Daily Commentary

MarketMinder’s View: The titular implication isn’t as nefarious as it sounds. The Securities and Exchange Commission (SEC) approved several new changes to market rules, including one that “... will reduce the smallest increment for a stock-price quote from today’s one penny, to half a cent on popular stocks where there is evidence that bids and offers would appear at those narrower spreads. The new quote increments, commonly known as ‘ticks,’ will apply to stocks priced above $1, narrowing the spread between the best bid and offer.” To get a sense of the impact on the investment universe, “Last year, about 74% of share volume and half of dollar volume was in stocks with less than 1.5 cents between the best quoted bid and offer. That tight spread suggested that more investors would have traded at a narrower spread—in other words, trading liquidity in the stock was constrained by the tick sizes.” These types of changes happen every once in a while—back in August 2000, decimalization changes updated stock quotes priced in eighths, sixteenths and thirty-seconds of a dollar to pennies. It passed without much incident, but the (literally) incremental change helped compress bid-ask spreads—the difference between a stock’s buying and selling price—and improve liquidity, making it easier for investors to trade and lowering their costs. This isn’t scheduled to take effect until November 2025, but it is something to be aware of. Another interesting lesson to take away from this episode: These agreed-to changes are “tamer” versions of the original proposals from two years ago. The industry’s pushback led to the watered-down results—a reminder that initial ideas that grab headlines aren’t always going to make it to the finish line.

MarketMinder’s View: The housing market appears to be gradually thawing as mortgage rates have trended downward. “Single-family housing starts, which account for the bulk of homebuilding, surged 15.8% to a seasonally adjusted annual rate of 992,000 units last month, the Commerce Department’s Census Bureau said. Data for July was revised higher to show starts at a rate of 857,000 units instead of the previously reported 851,000 pace. Single-family home building had declined for five straight months after a surge in mortgage rates in spring weighed on home sales, resulting in excess supply of newly built houses. Mortgage rates have since retreated to 1-1/2-year lows.” As this article relates, easing borrowing costs may bring more existing homes to the market, which may influence future construction. Overall, though, we see housing markets improving as inventories (both new and existing) climb to meet demand—and prices. A couple of investor takeaways from this: First, residential fixed investment may start to pick up, though Q3 projections from the Atlanta Fed’s GDPNow model still show it continuing to detract slightly. That didn’t stop GDP growth in Q2, but residential investment flipping to a slight tailwind from a modest headwind could help alleviate a long-running economic worry. Second, ongoing residential construction—particularly for multifamily units—suggests rising supply will keep a lid on rents, which are a big component of CPI. While disinflation is a well-known trend at this point, price pressures look set to continue easing, helping assuage lingering inflation uncertainty.

MarketMinder’s View: Please note, MarketMinder doesn’t make individual security recommendations. Rather, our focus is on a broader theme, as this piece makes an interesting observation: “India’s share of the free-float, ‘investable’, version of the MSCI All-Country World index, which tracks almost all global stocks that can be bought on the open market, rose to 2.33 per cent this month, eclipsing China’s 2.06 per cent. The shift makes India the sixth-largest weighting in an index that is dominated by US companies. It also reflects demand in India’s red-hot stock market, which is also unlocking shares for global investors to buy just as the Chinese economy slumps and fund managers dump China-related stocks.” We think this highlights a few points for investors. One, Emerging Markets (EM)—even the biggest like India and China—are relatively tiny compared to developed market (DM) stocks, which dominate global market capitalization. While these countries may loom large in the global economy—and in the headlines—their overall market influence remains marginal. Two, leadership rotates—within EM and between EM and DM, among myriad other ways to slice and dice indexes. This is why it helps to have a broad market perspective—and diversify. No one segment will lead for all time. Three, investors can’t buy past performance. Although India overtaking China is notable, past isn’t prolog—see previous point. As the sentiment in the quote suggests, elevated expectations in India—and depressed ones in China—indicate a higher bar for reality to clear in the former than the latter, and surprise is what moves stocks most. Not that we are bearish on India, but keeping measured expectations and buying for the right reasons is crucial.