Daily Commentary

MarketMinder’s View: This is a durable goods orders-focused roundup of US economic data releases, which touches on today’s consumer confidence release (it inched up), home prices (which rose 2.4% y/y in August) and expectations for GDP. But most of the coverage does center on durable goods, the report’s components and derivative measures, like capital goods orders excluding defense and aircraft (core capital goods) and shipments of those core capital goods. The former is widely seen as a proxy for business investment, even if it isn’t complete. The latter feeds into GDP. Overall, total September durable goods orders rose 1.8% m/m, with shipments rising 0.9%. Core capital goods orders and shipments rose 0.5% and 1.2%, respectively. And this growth was broad-based. AI-related factors may lead (computers and equipment orders rose 3.9% m/m) but machinery, autos, aircraft, primary metals and fabricated metals all rose (among other categories). This bodes well not only for Q3 GDP, which stocks are likely looking well beyond at this point, but also for future growth. Business investment is a key swing factor in economic cycles. This suggests to us the US economy is well positioned ahead. As for the still-dour consumer confidence report, ditch it—it isn’t telling about much of anything at this point.

MarketMinder’s View: First, please note that we favor no party nor any politician, weighing elections and outcomes solely for their potential market effects. This weekend, Brazil’s incumbent President Luiz Inácio Lula da Silva (“Lula,” the left-wing candidate) surprised many, winning a fourth term in the country’s second-round presidential runoff. Markets had largely pre-priced victory by his right-wing opponent, Flávio Bolsonaro, largely on two factors: One, he surprisingly led the first-round vote earlier this month. No candidate had ever overcome that in a second round. Two, there were other right-wing candidates in the first round, which suggested to onlookers Bolsonaro would likely see his support coalesce further in this round. Didn’t happen. Many of them, it seems, stayed home, while Lula supporters turned out. The shock rippled through Brazilian markets Monday, which sold off roughly -13% on the day (per FactSet). This article argues that is a huge overreaction, as Lula can’t enact radical policy given right-wing parties hold a congressional majority. That is a good point. However, it is worth noting the fall largely reversed a boom higher after Bolsonaro’s first-round win. The full round trip is -6.7% for the MSCI Brazil, which isn’t gigantic. Look, what this vote did was extend the status quo. Will Lula pass all the bullish reforms people (rightly or wrongly) hoped Bolsonaro would? Probably not. Will he lead a fiscal free-for-all? Probably not. Reality, thus, won’t be as great as hoped or feared, which should allow other factors to influence Brazilian markets more. The outcome should zap uncertainty (especially with Bolsonaro dropping his legal challenge to the vote today and leaving for America), which is bullish. But that is about it.

MarketMinder’s View: This is spot on. Ahead of next week’s US midterm elections, here is a solid reminder that you are free to think whatever you want about political issues. But expected stock market returns aren’t solely about politics and they aren’t partisan at that. They hinge on myriad drivers like economic growth, sentiment and politics (largely, ability to legislate). Despite this fact, many do change their views of stocks solely by who wins an election. “What’s striking is how partisan people are when they predict stock returns. Republicans and Democrats alike flip their forecasts right after presidential elections. (Partisans also ‘maintain their polarized equity return perceptions’ after midterm elections, the researchers find.) If you’re a Republican who lightened up on stocks when Biden won, or a Democrat who sold stocks when Trump won, you let your political preferences shape your investments—and shot yourself in the foot. Stocks crashed in early 2020 under Trump and had a bad year in 2022 under Biden. But, overall, they did well under both presidents.”