Daily Commentary

MarketMinder’s View: The University of Michigan’s Survey of Consumers hit a preliminary 48.2 in May, below analysts’ expectations and down -3.2% from April’s reading. As the title suggests, gas prices’ recent rise was a key point of worry, with one-third of respondents mentioning prices at the pump. Interestingly, this gloomier reading occurred alongside a rising stock market, solid economic data and continued rumblings of a diplomatic end to the war, suggesting sentiment is slow to catch up. That isn’t terribly surprising, especially when you consider the war’s most obvious effect on everyday life, higher gasoline prices, persists. To us, it is all another batch of evidence showing consumer sentiment reflects headlines and how people feel in a moment, usually influenced by the very recent past. It isn’t predictive, telling you little about how people will actually behave. The last few years’ economic and consumption growth alongside historically weak sentiment reads shows you that in action.

MarketMinder’s View: This long-ish piece backs into its thesis, which you will find in the last sentence: While stocks are rallying on optimism, bonds are stumbling on pessimism, and woe betide equity investors if stocks start seeing what bonds see. It asserts US stocks are up tied to America’s economic resilience amid wartime disruptions and robust corporate earnings growth (sensible, in our view), while bonds are grappling with stagflation fears as investors fear higher oil prices lifting inflation and hitting economic growth. Or as the article sums it up: “Fixed-income markets tend to focus on risks more than on the potential for windfall profits that the stock market cherishes.” We think this gets it wrong. Stocks and bonds move on supply and demand, but they have different demand drivers. Stocks largely move on expected earnings growth over the next 3 – 30 months, with political, economic and sentiment drivers factoring in. Bond demand tends to sway with inflation expectations (which affect interest rates), perceptions of credit risk and the like. Bonds are not more risk-focused. They just weigh different things. And, crucially, both are subject to short-term volatility, which we think this piece reads entirely too much into. But the fundamental error is presuming bonds could somehow price things stocks fail to. No liquid market is more efficient than another. Both discount widely known information equally rapidly, and the investor pools often overlap. Stocks don’t predict bonds, and bonds don’t predict stocks.

MarketMinder’s View: Here is something worth watching: “In a 2-1 ruling, the panel of judges at the US Court of International Trade found the [Trump] administration lacked the justification to enact tariffs under a 1974 trade law known as Section 122. The administration began to enact these tariffs after a Supreme Court ruling earlier this year rendered its most sweeping levies illegal.” The court ruled US trade officials must stop collecting tariffs from the case’s plaintiffs and refund their prior payments, but perhaps that will be stayed during the appeals process as the ruling against the Liberation Day tariffs was. Either way, we doubt it makes much difference, and as with the prior ruling, it doesn’t mean tariffs are going away. These tariffs were already set to expire July 24 absent Congress authorizing an extension, and the administration was already working on replacement tariffs via other, more established (and legally tested) means. So if you are the importer of record for any goods subject to these tariffs, just consider this an FYI that you may eventually be able to claim a refund if the ruling is upheld and extended broadly. But that is about the only significance here. More broadly, markets simply haven’t reacted much to “big” tariff news since Liberation Day. These days, they know the global economy can adapt to tariffs’ added costs complications. Q1 GDP confirmed as much, showing imports bouncing as stockpiles ran low and businesses unleashed pent-up demand. So while we still think tariffs are economic negatives, stocks and the economy seem over them.