’t reveal whether stocks’ rise is in line with fundamentals, and they don’t tell you where stocks will go next.
Bond Vigilantes Snooze as Treasury Market Shrugs Off Vast US Borrowing
By Kate Duguid, Financial Times, 3/18/2024
MarketMinder’s View: As this article notes, if US government spending is “out of control,” the Treasury market—which has most to lose if it was—isn’t showing it. In our view, this is fundamentally because there is next to no chance investors won’t be paid back with interest. This doesn’t mean sentiment swings otherwise won’t scare on occasion. For example, “Last autumn, Treasury yields hit a 16-year high. While that was driven by the Fed’s ‘higher for longer’ message on rates, some investors said it was exacerbated by the sheer weight of issuance, after the US Treasury said in August it would increase the size of its debt auctions.” But with that elevated issuance since, Treasury yields have fallen, undercutting the belief it would overwhelm demand. Instead, demand has soared, with buyers eager to lock in high rates. Over the longer run, markets are a weighing machine, and the main factors for bonds are issuers’ creditworthiness and inflation expectations. In our view, with America’s finances rock solid and inflation continuing to ease, it is no surprise Treasury yields aren’t barking.
China Kicks off the Year on Strong Note as Retail, Industrial Data Tops Expectations
By Evelyn Cheng, CNBC, 3/18/2024
MarketMinder’s View: Newly released January and February Chinese economic data—combined to control for shifting Lunar New Year holidays—beat across the board today, with retail sales up 5.5% y/y, industrial production 7% higher and fixed-asset investment rising 4.2%. Yet reactions here to ongoing growth in the world’s second-largest economy remain cautious, with most focus (as in this article) on the continued fallout in property markets. For investors, we see this as good news. China’s chugging along continues to quietly contribute to global growth despite fears otherwise, helping reality exceed expectations and propel stocks further up the wall of worry.
By Ben Carlson, A Wealth of Common Sense, 3/18/2024
MarketMinder’s View: Here is a good look at how “Cash balances are high. Stock prices are high. Home equity has never been higher. Yields are at the highest levels they’ve been in well over a decade. Investors, savers and consumers alike are in good shape.” However, we quibble with the implied logic here that because cash is pouring into money market funds and households are sitting on historically high heaploads (the technical term) of cash—on either end of the wealth spectrum—that this somehow means markets aren’t complacent or “flashing red” right now. While we happen to agree that sentiment still seems broadly skeptical, perhaps verging on optimism, alleged cash “on the sidelines” can’t tell you that, as we discussed last week. For one, the charts here make a strong case that the rush to money markets came not from stocks, but from bank accounts and other forms of cash. Two, saying stocks’ rise is justified because Americans are wealthier strikes us as rather circular. Stocks are part of that wealth. Household balance sheets are useful to look at when assessing claims about consumer health, the potential for high defaults on auto and other consumer loans and things in that vein. But they don’t reveal whether stocks’ rise is in line with fundamentals, and they don’t tell you where stocks will go next.
Bond Vigilantes Snooze as Treasury Market Shrugs Off Vast US Borrowing
By Kate Duguid, Financial Times, 3/18/2024
MarketMinder’s View: As this article notes, if US government spending is “out of control,” the Treasury market—which has most to lose if it was—isn’t showing it. In our view, this is fundamentally because there is next to no chance investors won’t be paid back with interest. This doesn’t mean sentiment swings otherwise won’t scare on occasion. For example, “Last autumn, Treasury yields hit a 16-year high. While that was driven by the Fed’s ‘higher for longer’ message on rates, some investors said it was exacerbated by the sheer weight of issuance, after the US Treasury said in August it would increase the size of its debt auctions.” But with that elevated issuance since, Treasury yields have fallen, undercutting the belief it would overwhelm demand. Instead, demand has soared, with buyers eager to lock in high rates. Over the longer run, markets are a weighing machine, and the main factors for bonds are issuers’ creditworthiness and inflation expectations. In our view, with America’s finances rock solid and inflation continuing to ease, it is no surprise Treasury yields aren’t barking.
China Kicks off the Year on Strong Note as Retail, Industrial Data Tops Expectations
By Evelyn Cheng, CNBC, 3/18/2024
MarketMinder’s View: Newly released January and February Chinese economic data—combined to control for shifting Lunar New Year holidays—beat across the board today, with retail sales up 5.5% y/y, industrial production 7% higher and fixed-asset investment rising 4.2%. Yet reactions here to ongoing growth in the world’s second-largest economy remain cautious, with most focus (as in this article) on the continued fallout in property markets. For investors, we see this as good news. China’s chugging along continues to quietly contribute to global growth despite fears otherwise, helping reality exceed expectations and propel stocks further up the wall of worry.