Daily Commentary

MarketMinder’s View: This article drives home a simple but critical point for long-term investors: Avoiding stocks because of their short-term volatility can leave you with a retirement savings shortfall. The article illustrates this with a hypothetical, illustrative example showing the power of compound growth. “For example, if you’d have invested $10,000 in the S&P 500 in 2006, by 2026, your portfolio would be worth around $88,000. Because of inflation, you would need $16,600 today to have as much buying power as $10,000 in 2006, which shows how far ahead you’d be with that stock portfolio, despite the market plummeting several times during that 20-year span. Given that typical savings account rates were near-zero for the bulk of that period, the same sum of money put into a savings account would not be able to match inflation.” The challenge for those with near-term cashflow requirements is making sure those are covered in the meantime. We agree estimating spending needs is key for money management, and keeping money you need in the near future out of more volatile securities may be sensible for some folks, depending on their overall situation. But we don’t think one-size-fits-all rules like keeping five years’ worth of planned withdrawals in cash are necessarily wise for everyone given the opportunity costs and other financial considerations. A better way: Maintain an asset allocation (mix of stocks, bonds and cash) that suits your financial goals and cash flow needs for your time horizon and comfort with volatility. Some bond exposure, for instance, may fit your circumstances more, dampening stocks’ short-term volatility while providing greater total returns (over inflation) than cash. Given everyone’s unique situation, cookie-cutter solutions are rarely optimal.

MarketMinder’s View: September Japanese exports are additional evidence of global growth chugging along. “The value of exports rose 16.7% from a year earlier, the Finance Ministry reported Wednesday. That missed economists’ median forecast of a 21.3% increase. Exports have risen for 13 straight months. ... The gain in exports highlighted ongoing demand related to artificial intelligence. Shipments of semiconductors and chip-making equipment surged 49.4% and 43.9%, respectively. Car exports gained 15.1%. By destination, shipments to the US gained 22.9%. Those to China and the European Union advanced 8.6% and 10.5%, respectively. Imports of crude oil gained 51.1% by value, compared with a 3.1% increase in volume, as oil prices remained elevated due to tensions in the Middle East.” The headline export figures highlighted here are in value terms, but even in volume terms, Japanese exports have enjoyed a solid run (seven straight growthy months and up 1.9% y/y in September, per Japan’s Ministry of Finance). Overall, trade has risen despite widespread fears over regional conflicts, currency swings and high energy prices. This shows world demand is more resilient than headline pessimism implies—a tailwind for globally competitive exporters like those in Japan.

MarketMinder’s View: Since this article lists some specific stocks in its second half, we remind readers MarketMinder doesn’t make individual security recommendations. Our interest is only in the broader theme: Sentiment toward France is low, but underlying fundamentals remain fine—and that yawning gap between them indicates upside surprise aplenty. While the piece seems to vouch for being bullish French stocks, it cites several reasons to be negative, including the country’s fiscal deficit, high debt-to-GDP ratio and political uncertainty. As it states, French bonds “deserve a good kicking.” France’s wall of worry is high. But a closer look shows French debt fears are false. Moreover, “even as French stocks sink, relatively speaking, compared with their eurozone peers, analysts’ estimates of earnings growth for French blue chips in the next 12 months are rising sharply, according to JP Morgan.” So despite French stocks’ recent relative lag to eurozone peers, we see an underappreciated reality that they will likely resume pricing as the fog clears.