Daily Commentary

MarketMinder’s View: The University of Michigan’s Survey of Consumers hit a preliminary 48.2 in May, below analysts’ expectations and down -3.2% from April’s reading. As the title suggests, gas prices’ recent rise was a key point of worry, with one-third of respondents mentioning prices at the pump. Interestingly, this gloomier reading occurred alongside a rising stock market, solid economic data and continued rumblings of a diplomatic end to the war, suggesting sentiment is slow to catch up. That isn’t terribly surprising, especially when you consider the war’s most obvious effect on everyday life, higher gasoline prices, persists. To us, it is all another batch of evidence showing consumer sentiment reflects headlines and how people feel in a moment, usually influenced by the very recent past. It isn’t predictive, telling you little about how people will actually behave. The last few years’ economic and consumption growth alongside historically weak sentiment reads shows you that in action.

MarketMinder’s View: Since this is inherently political, please note MarketMinder is nonpartisan, never preferring any party or politician over others. Our sole interest here is how congressional developments—or lack thereof—are likely to affect markets. As the headline hints, besides reopening the Department of Homeland Security after a record-long (by far) 76-day partial shutdown, there isn’t a whole heckuva lot Congress is doing … despite GOP control of both chambers and the White House. Consider the intraparty backdrop: “House Republicans are furious with Senate Republicans for jamming them with bills they don’t want to pass. Senate Republicans are exasperated with House Republicans, who are splintered into factions—whether the hard-line Freedom Caucus or blue-state Republicans or pro-ethanol members from farm states—that often tussle with each other.” Or the unsung procedural hurdle behind inaction: “House members gripe that the Senate is beholden to the filibuster rule that requires 60 votes for most legislation. The filibuster can force bipartisan cooperation. But working across the aisle has become anathema to many lawmakers, party activists and influencers. That aversion to compromise has led to gridlock and brinkmanship, pushing the country into shutdowns and toward default, over and over again.” Though we quibble with the “toward default” characterization (Uncle Sam is nowhere close to deadbeat and hitting the debt ceiling doesn’t raise default risk), this underscores a historic do-nothing Congress. The previous Congress passed 274 bills—the fewest since the Civil War. This one is only at 90 through late April. Notably for investors, stocks—hovering near record highs—don’t seem to mind. Indeed, we find they prefer gridlock, given it prevents government from picking winners and losers, lowering business uncertainty, while a stable legal and regulatory environment allows them to plan and invest. Moreover, all this is before midterm elections, in which the president’s party typically loses ground and likely invites even greater gridlock next year. While politics are only one market driver, we think this is a tailwind, as more fathom that a handcuffed government lowers uncertainty.

MarketMinder’s View: This piece runs through several potential second-order effects of the Strait of Hormuz’s blockage, warning they are already in motion and will bite developed world economies over the next several months—hitting the UK particularly hard—even if the Strait opens soon. Those include shortages of jet fuel, fertilizer and chemicals along with a higher risk of global shipping bottlenecks if countries bordering other chokepoints decide to get adventurous. While that last one seems far-fetched, as it rests on offhand comments from a single Indonesian official that the government immediately dismissed, the others are reasonable things to keep in mind. While most attention centers on the Persian Gulf’s oil and natural gas exports, the region is also a key source of fertilizer and chemicals, both of which are gas byproducts. Shipping blockages today will probably work their way through the supply chain gradually. However, it seems a bridge too far to extrapolate severe economic trouble from this—particularly severe trouble markets haven’t already discounted, as these issues are well known. We have seen this movie before, though few recall it now. In 2022, when Russia invaded Ukraine, it triggered supply fears beyond oil and gas. There were grain shortage fears. Headlines warned the noble gases used in semiconductor production would be in short supply, given Russia and Ukraine were key suppliers. That was going to cause a massive global chip shortage, allegedly. And fertilizer and chemical concerns loomed large, too, especially with gas shortages threatening Germany’s chemical plants. And what happened? Seeing these potential looming roadblocks, the world adapted. The widely feared global food price spike never occurred. Semiconductor producers adjusted. In this case, even if the Strait isn’t opened, workarounds like shipping via truck will help to mitigate the issues. That same resilience is alive today, likely rendering the worst fears false.