Daily Commentary

MarketMinder’s View: Please note MarketMinder is nonpartisan, preferring no party nor any politician. Our focus here is only on the titular developments’ potentially affecting workers’ personal finances. Note, too, that we don’t make individual security recommendations. Companies mentioned here are incidental to the broader theme: Are big changes coming to 401(k)s—employer-sponsored retirement plans—with the financial industry and the Trump administration pushing to include “alternative investments, such as private equity and crypto” as investment options? As the article explains, this could take a while: “The law governing 401(k) plans requires companies to act in the best interests of plan participants, a vague standard that has opened the door for employees to launch hundreds of lawsuits against employers over the past two decades. Many of the suits alleged excessive fees, and some have resulted in multimillion-dollar settlements for workers ... . Although federal law doesn’t prohibit the use of alternative investments in 401(k)s, the fear of being sued encourages employers to stick to plain-vanilla investments with low fees rather than options like private equity, which cost more but have the potential for higher returns over the long term.” While we have nothing against private equity (or crypto) per se, the legal pushback highlights some of the headwinds facing those alternative investment options—so if you are interested, recalibrate your expectations accordingly. Also, while we aren’t for or against these legal threats, we do think “private investments’ high fees, lack of transparency, complexity and illiquidity make them a tough fit for 401(k) plans.” Crypto just lacks history and is enormously volatile, rendering it very speculative. For more on 401(k)s’ potentially expanding investment menu, please see our June commentary, “Inside Wall Street’s Private Equity Push.”

MarketMinder’s View: As we have often observed, institutional investors are people like everyone else—they aren’t necessarily savvier than others. (Since this article mentions some specific companies, we remind readers that MarketMinder doesn’t make individual security recommendations; our interest is in the overarching theme.) So our ears perked up when the piece ran with this observation and cross referenced it with another datapoint: “institutional investors’ stock allocation is just now approaching its pre-financial crisis level. That unfortunate record makes one wonder if they’re too late again.” While interesting, we don’t buy it. As the chart shows, their equity allocations are only hovering a bit above their long-term average—well below the dot-com bubble’s extreme. Sentiment remains far from euphoric (and this article warning about institutions’ still-modest collective stock allocation further underscores that). The same goes for the observation “Larger companies tend to be more profitable now and, therefore, deserving of higher valuations.” And? Noting that this is nothing out of the ordinary but spinning it in the same breath as evidence of institutional overreach seems like a stretch to us. (Another quibble: the article suggests in passing private assets “rarely fluctuate in value,” but this is off base. Prices for assets that seldom trade don’t seem to fluctuate, but that is because they aren’t trading, not because their values are inherently stable.) Anyway, attempting to gauge sentiment like this piece does is a worthwhile endeavor, but don’t overthink it. We see little evidence here the institutional “smart money” or retail investors are “too exuberant.”

MarketMinder’s View: Following America’s April Liberation Day tariffs, we outlined three scenarios on how they could go, and since then, have added a fourth: freer trade outside the US. This has been happening, with another example reported here: “The EU and Indonesia have concluded talks on a trade deal and plan to sign it next week as they accelerate efforts to reduce their dependence on China and the US. ... US President Donald Trump’s import tariffs on both accelerated the talks. Washington has forced Jakarta to accept a 19 per cent rate across the board and Brussels to agree to a 15 per cent rate on most products.” Nine years in the works, the deal cuts EU tariffs on 80% of Indonesia’s commodity exports to zero, while lowering Indonesian tariffs on EU industrial and agricultural exports. The deal still requires ratification, which could take a year (or more), and implementation will be gradual, so it isn’t a market gamechanger. However, this isn’t an isolated incident—it is part of a growing trend: “The EU concluded a deal with the Mercosur bloc in South America in December and is in talks with several other countries including India, Malaysia, the Philippines and Australia.” Meanwhile, China is courting India and Brazil for stronger trade ties, South Korea is seeking to normalize trade with China and Brazil is readying a trade agreement with Mexico. Although these deals lack immediate impact, they undercut the notion the world’s trade is faltering—or “deglobalizing”—a bullish surprise for global stocks.