Daily Commentary

MarketMinder’s View: As this mentions some specific firms, please note they are incidental to the broader issue under discussion as MarketMinder doesn’t make individual security recommendations. The alleged problem many see for manufacturers worldwide: “China in April began requiring companies to apply for permission to export magnets made with rare-earth metals, including dysprosium and terbium. The country controls roughly 90% of the world’s supply of these elements, which help magnets to operate at high temperatures. Much of the world’s modern technology, from smartphones to F-35 jet fighters, rely on these magnets.” The article highlights the issues facing automakers in particular but echoing the response to 2022’s global supply chain disruption, firms generally aren’t standing still in the face of potential shortages and production shutdowns. “Several traditional and electric-vehicle makers—and their suppliers—are considering shifting some auto-parts manufacturing to China to avoid looming factory shutdowns, people familiar with the situation said.” Now, creative workarounds notwithstanding, this wouldn’t be ideal for car producers, reinforcing why we think tariffs are bad economic policy: They make doing business more difficult. “Shipping an unfinished part halfway across the world to have a chiclet-sized magnet installed adds to the cost and time it takes to manufacture, but the companies see it as perhaps the only alternative to shutting down some production lines altogether. The move could expose carmakers to additional tariffs, but auto executives believe the alternative would be even worse.” Chalk this up as one more bit of evidence tariffs don’t guarantee US manufacturing rises. Still, avoiding those “worse alternatives” allows commerce to continue. And for markets, better-than-feared outcomes are bullish.

MarketMinder’s View: Capital tends to flow where it can be most productive and/or earn its highest return, which, as this article points out, has traditionally favored America. The reasons: “The returns were high. The business sector was dynamic. Nowhere else had a tech sector on the same scale. The property rights were clear and enforced, and even foreign investors had no reason to fear that they might one day find themselves out in the cold.” This piece wonders if those conditions are now in jeopardy due to some legislation making its way through Congress. As we wrote last week upon the House’s passage of the One Big Beautiful Bill Act (which the Seante is still marking up), it contains a provision—section 899—whereby non-US corporations may face retaliatory taxes if their countries impose “unfair foreign taxes” on American multinationals. (As a reminder, MarketMinder is nonpartisan and analyzes legislation only for its potential market effects.) Apparently, Wall Street is worrying capital flows to the US could reverse if enacted. But a few things on why that isn’t necessarily the case. First, “fairness” is in the eye of the beholder—and largely for policymakers (and courts) to decide. Everything else is sociological—beyond markets’ purview. Sure, foreign investors could take their money elsewhere if they think they are being treated unfairly—that is their prerogative! But that brings us to our second point: Taxes generally aren’t investors’ only consideration—what are after-tax returns? Section 899 could lower them, and the added uncertainty could make expected returns harder to predict. Which takes us to our third reason: Nothing here is a given. The Big Beautiful Bill isn’t law yet—the Senate could still sand down many of its more controversial provisions. Moreover, all the attention now means most of what does pass will probably be pre-priced by markets, blunting any eventual impact.

MarketMinder’s View: While there isn’t a direct investment takeaway, the numbers here point positively for those concerned Americans aren’t saving enough for retirement. “The average savings rate in 401(k) plans rose to a record high 14.3% of income in the first three months of this year, according to a Fidelity Investments analysis of the millions of accounts it manages. That is just a shade below the 15% annual savings rate financial advisers often recommend over a four-decade career. Savings rates are increasing even though account balances fell in volatile markets earlier this year. ... Five decades after employers began using 401(k) retirement plans, the 401(k) has finally reached a tipping point. About 70% of the private-sector workforce now has access to one. More companies are automatically enrolling workers, substantially raising participation rates.” Now, everyone’s circumstances are unique—you probably aren’t average—but the data suggest the “retirement crisis” many once thought inevitable may not be so. If you are diligently socking away some of your paychecks and disciplinedly investing it, stay the course! But if you haven’t started already, there is no better time than today to join those working toward securing their financial future.