Daily Commentary

MarketMinder’s View: The rationale behind the titular crisis? “A wave of baby boomer retirements will coincide with smaller cohorts of young people entering the labor market, resulting in a smaller overall workforce. That will lead to an ‘unprecedented situation’ where, for the first time in US economic history, more workers will leave the workforce than enter it, [University of Minnesota Professor Steven] Ruggles said.” The upshot: “With fewer people in the U.S. workforce, AI could end up as a necessary support for the economy. AI is likely to help ‘mitigate the impact of demographic changes on the labor market’ without harming workers, Ruggles said. AI may help firms boost productivity, allowing them to reap profits with which they'll be able to compensate the relatively few young workers they employ.” While we acknowledge this bullish outlook on AI is relatively rare in financial headlines these days and agree it could be a big help in fields with worker shortages, that doesn’t make the possibility actionable for investors today. Not only does the thesis rest on far-future demographic forecasts, which use straight-line math and are subject to major error, but like any other major technological shift, AI is likely to create winners and losers. Predicting which sectors, industries or groups of people will benefit down the line may be fine as a thought exercise for academics, but for investors, doing so can distract from what really matters: how economic reality aligns with expectations over the next 3 – 30 months. How AI will complement the labor force over the next few decades is beyond markets’ scope, and we think investors should couch that thinking accordingly.

MarketMinder’s View: Canada CPI hit 2.8% y/y in June, slowing from May’s 3.2% and below analysts’ expectations for 2.9%. And like other recent readings across the developed world, much of this cooldown was about global oil prices’ falling in the month—though that wasn’t the whole story. A closer look at the headline figure’s underlying data shows cooling prices for shelter, household items and furnishings, clothing and footwear and health and personal care products. These data further demonstrate investors have been fighting the last war on inflation. Their worries overlooked how the recent speed-up in prices across the developed world was likely fleeting as economies adapted to wartime disruptions. Now, the article notes oil prices have climbed again after a much-hyped “ceasefire” between the US and Iran collapsed, renewing uncertainty. But as we have seen this year, oil prices can fluctuate mightily over the short term on sentiment, so we caution against presuming more expensive oil is here to stay. The chatter here tells us sentiment is still cool toward Canada’s economy, another example of the relatively more dour sentiment outside America.

MarketMinder’s View: While long-term investors’ specific investing goals and objectives differ, we do think a risk most face is the possibility of outliving your money. This piece offers some useful high-level perspective on that front: “Many people underestimate how long retirement can last. If you stop working in your mid-60s, you might need your retirement savings to last another 20 to 30 years — or even longer.” Correct. While many presume their time horizon ends at retirement, it actually represents how long you need your money to work for you, which can mean your lifetime or longer, depending on your goals, circumstances and bequests. And even if your portfolio just needs to provide for your existing cash flow needs, you may still need growth to mitigate the risk of depletion. “Although stock values can fluctuate from year to year, they’ve historically outperformed inflation over the long run. And you need that growth so you're able to take regular portfolio withdrawals and adjust them upward as living costs rise. If you don't have at least some of your assets in stocks, you may need to limit your spending, which could impact your quality of life. And if your withdrawals keep outpacing your portfolio's growth significantly, over time, you could risk whittling your savings down to nothing.” Don’t lose sight of the bigger picture.