Daily Commentary

MarketMinder’s View: With the S&P 500 hitting new highs yesterday, many (like this article) noticed the record occurred despite rising Treasury yields and $100 oil. You could reach the sensible conclusion that rate moves and energy prices are false fears—they don’t drive stocks. But the piece makes the convoluted case “the market is running on one engine: a familiar cast of tech companies that are building out (and benefiting from) the AI revolution.” You see, “Big tech companies ... have been traditionally known as cash-rich and relatively debt-free companies that can keep growing even when borrowing costs rise.” (With specific companies mentioned, please note MarketMinder doesn’t make individual security recommendations, as our interest here is only on the broader investment theme.) Outside these so-called “hyperscalers,” the argument goes, the market is suffering. But is that so? The S&P 500 Equal Weighted Index is up 12.3% year to date through yesterday’s close (per FactSet). This lags the cap-weighted S&P 500’s 15.2% but not hugely. Cut through the clutter. Stocks move most on surprise. What about rising yields, oil and AI is shocking here? These stories can drive short-term sentiment swings, but that says nothing about what stocks will do moving forward. Look ahead, and dourer non-Tech sentiment suggests more room for upside surprise.

MarketMinder’s View: While the “trade balance” isn’t a useful concept for investment purposes, we point this out for a simple reason: Tariffs aren’t working as advertised. First, the implication America’s trade deficit—imports topping exports—means trade is “on track to again subtract from economic growth in the third quarter,” shows why a focus on “balanced” trade is misguided. Imports count positively as consumption in GDP but are then netted out so it reflects only domestic output—the “D” in GDP. Mathematically, the effect is neutral. Then too, tariffs, which the Trump administration bills as a way to close the “deficit,” make imports more expensive. But as the data show, that hasn’t stopped people buying more abroad than ever before. So while not great economically, tariffs also aren’t game ending. “Domestic demand increased at its fastest pace in more than 3-1/2 years in the second quarter, reflecting robust consumer spending and business spending on equipment, mostly related to AI. The trend appears to have spilled over into the third quarter, with data last month showing strong consumer spending in August as well as orders and shipments of nondefense capital goods, excluding aircraft.” For more on why the global trade picture is better than perceived despite tariffs, please see last week’s commentary, “A World Trade Check-In Starring Southeast Asia.”

MarketMinder’s View: Will China slowly, slowly, then all at once dethrone the dollar? Many think so, as this short article highlights with a chart of China’s Cross-Border Interbank System settlement activity. Yet it also notes that “the greenback still underpins most global trade and foreign-exchange transactions.” Bucking the dollar likely isn’t happening any time soon. Still, the piece frets more are signing up for yuan payments, and some hypothetical crisis could drive greater adoption. Possibly. But this misses a crucial point: The Chinese yuan isn’t freely convertible, greatly limiting its global reserve currency appeal. Of course, China could open up its capital account. But until and unless that happens, don’t hold your breath over the dollar’s demise.