Daily Commentary

MarketMinder’s View: Some more positive news for America’s factory sector, as the Institute for Supply Management’s July manufacturing purchasing managers’ index (PMI) rose to 55.6 from June’s 53.3, marking its highest reading since May 2022 (50.0 marks the line between expansion and contraction). The report was broadly strong as all but one industry (chemical products) showed growth, and the forward-looking new orders subindex ticked up from 56.0 to 56.7—a positive sign for future production. Export orders notably improved, jumping from June’s contractionary 48.5 to 53.0. Note this broad improvement happened despite raw materials prices still rising swiftly (easing just slightly from 73.0 to 71.1), illustrating demand’s resilience in the face of higher costs. Now, it is worth noting PMIs measure only growth’s breadth, not its magnitude, and their backward-looking nature renders them largely moot for stocks’ direction ahead. This reading also contrasts somewhat with S&P Global’s manufacturing PMI, which matched June’s three-month low at 53.9 and showed softer new orders growth and declining international sales. But both surveys showed continuing factory growth in July, defying pundits’ worries at the war’s outset.

MarketMinder’s View: “Seven members of the broader group called OPEC+ said Sunday they will raise output by about 188,000 barrels a day in September, a sixth straight monthly increase. The participating countries include Saudi Arabia—the group’s de facto leader—along with Russia, Iraq, Kuwait, Algeria, Kazakhstan and Oman.” In a vacuum, this may sound like positive news for global oil supply and thus prices, which rose throughout much of July. Yet the OPEC+ cartel’s production targets aren’t as influential as many think—and not just for the war-related reason provided herein. In reality, OPEC’s influence on global supply has waned significantly over the past decade-plus due to the US’s shale boom. Two, OPEC participants have consistently missed their production targets tied to weak enforcement and various local constraints. Before the war, the cartel consistently overshot its targets. Since the war broke out, as the article notes, several states have undershot. So while OPEC may be “planning” to add to global supply, it doesn’t mean they will. Ultimately, though, markets are looking at the global supply and demand landscape over the next 3 – 30 months, which has little to do with production targets from a handful of producers.

MarketMinder’s View: As always, MarketMinder doesn’t make individual security recommendations. But we do think investors benefit from doing thorough due diligence and knowing all relevant facts about any investment they are considering, and we bring you this piece because private funds’ tax implications are a big factor … and one that doesn’t get much mention. This article highlights a study showing how much taxes can eat at these investments, knocking a full two percentage points off annualized returns. The control group, which invested in publicly traded assets, had a smaller tax burden and higher post-tax returns. “If you think about it, that makes perfect sense. An index fund holding publicly traded stocks can generate almost no tax bills for as long as you own it, especially if it’s a broadly diversified ETF. On the other hand, private-credit funds specialize in high-interest loans; many hedge funds trade rapidly, generating short-term capital gains; private-equity funds produce big payouts when they sell portfolio companies. Other alternative strategies, including private real estate, also tend to produce titanic tax bills.” Obviously, any study dealing with portfolio simulations will have some flaws, as the article concedes. And in tax-deferred accounts, the calculus changes. But private funds are spreading far beyond 401(k)s and traditional IRAs, making it important to take a cold, hard look at the tax math. “Remember that with publicly traded stocks, dividend income is usually low and you can defer capital gains at will. With private funds, however, if you’re a typical upper-income individual investor, [financial planning researcher Andrew] Ang thinks a ‘reasonable assumption’ is that your after-tax rate of return would be roughly one-third lower than the reported pretax return.” Think long and hard about how that meshes with your long-term goals.