MarketMinder Daily Commentary

Providing succinct, entertaining and savvy thinking on global capital markets. Our goal is to provide discerning investors the most essential information and commentary to stay in tune with what's happening in the markets, while providing unique perspectives on essential financial issues. And just as important, Fisher Investments MarketMinder aims to help investors discern between useful information and potentially misleading hype.

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London Moves to Revive Its Reputation as a Financial Hub

By Eshe Nelson and Michael J. de la Merced, The New York Times, 5/28/2024

MarketMinder’s View: This piece kinda hits the nail on the head in terms of why London’s stock market isn’t replacing departing listings at a rapid clip. (It also mentions several companies, so we remind you MarketMinder doesn’t make individual security recommendations—we comment on the broader theme only.) Yes, there is some red tape, and the government is working to address that. But ultimately: “There is an advantage to being listed alongside similar companies on the same exchange because the rising tide pulls in more analysts and investors focused on those stocks, said [one prominent IPO analyst]. Part of the problem, analysts say, is that the London Stock Exchange (LSE) is dominated by companies from older industries, such as banking, mining and oil and gas.” Bingo. Like attracts like, and the LSE is value-heavy. This, in our view, is the primary reason London-listed stocks trade at a discount to the US, overall and on average. It isn’t that London is inferior, but that it lacks the biggest growth-heavy sectors—the sectors lifting the US’s relative valuation. That speaks to industry makeup, not weak opportunities for early investors to reap profits with an IPO. Whenever value stocks shine again, London should too, attracting more listings in the sectors it is best known for. Also, kudos for this salient, even-handed observation: “Still, even though London struggles to compete with New York, it is a much more popular destination than its European neighbors, like Paris and Amsterdam.” Value-heavy nations the world over are struggling to attract new listings. But all this stuff is cyclical, and it says nothing about stocks’ long-term prospects anywhere.


Triple Lock Plus to Save 750,000 Pensioners From Tax, Says IFS

By Eir Nolsøe, The Telegraph, 5/28/2024

MarketMinder’s View: Lots of politics here, and as always, MarketMinder prefers no party nor any candidate—we assess developments for their market and economic implications only. Ahead of July’s election, the UK’s Conservative government has pledged to raise the income tax threshold for people receiving the state pension. So, as pension payouts rise each year at either the rate of inflation, wage growth or 2.5% (whichever is highest2, the so-called triple lock), the taxation threshold would rise accordingly to keep state pension payments tax-free. The kicker: Tax bands for everyone else are frozen until 2028—a stealth tax hike as incomes rose in response to inflation. As one tax analyst explains: “‘Going forward, about half of this proposed tax cut is simply not following through with plans for tax rises penciled in for the next three years.’ Had the government uprated the personal tax allowance in line with inflation, this would have exempted 350,000 retirees from being taxed anyway.” Complicated? Yes, and that is our point. UK tax policy has been shifting sand for households and businesses for well over a decade now, making it difficult to plan. We suspect this is behind a lot of the risk aversion that has hampered business investment, while the stealth income tax hike likely bears some responsibility for weaker consumer spending the past couple years. A simpler and more predictable tax code would probably be fruitful, but we doubt either party is likely to go this route—electoral sweeteners seem to be the preferred choice for both sides.


Bullish Investors Are Piling Into Stock and Bond Funds

By Jack Pitcher, The Wall Street Journal, 5/28/2024

MarketMinder’s View: Two prime takeaways here. First, fund flows lag returns—not the other way around. Stocks and bonds both had bad 2022s, and improved 2023’s didn’t immediately entice investors to return. But now fund flows are humming as more investors become aware of the rally’s strength and breadth. Second, sentiment has improved enough to put some shine on a very broad swath of stock and bond markets. In the bond world, investors are stretching beyond Treasurys to corporate and high-yield securities. In the stock world, Tech funds aren’t hogging all the money. The bull market has long been broader than headlines give it credit for, but now as sentiment improves, more investors are noticing. The article notes other signs of warming sentiment, including fund manager surveys. (It also namechecks funds and companies, so note that MarketMinder doesn’t make individual security recommendations—we are exploring the broad theme only.) This is normal as bull markets charge higher and, judging from the continued focus on rate cut hopes and talk of an economic “soft landing,” there is still plenty of room for sentiment to improve before expectations get too hot. Hence, even with less skepticism, this bull market should have room to run.


