Daily Commentary

MarketMinder’s View: There is a whole lot of “it’s different this time” illogic in this piece documenting the University of Michigan’s Consumer Sentiment gauge hitting a record low, coupled with a skosh of “how will sentiment ever improve?” And it all seems very bullish to us. To summarize, the gauge hit 48.2 in May, the lowest reading since records start in 1952. Yes, consumers feel the economy is worse now than in 2008/2009. Or 2020. Or 2022. Or the 1970s, when inflation ran far hotter combined with a deep mid-decade recession. Pick your date. How folks feel now is worse. Some claim this pessimism is tied to high prices, after the hot inflation from 2022 and 2023 drove prices up quickly or the recent rise in gasoline. Others say it is the rolling “crises” like tariffs, war and inflation, and that consumers need a break from headline churn to feel better. We can understand frustrations with elevated prices, and today’s gas prices may pour salt in that wound. But all this misses a key driver of low sentiment: partisanship, which UMich data show has long skewed reads downward. Above all else though, and callous as this may seem, stocks couldn’t give a whit about what might make Americans feel better about the economy. As noted herein, “… despite what they tell pollsters, consumers, broadly speaking, have continued to open their wallets with abandon. Uber and Walt Disney last week reported strong customer spending, defying fears that shoppers would tighten their purse strings in response to price increases.” A separate report today showed US retail sales rose in April, too. This article couches consumers saying one thing while doing another as new. It isn’t. Sentiment has never been a reliable predictor of consumer behavior. It wasn’t in the early 2010s, when sour sentiment coincided with the strong start to history’s longest bull market. Or the early 1990s. Or the early 1980s. The “vibes” followed economic trends—they didn’t lead them—just as “vibes” today follow high prices from 2022’s inflation. People fight the last war. It is human. But per FactSet, US GDP, US ISM and S&P Global Manufacturing and Services purchasing managers’ indexes (and new orders), retail sales, projected corporate profits and revenues all point to growth. Only these consumer sentiment readings are so deeply dour. Should that continue, it is a pretty bullish disconnect and a strong backdrop for stocks.

MarketMinder’s View: As US President Donald Trump and Chinese President Xi Jinping continue their summit, there is ample chatter and speculation about what agreements might emerge. One item potentially on the list is a trade deal similar to those inked with Japan, South Korea and others, that improves market access on both sides in exchange for concessions including Chinese commitments to boost US investments. This article explores some of the potential complications around this, including long-running national security concerns and Americans’ general skepticism about Chinese projects here, which politicians from both parties have often exploited (which reminds us, we are politically agnostic and explore developments for their potential economic and market implications only). It ends with the note that Trump officials are downplaying the likelihood of a large investment package. For stocks, we doubt any of this matters either way. These investment commitments tend to be symbolic, often reflecting previously announced projects and things companies were going to do anyway as they reinvest US export revenues—a natural byproduct of America running a trade deficit with any country. Chinese companies have always faced national security vetting and other friction when planning projects here, so nothing much is changing. These investments also tend to move slowly, not just because of the politics, but also because of all the permitting and bureaucratic processes that throw sand in the gears. It can take years to progress from a planned factory to a completed, active facility (if you are into learning about this sort of thing, look up the story of a well-known Chinese tech manufacturer trying to open a campus in Mount Pleasant, WI, which we note as an illustrative example with the reminder that we don’t make individual security recommendations). All of it tends to be too slow-moving and well-known to boost business investment in a way that would deliver a surprise economic acceleration and turbocharge the bull market. Foreign investments in the US are pretty normal, regardless of whether they make headlines, and markets know the drill.

MarketMinder’s View: Since we don’t often get a new Fed head, the occasion can seem momentous. In reality, though, it is rarely ever a gamechanger for markets. Why? As explained in this long primer on how Fed meetings work: “Interest rate targets are set not by the Fed chair, but by the Federal Open Market Committee, which meets eight times a year. Technically, the chair has just one vote out of the committee’s 12 members. Seven of the committee’s voting members—the Fed governors—are directly nominated by the president, and they serve for 14-year terms, giving a single administration limited power over the Fed’s makeup. Currently, three Fed governors are Trump appointees, including Warsh. Three others are Biden appointees, and the seventh is Powell, who was first named to the Fed board during the Obama administration and made chair during the first Trump administration. The FOMC’s other five seats belong to the president of the New York Federal Reserve and a rotating cast of four of the 11 other regional Fed bank chiefs. The White House has very little control over the regional Fed presidents, who are hired to five-year terms by the board of each regional bank and then approved by the Fed’s Board of Governors. In other words, at least for the time being, just a quarter of the interest rate-setting committee’s members are direct Trump appointees. There’s also no guarantee that the Trump appointees will side with the president. After all, Powell was appointed chair by Mr. Trump.” Given this rotating cast of characters, it is anyone’s guess how they will decide—new Fed head or not—and that is even before getting into how the Fed’s market sway is overrated anyway. For more on the new Fed head’s implications (or lack thereof), please see last month’s commentary, “The Fed Is Close to a New Head.”