Daily Commentary

MarketMinder’s View: Is stock market concentration—when a handful (or two) of companies dominate a country’s equity indexes—anything for investors to be worried about? Because this goes through some specific examples, please keep in mind MarketMinder doesn’t make individual security recommendations. Our focus is solely on the high-level theme. As the article acknowledges: “It depends. On the one hand, market concentration can help lift all boats on the way up, as we are seeing today. Average annualized U.S. equity returns in times of increasing concentration since 1950 have been notably higher than during periods of declining concentration, Morgan Stanley’s team notes. But it’s the down leg that matters. The current period of concentration is mostly tied to one theme: AI. This means the S&P 500 and Nasdaq—and a growing number of indices in Asia—have essentially become directional bets on the success of this nascent technology. In turn, if earnings and guidance from just a few tech giants fall short of expectations, the top-down drawdown could be as indiscriminate as the rally, potentially turning into a disorderly rout, as battle-scarred investors know all too well.” So what is an investor faced with highly concentrated markets to do? As always, focus on fundamentals: “Extreme concentration does not necessarily mean stocks at the top are overvalued, however, if the fundamentals of the top firms are also booming.” That is, if future earnings meet or beat expectations, then those concentrations would be justifiably earned—and fundamentally supported. Market concentration alone isn’t necessarily a risk. However, we do think this article tilts over the line at the end, trying to argue concentration is good if more countries are building national champions and applying a this-time-is-different mindset to judging risks. If broader sentiment starts echoing these points and they become the dominant viewpoint, it would probably be a sign of euphoria, raising the likelihood that people are overlooking risk.

MarketMinder’s View: The University of Michigan’s Survey of Consumers hit a preliminary 48.2 in May, below analysts’ expectations and down -3.2% from April’s reading. As the title suggests, gas prices’ recent rise was a key point of worry, with one-third of respondents mentioning prices at the pump. Interestingly, this gloomier reading occurred alongside a rising stock market, solid economic data and continued rumblings of a diplomatic end to the war, suggesting sentiment is slow to catch up. That isn’t terribly surprising, especially when you consider the war’s most obvious effect on everyday life, higher gasoline prices, persists. To us, it is all another batch of evidence showing consumer sentiment reflects headlines and how people feel in a moment, usually influenced by the very recent past. It isn’t predictive, telling you little about how people will actually behave. The last few years’ economic and consumption growth alongside historically weak sentiment reads shows you that in action.

MarketMinder’s View: Here is something worth watching: “In a 2-1 ruling, the panel of judges at the US Court of International Trade found the [Trump] administration lacked the justification to enact tariffs under a 1974 trade law known as Section 122. The administration began to enact these tariffs after a Supreme Court ruling earlier this year rendered its most sweeping levies illegal.” The court ruled US trade officials must stop collecting tariffs from the case’s plaintiffs and refund their prior payments, but perhaps that will be stayed during the appeals process as the ruling against the Liberation Day tariffs was. Either way, we doubt it makes much difference, and as with the prior ruling, it doesn’t mean tariffs are going away. These tariffs were already set to expire July 24 absent Congress authorizing an extension, and the administration was already working on replacement tariffs via other, more established (and legally tested) means. So if you are the importer of record for any goods subject to these tariffs, just consider this an FYI that you may eventually be able to claim a refund if the ruling is upheld and extended broadly. But that is about the only significance here. More broadly, markets simply haven’t reacted much to “big” tariff news since Liberation Day. These days, they know the global economy can adapt to tariffs’ added costs complications. Q1 GDP confirmed as much, showing imports bouncing as stockpiles ran low and businesses unleashed pent-up demand. So while we still think tariffs are economic negatives, stocks and the economy seem over them.