Daily Commentary

MarketMinder’s View: Mostly backward looking, but here is a sign the US economy continued chugging along as 2025 closed: “The Institute for Supply Management’s index of services rose 1.8 points to 54.4, the highest since October 2024, the group said Wednesday. Readings above 50 indicate expansion in the largest part of the economy. The December figure exceeded all projections in a Bloomberg survey of economists. New orders expanded by the most since September 2024 and a measure of business activity, which parallels the ISM’s factory output gauge, climbed to a one-year high. Export bookings grew at the fastest pace in more than a year.” Now, purchasing managers’ indexes measure only growth’s breadth—how many firms report expanding business activity in the month—not its magnitude, so the degree to which this translates into actual output levels isn’t clear. But broad growth in America’s biggest sector suggests private demand remains healthy—and likely continues into 2026 with bookings at home and abroad improving, as today’s orders are tomorrow’s production.

MarketMinder’s View: Please note, MarketMinder is nonpartisan, preferring no politician nor any party, as we evaluate political developments solely for potential market implications. In this case, what sway is President Donald Trump likely to hold over monetary policy in the coming years after his likely appointment of a new Fed head in May? “Whoever gets the job will have enormous discretion over setting the contours of the policy debate inside the Fed, as well as determining staffing priorities and personnel decisions. But the next chair will be influential only so far as he can drum up support from other officials. Pushing for more aggressive cuts than what the economy is calling for, for example, is likely to face significant opposition from the current cast of policymakers. But that pushback could wane if there is significant turnover among the top ranks because the president is able to remove Fed officials at his discretion.” So who the next Fed head will be is something to watch, but don’t overrate it—focus on their actual decisions. Policy is more important for markets than personality—and prospective Fed members often act differently once in office—see “Martin’s little pill” (named after 1951 – 1970 Fed head McChesney Martin), which seemingly makes them forget everything they ever knew before. Then too, monetary policy works at a long and variable lag, with no preset effect on the economy or markets. (Though that doesn’t mean monetary mistakes can’t happen—see 2020’s money supply surge, the primary driver of 2022’s price spike, with any questions.) For more on why the next Fed head—or its vaunted “independence”—is nothing to fret, please see Todd Bliman’s July column, “‘Independent’ Shouldn’t Mean ‘Beyond Criticism.’”

MarketMinder’s View: Considering “buffer” ETFs (exchange-traded funds that provide limited downside protection while capping upside)? A few tips: First, keep in mind there is no such thing as a free lunch, as the risk you take is commensurate with its return. Second, look at it from the other side—what is in it for the provider (i.e., what is their compensation)? Last, but not least: Is it likely to meet your investment objectives? Buffer ETFs, as the piece explains, employ an options strategy that limits your downside up to a specified threshold (e.g., if the market goes down -15%, a 10% buffer ETF would shield you from the first -10%—your return would be -5%). The cost of that limited downside protection is your upside potential. Beyond a cap to the positive side, you make nothing. Then, for conveniently packaging this “service” for you, the ETF charges a fee, which can be, “well above the average expense ratio for typical ETFs.” The article compares some buffer ETFs against an otherwise equivalent 50/50 stock-bond portfolio over the last five years and concludes: “The average buffer ETF—regardless of the buffer level—performed in line with a balanced portfolio on a risk-adjusted basis ... and could be a good holding for an investor looking to hedge against market losses—but only if your buffer ETF provider is charging an average fee.” While we don’t make individual security recommendations, we see some big problems with this! Does a 50/50 asset allocation even match your financial goals, needs and time horizon? Furthermore, stocks are usually up three-quarters of the time, and the frequency goes up the longer your time horizon—which is likely more than five years if you are near retirement. Buying expensive hedges year in and year out is probably counterproductive for most investors, especially when their benefits are so limited. Negative volatility isn’t comfortable, but it is typically temporary (though bear markets can be long). Think of it as the price to pay for stocks’ long-term returns. Then weigh that against the cost of short-term certainty—much lower long-term returns—and the tradeoff makes little sense to us. For more, please see our March commentary, “Why ‘Buffer’ ETFs Aren’t What They Are Cracked Up to Be.”