Daily Commentary

MarketMinder’s View: This analysis mentions a few specific companies, and as a reminder, MarketMinder doesn’t make individual security recommendations. Rather, we are interested in the broader theme, which is worth keeping in mind for investors in the coming years. “Many business leaders are getting used to the idea of higher tariffs—and tariff fluctuations—as a new normal that will stick around even after Trump leaves office in January 2029.” As pointed out here, while the effective tariff rate didn’t climb under former President Joe Biden, he also didn’t overturn levies imposed during Trump’s first term. We won’t venture a guess as to what the next administration will do—the next presidential election isn’t until 2028—but remember, no party has a monopoly on negative economic policy (and we think tariffs are indeed a negative). Democratic presidential hopefuls may decry tariffs on the campaign trail, but similar to Biden, they may be loath to make any changes if they enter power. Not that businesses are waiting around for levies to fall before investing—as the article also points out, companies have been rethinking their long-term plans, assuming tariffs remain in place. “Foreign automakers are among the companies most affected by tariffs, and some have responded by announcing plans to expand their U.S. manufacturing. Jennifer Safavian, CEO of the lobby group Autos Drive America, said the focus on U.S. production will likely continue regardless of future tariff policy.” Businesses generally dislike shifting sand and will often delay risk taking if uncertainty is high. For now, it seems some are operating as if they have tariff clarity. Keep this in mind if the tariff landscape changes in the future.

MarketMinder’s View: This article tackles fears that an AI bubble popping would look like 2000’s or 2008’s respective downturns. “Many are inevitably drawing parallels with the dotcom crash a quarter of a century ago, when the Nasdaq plunged by 75% and took 15 years to recover. What might be most unnerving now about that crash is that it was so severe even though the root cause of the frenzy, the internet, completely changed the world. Fast forward to today, and this suggests that an investor might be right on AI over the long run and still lose their shirt. But 2000 was nothing compared to the 2008 Global Financial Crisis, and some more high-octane voices on financial social media are claiming that the AI crash they say is inevitably coming could rival or even exceed that credit crunch.” As this points out, though, while there are isolated bear markets in semis and South Korea, broader markets remain mostly sanguine: “The Dow and S&P 500 are only 1% and 2% below their all-time highs, respectively, and the Russell 2000 small cap index is up 20% this year.” Same goes for global indexes like the MSCI World. While we don’t buy the valuation argument here—that valuations’ being lower than in 2000 is reason to dismiss bear market fears—it is true “[m]any ‌companies in today’s ⁠line of fire are highly profitable, established firms—a far cry from the unprofitable online newbies that drove the dotcom boom.” We also agree a repeat of 2008’s global financial crisis is unlikely but see some flaws in the article’s reasoning. Yes, corporate and financial leverage is nowhere close to 2008’s, but “toxic” assets tied to real estate weren’t what caused the meltdown. Rather, an accounting rule that treated many (perfectly fine) assets as if they were toxic—alongside the government’s haphazard response—turned a correction into a bear market. Regardless, that isn’t the case today. All the “fighting the last war” here highlights a bit of a sentiment reset, implying the bull market still has wall of worry to climb.

MarketMinder’s View: Gridlock is frustrating for voters, but for markets, a government that can’t do much is an underappreciated market tailwind. Since this is inherently political, please note MarketMinder is nonpartisan, favoring no party nor any politician and focusing solely on legislative developments’ market implications. As this article lays out, Senate Majority Leader John Thune will have his work cut out for him the next two years as his Republican party likely loses ground in midterm elections. Either through the return of traditional split-government gridlock or ongoing intraparty infighting (on display over the last year and a half), “[g]etting anything done will be close to impossible.” Although political inaction may annoy politicians’ constituents, markets often do great with do-little governments in America—and abroad. When the rules shift frequently, it becomes difficult for businesses to navigate and plan ahead. The more uncertain the legal and regulatory landscape, the more it can discourage risk taking (and investment) as they await clarity. Beyond that, congressional changes invariably create winners and losers and, psychologically, losers tend to feel pain at more than twice the level of winners’ equivalent gain. The status quo may not be to everyone’s liking, but for markets the “Midterm Miracle” is music to their ears. Q4s of midterm years and their next two quarters are among stocks’ most consistently positive for this reason.