Daily Commentary

MarketMinder’s View: As a reminder, MarketMinder doesn’t make individual security recommendations—any mentioned here are coincident to a broader lesson we wish to share. Before putting funds into any area of the market, gauge the mood—are you doing so for fundamental, forward-looking reasons, or are you chasing heat? The titular hot market is India, whose stocks have outperformed most major developed economies this year as stronger-than-expected earnings growth and robust corporate investment—among other factors—has helped fuel the run. Good news, but there are some signs pointing to sentiment overheating. “IPOs in India totaled nearly $8 billion so far this year, already exceeding the total amount for all of 2023, according to Dealogic. That makes it the world’s second-largest IPO venue after the U.S. And investors are rushing into them, with many being more than 100 times oversubscribed, sending them surging in dot-com style on their first days of trading.” Surging IPO activity and demand are often hallmarks of froth. Add in sky-rocketing valuations for Indian companies, and we think there is a solid argument that moods are pretty cheery—worth considering when assessing the fundamentals. It can be tempting to chase hot returns—fear of missing out is a human error we have seen countless times. Importantly, though, we find stocks move most on the gap between reality and expectations. When sentiment runs piping hot, it increases the likelihood of disappointment ahead.

MarketMinder’s View: A new Government Accountability Office report estimates that about 10 million borrowers (a quarter of the total) were behind on student debt payments as of the end of January, with two-thirds of them “seriously delinquent (more than three months behind). Though federal student loan bills resumed in October last year, the Biden administration’s “student loan on-ramp” meant borrowers’ credit score didn’t suffer if they were late on payments. But that grace period is now coming to an end. This article suggests the fallout could lead to higher delinquencies, reducing credit access for millions of households—which could weigh on consumer spending, new business starts and credit health more broadly. Yes, that could happen, and we don’t dismiss the challenges and hardships for those impacted. But from a broader investing perspective, this issue lacks the scale to bring widespread economic pain. For one, there are government programs that can help borrowers avoid default—this piece touches on some of them, which allows borrowers to lower their payments. We also think stress over delinquencies here is misplaced. Delinquencies among young people are rising, but they are doing so from relatively low levels. Today, the percentage of debt transitioning into serious delinquency is still well below that of the 2010s, when consumer spending and economic growth fared just fine (per the New York Fed). If it didn’t knock stocks then, we doubt it does now. Lastly, every aspect of this has been scheduled, widely watched and well known. The idea stocks haven’t pre-priced this already seems like a stretch to us.

MarketMinder’s View: Newly revised data highlight Japan’s ongoing domestic demand struggles, a long-running theme. “The country’s gross domestic product expanded by an annualised 2.9% in the April-June quarter from the previous three months, the Cabinet Office’s revised data showed on Monday, versus economists’ median forecast for 3.2% growth and a 3.1% rise in the preliminary estimate ... The capital expenditure component of GDP, a barometer of private demand-led strength, rose 0.8% in the second quarter, revised down from a 0.9% uptick in the initial estimate. Economists had estimated a 1.0% rise.” Now, none of this is new to forward-looking stocks, but the data can give investors more color on Japan’s issues. For years, a weak yen has weighed on households and domestically focused businesses (by increasing costs for things like imported fuel), and these numbers extend that longer-running trend. Whether the Bank of Japan’s recent but long-awaited policy shift spurs homegrown demand remains to be seen—we have our doubts—which suggests the country’s multinational corporations seemed poised to fare best, relatively speaking.