Daily Commentary

MarketMinder’s View: We are of about three or four minds on this broad article that arrays data ranging from US stocks’ outperformance and higher valuations than select overseas stocks, the relatively strong dollar, Treasury bond demand and the dollar’s nearly unassailable status as the world’s chief reserve currency to show that fears of American democracy imploding are faulty. Look, the conclusion we agree with: “The perception is that US democracy is broken, but the reality is that democracy is messy and it’s hard. It always has been. The latest debt ceiling fight, played out in the age of social media, with all the twists and turns scrutinized, criticized and praised in real time, proved that in spades. Or as Winston Churchill said, ‘Democracy is the worst form of government — except for all the others that have been tried.’ Market participants seem to know this, choosing instead to focus on the reality of American exceptionalism and not the perception of America in decline.” But as for superiority in other areas, we kind of think the recent US outperformance versus the world is less about democracy and more about its Tech weight above all else. And, that US outperformance is very short term—per FactSet, the non-US world is ahead since last year’s October 12 low and was ahead year-to-date until late May. That isn’t to say US leadership won’t last, but we think perspective is in order. Similarly, the dollar is also down year-to-date and well off last year’s flight-to-quality driven highs, per FactSet data. The resilience noted herein is fine and all, but it is a mistake to see currency swings as indicative of a national government’s health. In many cases, they are about pure sentiment in markets and interest rates. Now, all that aside, the part here on the reserve currency is great: “Since Russia invaded Ukraine in February 2022, use of the dollar in global transactions has only grown, jumping to 42.7% from 38.9%, according to Swift, the member-owned cooperative that provides financial messaging services to more than 10,000 institutions and corporations in 210 countries. A decade ago, the dollar’s share was less than 35%. Clearly, the world sees benefit in transacting business in a currency where the rule of law takes precedence.” All in all, we suspect the issues here stem from trying to cover too much in one column.

MarketMinder’s View: With the school year winding down and graduation season upon us, many folks are likely thinking about college and how to pay for it. This article offers a few points on the less-discussed distribution and tax end of things, noting that the very popular 529 plan isn’t necessarily the automatic best option. For example, “The American opportunity tax credit offers a maximum of $2,500 per undergraduate student for up to four years, and the lifetime learning credit expands to graduate and professional degrees, worth up to $2,000 per eligible student per year. However, you can’t ‘double dip’ tax breaks by claiming one of these credits and withdrawing money from a 529 college savings plan for the same expense. So to claim the full value of the credit, you’ll need to plan ahead to cover a portion of tuition using income, loans or other eligible sources.” Anyway, this is worth a read if you are planning for college expenses and perhaps worth a discussion with your tax and/or financial professional.

MarketMinder’s View: This piece covers the World Bank’s latest forecast of 2.1% global GDP growth this year and 2.4% next year, which it shrouds in downcast language and general gloom. But here is the thing: Those rates are upgrades from an earlier outlook projecting 1.7% growth this year. Those upgrades were broad-based, too, with the bank upping estimates for the US, China and eurozone, albeit to still-tepid rates. For stocks, though, it is important to look past the specifics of the forecast, which may or may not materialize. Both the tenor of coverage and low growth rate projections illustrate the still-rampant negative sentiment existing today, which lowers expectations and makes positive surprise easier to attain.