Daily Commentary

MarketMinder’s View: “Havoc” sounds bad! But here is what underpins it: “UK investors pulled more than £10bn out of global stock markets over the last six months, the longest and most severe period of selling on record, according to data provider Calastone. October was a record month for ditching stocks, with net £3.6bn of outflows. November was the second-worst month on record, with £3bn withdrawn from equity funds. Edward Glyn, head of global markets at Calastone, blamed the unusually long build-up to November’s Budget, which was punctuated by repeated leaks of possible policies and about-turns.” That tracks, as UK Budget uncertainty did drive some investors to react emotionally (perhaps by selling out of the market). However, as we pointed out last month in our “Headlines” section, outflows don’t indicate what investors did with that money (e.g., what if they shifted some capital from one fund to another?). Though UK investors may have driven the “longest and most severe period of selling on record” over the past six months, the MSCI United Kingdom Investable Market Index (which includes medium- and small-sized firms) is up 11.2% while the MSCI World has risen 15.5% over that timeframe (gross returns for the former, net dividends for the latter, in GBP for both, via FactSet). So where, exactly, is the havoc? We agree Budget uncertainty weighed on some businesses’ and investors’ willingness to take risk to an extent. But considering how widely discussed the Budget has been over the past several months, its ability to negatively shock markets was close to nil. The outflows documented here simply added evidence to that point—and they further remind you markets don’t move because of flows. For every buyer, there is a seller. For more, see last week’s commentary, “Few Surprises: Leaks and Trial Balloons Mute the Market Effects of Britain’s Tax Shifts.”

MarketMinder’s View: Here is an interesting observation worth noting for what it doesn’t mean for investors, though we think it provides useful insight into central banking mechanics. As explained within, the Fed has been “losing” money for a while, tied to its emergency pandemic response. But central banks aren’t commercial banks—the former can’t go bankrupt. Their losses amount to an accounting entry. However, it appears those unrealized losses may be reversing soon. As Fed watchers have noticed, “Since November 5, the size of the Fed’s so-called deferred asset has gotten smaller, moving from $243.8 billion to $243.2 billion on November 26. It’s ‌a small change, but it’s also a clear shift in a long-term trend.” With the Fed likely to earn about $2 billion this quarter, it will probably be years before it runs down its “deferred assets” and starts forking over its profits to the Treasury again. Now, that was never much to begin with. Per the St. Louis Fed, it averaged $84 billion annually from 2011 – 2021 (before deferred assets began racking up in 2022), which is pretty much peanuts compared to federal receipts north of $5 trillion in fiscal-year 2025. Moreover, “Fed ⁠officials have said repeatedly that profits and losses at the central bank have no bearing on its ability to conduct monetary policy.” As the lender of last resort, whether the Fed is technically making or losing money doesn’t affect its ability to operate since it can never go insolvent. So while not nothing, Fed profits’ absence—and eventual resumption—don’t move the needle much either way.

MarketMinder’s View: With more attention on payroll processor ADP’s employment report given the Bureau of Labor Statistics’ (BLS) delay—it will be out December 16—private firms’ shedding -32,000 workers in November may seem alarming. But as this article sensibly cautions, “When the BLS report arrives later this month, it will present a more comprehensive picture of the job market that also includes the public sector, with data on how the government shutdown and job losses for federal workers shaped overall employment. The government figures are based on an official survey that may reach a broader, more diverse set of companies.” For investors, though, this is water under the bridge. Markets look forward and jobs data reveal only the late-lagging effects of past growth. They are already aware hiring has downshifted this year. Further weakness isn’t shocking. Moreover: “Job losses last month were concentrated among smaller firms: Companies with fewer than 50 workers shed a net 120,000 jobs. Larger companies, by contrast, hired on a net basis—but not enough to overcome that deficit, according to ADP’s data.” This also continues a long-standing trend. And as publicly traded companies tend to be larger, markets have reflected this, too. What matters for stocks isn’t this or next month’s employment, but earnings and economic growth 3 to 30 months out. That isn’t anything ADP or the BLS can tell investors.