Daily Commentary

MarketMinder’s View: This piece names several individual companies and investment products—as always, MarketMinder does not make individual security recommendations. We bring you this for the broad themes only. The titular funds are known as single-stock ETFs, which use options linked to a single stock in hopes of amplifying its returns. This naturally means amplified volatility, with the risk of declines deeper than the underlying stock’s. Hence, you might wonder why they are so attractive. The lure is in the advertised yield, which can top 100%. “This implies that for every $100 you invest, you might expect to earn more than $100 in yearly income. Several of these ETFs boasted yields of 130% to 230%.” Thing is, this isn’t the fund’s actual return, just as a stock’s dividend isn’t a return on your investment. A dividend is a return of your investment, and these funds are no different. “Often, much of the ‘yield’ is just your own money handed back to you, and the principal value of your investment could shrivel.” The triple-digit rate may not even reflect the actual experience in a given year, as it is just an annualized version of the last month’s payout. The article then digs into an actual fund to show how actual returns work. “Its distribution rate, or implied yield, was 62.8% this week. The fund launched in November 2022 at a split-adjusted $40 per share. It traded this week under $8.50—roughly an 80% decline even though [the underlying] stock is up nearly 70% over the same period. After all those huge payouts, the fund’s total return has averaged only a bit above 7% annually—a small reward for its giant swings in price along the way. Where did the rest of the ETF’s value go? It was shaved down in monthly installments, handing shareholders their own money back as a return of capital.” Lesson: Don’t be taken in by high advertised “yields.” Remember “yield” and “return” aren’t synonymous. If something sounds too good to be true, it probably is.

MarketMinder’s View: As always, we are politically agnostic, preferring no politician nor any party and assessing developments for their economic and market implications only. When President Trump paused his Liberation Day reciprocal tariffs for three months on April 8, it set July 8 as the deadline to negotiate new trade deals. That day now looms, and the Trump administration has only a small deal with Britain and a deal to make a deal with China. Hence, uncertainty continues. Will the tariffs take effect? Or will the pause get extended? Nothing is official yet, but administration officials have begun talking down July 8. Treasury Secretary Scott Bessent alluded to Labor Day in a television appearance this morning, and press secretary Karoline Leavitt called the deadline “not critical.” But it isn’t clear, if the deadline is extended, whether that will apply universally or just to the “roughly 18 trading partners” the administration is negotiating with. So businesses still don’t have the information they need to plan and invest. Pushing out deadlines repeatedly just extends uncertainty. Don’t get us wrong, having more wiggle room is probably a benefit, but at this point we think markets have likely dealt with worst-case scenarios, and lack of clarity is the main headwind.

MarketMinder’s View: Overall, May’s US personal consumption expenditures (PCE) report was pretty tame. The PCE inflation rate, which is the Fed’s preferred gauge, accelerated slightly from 2.1% y/y in April to 2.3%, which is pretty typical monthly variability. Month-over-month, prices rose just 0.1%, which is below the long-term average. On the spending side, the article notes consumer spending fell -0.1% m/m and chalks this up to the aftermath of all the shopping people did to front-run tariffs earlier this year. We agree with the general take, but for accuracy and completeness, note that figure is nominal. Adjusted for inflation, spending fell -0.3% m/m as spending on goods fell -0.8% and services endured a slight drop that rounded to zero. It still looks very much to us like tariff front-running created a bit of a pothole, which doesn’t predict prolonged weakness or recession. But all facts are friendly, and those are the facts.