Daily Commentary

MarketMinder’s View: As the intro explains, “Across China’s economy, consumers aren’t spending enough and producers are making too much. That leaves companies all along the supply chain earning less. Many feel like they have no choice but to lower prices to unload inventory, eating into profits. With less money on hand, businesses are limiting wage growth, pausing hiring and shedding employees, which means workers have less to spend, continuing the vicious cycle.” (Since the article mentions some specific companies affected, please keep in mind we don’t make individual security recommendations; they serve only to illustrate the alleged titular point.) We have a couple points on this concern. First, we disagree that what China is experiencing is true deflation, which is a side effect of monetary and economic contraction. This looks more to us like some industries dealing with the hangover from a supply glut caused in part by subsidies. See the following example: “In the auto sector, China has more than 100 EV makers all fighting to survive. Local governments rushed to invest in the industry about a decade ago after Beijing identified EVs as a strategic sector. Now they want to keep production going to avoid layoffs and bring in tax revenue, instead of letting companies fail.” That has created winners and losers, and we don’t dismiss the hardship for those who have to tighten the purse strings. But this isn’t the deflation seen during America’s Great Depression or in Japan after the Nikkei Bubble burst. Second, from an investment perspective, is any of this news to stocks? Not only are markets well aware of problems stemming from China’s economic model, the government is, too, and it has been a policy focus for years. It may take time to bear fruit, but China’s services output is on the march and its share of GDP is increasing. That is a big reason why, as the chart herein shows, household consumption’s share of GDP has been overall increasing since 2010. Still low by historical and global standards, sure, but it shows China progressing toward developed-world norms. Persistent concerns about the world’s second-largest economy—which still grew around 5% last year—suggest expectations remain muted.

MarketMinder’s View: So alongside record private equity self-dealing, “Private credit firms sold a record amount of debt to themselves last year as the buyout sector’s slowdown pushed them to find new ways to generate cash from loans to companies owned by private equity. ... The boom in private credit continuation deals is the latest hangover from a years-long drought in private equity exits, with buyout firms instead holding on to businesses for longer and delaying repayment of those companies’ loans.” As the article names specific firms involved, please note MarketMinder doesn’t make individual security recommendations and their inclusion is incidental to the broader investment theme we wish to discuss. That is, private credit investors—like with private equity—must carefully consider the liquidity of their stakes given they can take “longer than expected to be repaid due to a lack of deals.” And, without a liquid market for them, investors must also understand the pricing mechanisms private credit firms employ with “managers selling to themselves.” Because of the potential conflicts of interest, due diligence is critical. Now, the sums involved here remain relatively small: “Private lenders struck so-called continuation deals worth $15bn globally in 2025, up from almost $4bn the previous year, according to investment bank Jefferies. Such deals involve fund managers establishing new vehicles to buy loans from their old funds.” We don’t see any big spillover into public markets from this at the moment, but this activity’s more than tripling in a year should give those contemplating the space reason to pause. For more on private markets’ stretch, please see our commentary, “Inside Wall Street’s Private Equity Push.”

MarketMinder’s View: In our experience, stocks are the ultimate leading indicator, so with the S&P 500’s new high yesterday, we are partial to the view expressed here: “The most convincing bull case for U.S. stocks is that geopolitics and international relations are, as so far this year, just noise. The signal that matters comes from earnings. Since earnings have been great, and are forecast to be greater still, all’s good so long as the economy stays strong—as it has. ... The consensus of analysts is for S&P 500 earnings to rise 15% this year and another 15% next year, after 13% last year, which would be the first three-year run of double-digit earnings growth since before the financial crisis in 2008.” But a couple caveats. While forward-looking stocks lead, they can also be volatile short term for any or no reason. New highs are great, but like all past prices, irrelevant for the future. More important for stocks’ directional trend: reality versus expectations 3 to 30 months ahead. On this score, as the article acknowledges, “The obvious problem with the bull case is that it is already a common view.” If everyone is bullish, the wall of worry stocks climb wouldn’t have much of the titular “room to run.” But sentiment on its own isn’t predictive. What matters is sentiment relative to reality. Expectations can be warmer without overshooting, which we think is the case today and visible in things like economic and consensus S&P 500 forecasts. Also, sentiment isn’t universally optimistic—with the list of risks and worries closing out the piece a case in point. We would also add that when looking overseas, sentiment is generally more tempered (especially in the UK and Europe)—indicating a higher wall of worry and a reason we think non-US stocks likely lead again this year.