Daily Commentary

MarketMinder’s View: Some politics here, so please note MarketMinder is nonpartisan, assessing developments solely for their potential economic and/or market effects. Australia’s Intergenerational Report discussed here reportedly foretells “far-reaching” economic implications tied to an aging population hitting around the 2060s, when deaths are projected to outpace births and the graying population stresses the country’s fiscal health due to benefit and health expenditures. We won’t try to predict Australia’s demographics ahead, but these projections’ potential negatives aren’t inevitable. For one, these estimates assume today’s trends and policy are concrete, which is unlikely. Politicians could extend the country’s preservation or pension ages (when Australians can access public benefits), easing the supposed fiscal pressure here. Relatedly, the report weighs these trends as economic threats over the next forty years. This massive timeline lies well beyond the 3 – 30 month window stocks care about most. Far too much can change between then and now. Lastly, these long-term projections put far too much weight into human capital’s contribution to economic growth. Technological innovation and financial capital also matter and can help drive economic expansion even as a population ages.

MarketMinder’s View: Rounding out this week’s central bank action, Japan hiked a quarter point Friday, a move we find sensible … but not for the reasons described here. Policymakers (and the article) dwell on Japan’s inflation risks, citing high wholesale inflation as a sign of consumer price inflation to come. We doubt it, considering wholesale and consumer prices tend to move in tandem, and retailers can’t always pass higher costs to consumers. Japan’s economy is growing slowly, with only modest consumer demand and money supply growth, suggesting businesses lack much power to pass on costs. Yet unlike the Fed’s hike, we still don’t think the move itself is an error, because in Japan, rate hikes are part of a return to normal after decades of monetary experimentation. Lifting rates should also help the yen, relieving some of the pain from high energy costs (Japan is a net energy importer, and energy is priced in US dollars, so a weak yen raises costs). Long rates are also high enough that a rate hike doesn’t much flatten the yield curve, so it shouldn’t choke growth. Japanese stocks have done quite nicely during monetary policy normalization.

MarketMinder’s View: Just an interesting little nugget showing sentiment, while noticeably warmer this year, isn’t in full-blown euphoria. While there are pockets of excessive cheer (see: leveraged exchange-traded funds, prediction markets, AI-related IPOs), investors broadly aren’t throwing caution to the wind in the expectation stocks will rise forever. Instead, the American Association of Individual Investors’ (AAII’s) weekly survey revealed 53.3% of respondents identified as bearish, with just 28.8% bullish. That is the lowest bull tally in a year, and “the spread between the number of bulls and bears in the market has fallen to -24.5%, which is ‘unusually low’ and below its historical average of 6.5% for the ninth consecutive week.” We won’t go so far as to call this a “contrarian” signal, as this article suggests, as it is all widely known, subject to short-term noise tied to market conditions and probably priced in. But the reading, coupled with respondents’ higher-than-normal cash holdings, shows some skepticism lingers, and skepticism means more wall of worry for stocks to climb.