Daily Commentary

MarketMinder’s View: This is a tour de force in overthinking something basic—in this case, the fact an awful lot of publicly traded stocks go to zero in the very long run because nothing lasts forever. Instead, it hypes a study purporting to show all of the market’s long-term gains are down to a handful of winners, with every other company a bad investment. And in doing so, it observes: “The companies at the bottom of the heap all had different characteristics. What they had in common was that their bad share performance occurred after their stocks were hot. First, they attracted enormous amounts of investor cash. Then the value of the shares evaporated.” Ok but guess what, the majority of new stock market listings follow this path! And it isn’t always an instant U-turn from riches to rags. Sometimes it takes decades, with plenty of opportunities for investors to make money along the way. This isn’t about timing peaks. It is about identifying when a company’s fundamentals are in sync with broad market trends (including sector and country trends) and capitalizing for a spell while that is happening. It is also about being diversified—and how the broad totality of your portfolio performs. If you avoid every stock with a risk of failing over time, you will never own stocks. If you invest based on what looks likely to happen over the next 3 – 30 months, you can do quite well.

MarketMinder’s View: New Bank of Canada surveys suggest the war in Iran is still weighing on sentiment, as “some 44% of respondents in the business survey saw inflation rising by more than 3% over the next two years, up from 11% of respondents in the first quarter. Firms also expect major increases in selling and input prices. Consumers’ expectations of two- and five- year inflation rose to 4% and 3.4% respectively.” Mind you, these fears aren’t new. Other surveys in Canada and elsewhere have featured higher inflation expectations since the war in Iran raised energy prices—false fears, since inflation is a purely monetary phenomenon and Canadian money supply is growing at benign, prepandemic rates (per Bank of Canada). That means high energy prices prompted substitution, not hot inflation, which inflation reports globally demonstrate via tame prices outside oil and gas. It is also all kind of moot now, given oil prices are back at pre-war levels. Separately, the survey captured rising investment and production plans within Canada’s oil and gas industry. Not only does this cut further against longer-term energy-driven inflation fears (prices move on supply and demand), but it is a positive sign for future growth in Canada’s energy sector, which accounts for around 10% of Canadian GDP (per Canadian Centre for Energy Information). In concert, these point to a bullish reality-expectation gap in the Great White North.

MarketMinder’s View: A nice rebound for eurozone retail sales volumes, which grew 0.2% m/m in May after contracting -0.3% in April. Stronger sales of food, drinks and tobacco helped drive growth as Europeans geared up for early summertime fun. And while auto fuel sales slumped for a second straight month, that is just more evidence higher prices prompted conservation, not stiff spending cutbacks elsewhere. Pundits have long worried the war’s effect on energy prices would cause folks to tighten the purse strings. But these fears seem a bit overblown, with month-over-month sales volumes rising in two of three months since the war’s start. Even with this solid stretch and oil prices’ recent round trip to pre-war levels, the article still rehashes fears around households’ finances near the end here. But as we covered last week, these worries are merely a twist on longer-running inflation fears—a prime example of fighting the last war, suggesting sentiment in Europe remains skeptical.