London Moves to Revive Its Reputation as a Financial Hub

By Eshe Nelson and Michael J. de la Merced, The New York Times, 5/28/2024

MarketMinder’s View: This piece kinda hits the nail on the head in terms of why London’s stock market isn’t replacing departing listings at a rapid clip. (It also mentions several companies, so we remind you MarketMinder doesn’t make individual security recommendations—we comment on the broader theme only.) Yes, there is some red tape, and the government is working to address that. But ultimately: “There is an advantage to being listed alongside similar companies on the same exchange because the rising tide pulls in more analysts and investors focused on those stocks, said [one prominent IPO analyst]. Part of the problem, analysts say, is that the London Stock Exchange (LSE) is dominated by companies from older industries, such as banking, mining and oil and gas.” Bingo. Like attracts like, and the LSE is value-heavy. This, in our view, is the primary reason London-listed stocks trade at a discount to the US, overall and on average. It isn’t that London is inferior, but that it lacks the biggest growth-heavy sectors—the sectors lifting the US’s relative valuation. That speaks to industry makeup, not weak opportunities for early investors to reap profits with an IPO. Whenever value stocks shine again, London should too, attracting more listings in the sectors it is best known for. Also, kudos for this salient, even-handed observation: “Still, even though London struggles to compete with New York, it is a much more popular destination than its European neighbors, like Paris and Amsterdam.” Value-heavy nations the world over are struggling to attract new listings. But all this stuff is cyclical, and it says nothing about stocks’ long-term prospects anywhere.


Triple Lock Plus to Save 750,000 Pensioners From Tax, Says IFS

By Eir Nolsøe, The Telegraph, 5/28/2024

MarketMinder’s View: Lots of politics here, and as always, MarketMinder prefers no party nor any candidate—we assess developments for their market and economic implications only. Ahead of July’s election, the UK’s Conservative government has pledged to raise the income tax threshold for people receiving the state pension. So, as pension payouts rise each year at either the rate of inflation, wage growth or 2.5% (whichever is highest2, the so-called triple lock), the taxation threshold would rise accordingly to keep state pension payments tax-free. The kicker: Tax bands for everyone else are frozen until 2028—a stealth tax hike as incomes rose in response to inflation. As one tax analyst explains: “‘Going forward, about half of this proposed tax cut is simply not following through with plans for tax rises penciled in for the next three years.’ Had the government uprated the personal tax allowance in line with inflation, this would have exempted 350,000 retirees from being taxed anyway.” Complicated? Yes, and that is our point. UK tax policy has been shifting sand for households and businesses for well over a decade now, making it difficult to plan. We suspect this is behind a lot of the risk aversion that has hampered business investment, while the stealth income tax hike likely bears some responsibility for weaker consumer spending the past couple years. A simpler and more predictable tax code would probably be fruitful, but we doubt either party is likely to go this route—electoral sweeteners seem to be the preferred choice for both sides.


Bullish Investors Are Piling Into Stock and Bond Funds

By Jack Pitcher, The Wall Street Journal, 5/28/2024

MarketMinder’s View: Two prime takeaways here. First, fund flows lag returns—not the other way around. Stocks and bonds both had bad 2022s, and improved 2023’s didn’t immediately entice investors to return. But now fund flows are humming as more investors become aware of the rally’s strength and breadth. Second, sentiment has improved enough to put some shine on a very broad swath of stock and bond markets. In the bond world, investors are stretching beyond Treasurys to corporate and high-yield securities. In the stock world, Tech funds aren’t hogging all the money. The bull market has long been broader than headlines give it credit for, but now as sentiment improves, more investors are noticing. The article notes other signs of warming sentiment, including fund manager surveys. (It also namechecks funds and companies, so note that MarketMinder doesn’t make individual security recommendations—we are exploring the broad theme only.) This is normal as bull markets charge higher and, judging from the continued focus on rate cut hopes and talk of an economic “soft landing,” there is still plenty of room for sentiment to improve before expectations get too hot. Hence, even with less skepticism, this bull market should have room to run.