Daily Commentary

MarketMinder’s View: The New York Fed’s May Survey of Consumer Expectations showed “the share of [respondents] seeing their current situation as ‘much worse’ than a year ago leaped to 13.3%, up about 2.7 percentage points from April and the highest since July 2022.” That is in line with other sentiment gauges, which have deteriorated due to the Iran war’s effect on prices—especially those at the pump. But while respondents’ concern over their “current situation” worsened, their outlook for prices wasn’t as dire: “Inflation expectations at the one-year horizon declined just 0.1 percentage point, to 3.5%. The outlook at the three- and five-year time frames held flat at 3.1% and 3%, respectively.” That mirrors last month’s reading, and as we wrote then, it is impossible to know why. Maybe people are observing global oil prices’ continued cooling from early April’s highs (per FactSet). Maybe they trust businesses are adapting. Whatever the reasons, remember that sentiment gauges are, at best, coincident indicators—they tell you what just happened and hold little insight about what consumers will do in the future. Need evidence of that? Consider: “The net between those seeing better versus worse conditions hit its lowest since October 2022, the New York Fed said in the release.” Want to know what else hit a low in October 2022? Stocks. Then they zoomed higher.

MarketMinder’s View: Please note, MarketMinder doesn’t make individual security recommendations, and any companies mentioned here are coincident to the broader theme we wish to discuss. As a space-related firm prepares to make its public debut this week, we think this article provides a sober reminder about initial public offerings (IPOs): The average investor likely doesn’t stand to benefit. While those buying at the offering price (the per-share price underwriters and issuing companies set pre-IPO) have sometimes enjoyed strong gains, those buying just a few hours late haven’t. “The average historical return for buying an IPO at the end of its first day of trading and holding it for three years is about 21% lower than what a value-weighted market index would have returned, according to [University of Florida Professor Jay] Ritter’s historical data.” Crucially, as the article notes, most folks can’t access these newly public companies’ offer prices. Underwriters typically prioritize large institutions over individual investors, and the latter that do have access are few in number. The vast majority of retail investors can’t access shares until after trading starts, meaning they miss the initial “pop” (if there is one). Many of those early investors also face lock-up periods or restrictions on the sale of shares, putting even their first-day gains at risk of reversing. Pair this with IPOs generally being overpriced to begin with, and we don’t see much benefit for long-term investors trying to “get in early”—a hyperfocus on IPOs can actually distract long-term investors from a disciplined approach that can help them reach their goals and objectives. To be clear, we aren’t predicting how any specific, upcoming IPOs will perform. Rather, we think investors ought to keep in mind IPOs aren’t all upside.

MarketMinder’s View: “The US money-market industry now holds a record $8.29 trillion — almost twice the size of Japan’s economy — after inflows topped $1 trillion last year, according to Crane Data LLC, which tracks the industry. The strategy’s popularity has been accompanied by a Wall Street catchphrase, ‘T-bill and chill,’ which has come to signify investors’ preference for the short-term Treasuries these funds often hold.” To the extent that statement actually reflects investors stockpiling cash, which the first roughly two-thirds of this piece suggests is the case, it could be a sign of people making a vast mistake. Money-market fund rates may be higher than in the 2010s, but that doesn’t make the return good. For one, inflation is currently running at 3.8% based on the US CPI—and has annualized 4.5% in the past five years. Is that exaggerated by 2022? Yes. Likely to repeat? No. But it does highlight how inflation erodes money market returns and often leaves you with little to nothing. The notion that stocks are too high and assured to see poor returns ahead is a forecast, one that is tremendously uncertain and amounts to market timing based on past movement and widely known perceptions about the environment today. But the last third of this piece raises another point: Is the money market boom really a market call? People often see these data and presume it is cash parked on the sidelines, but many times it isn’t that at all and amounts to corporations and individuals holding increased cash for reasons tied to expenses (or inflation, as the figures are nominal). This is why those long expecting this “wall of cash” to boost stocks have been disappointed.