Daily Commentary

MarketMinder’s View: There are several existing and perhaps soon-to-be publicly traded companies mentioned here, so please note MarketMinder doesn’t make individual security recommendations. Their mention is coincident to our highlighting a broader theme: With lots of buzz around a handful of high-profile Tech and Industrials firms reportedly going public soon, keep in mind “getting in early” on the next big IPO comes with its own risks. The article shows this by running through different ways investors can invest in private companies that might go public one day and explaining the potential pitfalls for each. For example, special purpose vehicles (or SPVs), private funds created to hold one specific asset, can be pricey and inefficient after management fees, upfront commissions and other costs eat into gains. ETFs boasting private assets offer more liquidity, but “federal regulations generally restrict illiquid securities to 15% of a mutual fund or ETF’s assets,” so you may end up with big sector or company concentrations, and their ETF holdings may be SPVs (see the aforementioned fees). Closed-end funds lack those regulatory limits but have a liquidity mismatch with their underlying holdings, and their market price “could vary greatly from the net value of their assets.” Some outfits tout crypto-based alternatives, but these stock “tokens” may prove invalid. And, as we have covered before, gaining early access through private markets introduces liquidity and transparency problems. All of these are worth considering before diving in. For those choosing to wait for the initial public offering (IPO), we would add that IPO often stands for “It’s Probably Overpriced.” As University of Florida Professor Jay Ritter’s research shows, most IPOs flop. Yes, there are some stories of investors hitting it big. But there aren’t many needles in that haystack. Always remember the underwriters’ goal is to maximize returns for themselves and early investors, not for people buying in on IPO day. Don’t let greed and fear of missing out on “the next big thing” push you into owning illiquid, overpriced investment vehicles. Keep your long-term goals front of mind and remember investing isn’t a get-rich-quick endeavor.

MarketMinder’s View: While jobs data are late-lagging indicators for the economy and stocks, sentiment about the job market can be telling, and this piece does an ok job showing reality probably exceeds people’s dour feelings. Hiring has been very back-and-forth over the past year or so, but that isn’t because the economy isn’t growing. Rather, fewer workers are quitting, which means fewer jobs are opening--part and parcel of a "low-hire, low-fire” labor market. Low quit rates are also why weak hiring hasn’t translated to spiking unemployment. The areas where openings are abundant include the “health care and the transportation and warehousing sectors, which are still growing at strong rates. But those jobs don’t always match what job seekers, especially recent college graduates, are searching for. Many new grads are looking for jobs in finance or tech or professional services, where jobs are relatively scarce. Workers are having to make compromises to get into the workforce.” And people are broadly anchoring to the heady job-switching days immediately post-lockdown, which means recency bias makes the present job market feel even worse than the data say it is—stability can feel like stagnation. But stocks are familiar with all of this, and job openings aren’t a forward-looking economic driver. They are an after-effect, like all jobs data are. As the first set of graphics shows, the number of openings began declining as unemployment rose in 2023, and this has largely held since. Yet US stocks are up over 100% since 2023’s start (per FactSet), despite last year’s correction and this year’s war-related volatility, in part because they have been pricing in a better-than-feared economic environment. The gap between sentiment and reality for the job market is one illustration of this. For more on the latest figures, see last week’s commentary, “False Fears Over Fine Employment.”

MarketMinder’s View: With long-term bond yields ticking up globally again, a friendly reminder: Bond markets are volatile. They may have less expected short-term volatility than stocks, overall and on average, but they are subject to sentiment-induced swings. We think that is the case now, with this piece reading entirely too much into recent wiggles. When headlines globally are harping on debt and inflation fears, it is natural for that to show up in volatility, just as it does in stocks. But that doesn’t mean the fear is correct. High energy and petrochemical feedstock prices don’t drive broad, lasting inflation unless you get soaring money supply growth to give firms pricing power. That isn’t the case now, with broad money growing at prepandemic rates globally. As this reality becomes more apparent, bond markets will likely price out the inflation fears they have been pricing in. If you own bonds to mitigate short-term volatility relative to what you would get with an all-stock portfolio, we don’t think that calculus has changed. Bonds can still play their core role, just as they did after a tough 2022 and 2023 as inflation and rate hike fears took a temporary toll. The latest volatility amounts to a tiny wiggle in the recovery bonds started mounting in earnest in autumn 2023. Perspective is crucial.