Daily Commentary

MarketMinder’s View: Please note MarketMinder doesn’t make individual security recommendations, and any companies mentioned here are coincident to a broader theme we wish to highlight. The titular dilemma here for investors is simple (though it maddeningly comes at the conclusion rather than the introduction): “Whether to invest in semiconductor stocks is the conversation asset managers should be having this year, especially those late to the game and thus underperforming market benchmarks.” The implication: Do chip stocks have room to recover from their midsummer slump, or is more pain in store? As this short article points out, a majority of recently surveyed asset managers are optimistic semiconductors—and, by extension, AI—will keep leading the bull market. However, while there are other developments worth considering (e.g., regulatory issues and whether sentiment is outpacing reality), we have a broader issue with this piece: the notion that “… investing in assets other than chipmakers is a waste of time.” It isn’t, folks, and we caution investors against lending too much credence to all the noise on semiconductors, AI or any single trend. One set of stocks isn’t a leading indicator for the rest of the market, and while semiconductors have become a noteworthy slice of major benchmarks (e.g., around 14% of the MSCI World’s market capitalization), they alone won’t make or break global markets (though they loom large in some smaller countries). All the hype and attention say more about how hot sentiment toward AI is right now. To be clear, we aren’t predicting semiconductors are about to crash harder just because of hot sentiment. Rather, we are saying that despite the decent fundamental case for the industry, sentiment got white-hot and probably overshot, if the stampede toward single-stock leveraged ETFs and other symptoms are any indication. Sentiment swings are impossible to time, so it is unknowable now when the selloff will have gone too far. More broadly, however, this saga illustrates how much tamer sentiment is toward the less-appreciated areas of the market, like value-oriented stocks outside Tech and the US. For more, see our Tuesday commentary, “Why the SOX ‘Bear Market’ Isn’t Foreboding.”

MarketMinder’s View: The next Fed meeting is scheduled for July 28 – 29, and many observers have no idea what to expect—especially since Fed head Kevin Warsh has refrained from tipping whether he favors a rate hike (because of higher oil prices) or a rate hold (because of recent cooler inflation data). “At the Fed’s meeting last month, half of Warsh’s 18 colleagues expected they would need to raise rates this year. The other half thought they wouldn’t. Warsh ‘could tip the balance of the scale in whichever way he wants,’ said Jonathan Pingle, chief U.S. economist at UBS.” The article then runs through detailed cases for waiting and hiking before spilling a bunch of pixels about what Warsh could do—which says more about the conventional wisdom than Warsh’s monetary policy plans. “To some, Warsh is a hawk in dove’s clothing—installed by a president who wants lower rates but, in their view, an old-school monetarist at heart who won’t let inflation fester. Others see the opposite: a dove in hawk’s clothing, talking tough on price stability while waiting for an AI-driven productivity boom to bring inflation down on its own, in no rush to provoke an unnecessary fight with the White House.” Talk about a blank canvas people are projecting their own biases on! Yet a little mystery here isn’t necessarily a bad thing, especially since the Fed’s “forward guidance” has shown to add more confusion, not less. For more on why, see last month’s commentary, “Kevin Warsh and the Magical Delete Button.”

MarketMinder’s View: As always, MarketMinder is nonpartisan and prefers no politician or political party over another. Our analysis focuses on politics’ economic and market effects (or lack thereof). The UK’s new Prime Minister Andy Burnham hasn’t even been in office a week yet and is already facing scrutiny over recently announced cost-of-living measures. After announcing a tiny VAT cut on electricity bills on Tuesday, Burnham has laid out additional plans: a 20% discount on business rate bills for pubs, clubs and live music venues in England as well as capping bus fares at £2. Not major moves by any means, though this week’s tax cuts dampen concerns a Burnham government will automatically push traditionally leftist policy (e.g., big tax hikes and higher public spending). Naturally, businesses claim Burnham’s tax cuts won’t do much and want more. As one pub owner puts it, “‘It’ll save £3,000 a year, something like that. When you’ve got a £1.8m turnover business that shows less than 2% gross profit, chucking me £3,000 doesn’t help me at all,’ [Nick Evans, co-owner of Old Crown Coaching Inn] said.” Note, too, some Members of Parliament (MPs) are questioning how the government will pay for different plans, signaling the realities of governing. As the shine of a new premier wears off, Burnham’s government is likely going to look a lot like his predecessor’s—not a bad thing for markets. For more, see this week’s commentary, “Blunting Burnham?”