Daily Commentary

MarketMinder’s View: This piece seems overall kinda confused. In discussing the ongoing volatility in some Tech stocks, it hypes “low-volatility” funds concentrating in Consumer Staples, Utilities and Financials. (It also mentions several funds and companies, so we remind you MarketMinder doesn’t make individual security recommendations and highlights this for the broad theme only.) “Over time, these funds have tended to capture roughly two-thirds to three-quarters of the S&P 500’s losses during down markets—and of its gains during up markets. That makes them appealing if you expect giant tech stocks—or the market as a whole—to falter.” That is a fine enough observation, but the article spends much of its word count making a long-term buy-and-hold argument and suggesting these funds are better than bonds at helping retirees generate growth and cash flow in their golden years. The parting words imply there is a chance of very long-term outperformance. It all ignores something huge: Markets are cyclical not just in the bull and bear market sense, but in terms of what leads and lags. This kind of reminds us of when everyone said small value stocks were permanently superior because their long-term returns exceeded big growth stocks. But those returns all arrived during a handful of early bull market recoveries, creating a very big opportunity cost for those buying and holding indefinitely. Value is doing pretty well relative to growth right now, so defensive stocks look shiny. But if you rely on fixed income to reduce your portfolio’s expected volatility while generating some cash flow, we don’t think any category of stock is a wise replacement. Stocks are stocks, and the higher expected volatility could well work against your long-term goals. Lastly, always remember no one style is best for all time. Making some tactical shifts as the market evolves can bring big benefits.

MarketMinder’s View: This is a bit of an oral history of one Fed meeting in September 1996, where then-Chairman Alan Greenspan convinced colleagues rate hikes weren’t necessary because Tech was boosting productivity in ways the data couldn’t measure, which he believed would keep inflation in check even if the Fed kept monetary policy looking a bit hot. Because Fed head nominee Kevin Warsh has made similar arguments about machine learning (AI) enhancing productivity and thus enabling rate cuts, this piece argues he will be attempting a Greenspan sequel and success is a big, big IF. Look, from an academic perspective, we guess this is all interesting enough, and it does a decent job illustrating that one of the Fed chair’s main roles is as persuader to try to get the 12-member Federal Open Market Committee to follow his or her lead. But please for the love of kittens and puppies can we get a Fed discussion that focuses on what actually moves inflation? Money supply? Anyone? Bueller? In our view, the Fed’s main weakness isn’t who is appointing people and what their political views and thoughts on the next rate cut may be, but rather that the whole institution seems to have collective amnesia about the quantity theory of money. This big blind spot is a key source of potential monetary policy errors looking forward, and it is something to watch closely. Letting money supply spike because you think AI might boost productivity is a good way to get too much money chasing too few goods and services. We are not predicting this, mind you, in part because Fed moves are unpredictable. But it is a potential risk to watch for.

MarketMinder’s View: As always, we are politically agnostic, preferring no party nor any politician—we assess developments for their economic and market implications only. And this tale reiterates a timeless truth: The supposed market winners under a given presidential administration often don’t perform as hoped. Sometimes, as with Energy stocks under the first Trump administration, people misinterpret policies’ likely effects (in that case, being pro-drilling meant a supply increase that would knock prices and earnings). Sometimes, as with Renewables stocks under the Biden administration, the thesis gets pre-priced and overcooked. Those both repeated last year, too. And now, with crypto in the current Trump administration, we see it again in even more dramatic fashion. This White House is publicly pro-crypto, championing its use and regulations to enable it. It was supposed to send bitcoin and other tokens to the stratosphere. And for a while last year, crypto did fine. But then the tide turned. “Bitcoin is trading at less than $64,000, a nearly 50 percent decline from its peak price, which it reached just last October. The prices of two other top coins, Ether and Solana, are both down more than 30 percent over the past week.” Now crypto is down since Trump’s election, obliterating that particular thesis to own it. Friends, bitcoin and crypto in general have always been speculative commodity-like plays with no earnings, dividends or fundamental ties to the economic cycle. They trade on hype and hope and crash when those turn south. The last year is proof those traits override any political administration’s aims.