3 Things You Need to Know This Week | Midterm Miracle, US Jobs, Tax Planning

Transcript

Charles Dornbush:
Hello, and welcome to 3 Things You Need to Know This Week— our regular series designed to help you sift through the noise across financial media and understand what really matters for markets. To stay up-to-date with our latest market insights, subscribe to our YouTube channel, or visit fisherinvestments.com. And with that, here are three things you need to know this week.

First, the NATO Summit.
Beginning Tuesday, leaders representing the North Atlantic Treaty Organization, known as NATO, gather in Ankara, Türkiye, for the alliance's annual summit. This year's meeting takes place against a complicated backdrop. There's the ongoing war in Ukraine and continued conflict in the Middle East— and persistent friction over how to share the cost of military preparedness fairly among member nations. At last year's summit, the allies committed to spending 5% of gross domestic product on defense each year by 2035. That's a major step up from the 2% pledge they made in 2014. Heading into this year's gathering, European leaders are expected to reaffirm those commitments. At the same time, they're navigating pressure from the Trump administration and pushing forward on long-term defense industrial cooperation. Here's where it gets interesting for investors. On the surface, more spending and persistent geopolitical conflict sounds like a clear tailwind for Aerospace and Defense companies. More contracts, more revenue, more profits. Simple, right? Not quite. Consider what happened after Russia's invasion of Ukraine in February 2022. Aerospace and Defense stocks initially outperformed sharply as investors rushed in to price in higher spending. But after that initial surge, the group largely performed in line with the broader market in 2023 and 2024, even as the war continued and budgets kept climbing. We think a similar pattern looks likely now. Why? Because higher NATO budgets, ongoing regional conflicts, and expanded industrial cooperation are already widely anticipated, discussed, and likely baked in to current prices. So rather than chasing a single sector based on headlines from the NATO summit, long-term investors are usually better served by staying diversified and disciplined. That's the approach that tends to reward you over time, no matter what dominates the news cycle.

Next, minutes from the Fed's June meeting.
This Wednesday, the US Federal Reserve releases minutes from its June policy meeting, the first under new Fed Chairman Kevin Warsh. In June, policymakers voted unanimously to hold the federal funds rate at 3.5 to 3.75%. That's the fourth meeting in a row with no change. Naturally, many investors are wondering whether these minutes offer fresh clues about where monetary policy heads next under new leadership. Notably, Warsh himself did not submit a forecast to the so-called "dot plot," leaving 18 of 19 officials weighing in on the potential future path of rates. And those views are split. Nine officials see at least one more rate hike this year. Six anticipate at least two. Another nine expect no move at all, or even a cut. In other words, there's no clear consensus. Regardless of what the meeting minutes show, we'd caution investors against reading too much into them. And there are two good reasons why. First, predicting the Fed's next move is inherently tricky. Policymakers often shift their views as new data emerges, and Fed officials have a long history of saying one thing and later doing another. Second, the minutes are not full transcripts. They're carefully edited and curated for public release, which means critical context can be omitted. As we've noted before, monetary policy is just one of many factors influencing markets, and its effect is far from predetermined. Long-term investors don't need to obsess over meeting minutes or try to predict the Fed's next move.

Finally, quarterly reporting requirements.
Recently, we've seen an uptick in stories about a proposal from the Securities and Exchange Commission, or SEC, to change the reporting requirement for publicly-traded firms from quarterly to semi-annually. The public comment period on the SEC's proposed rule closes today. Nothing is finalized yet, but that hasn't stopped many in financial media from speculating. So let's separate the signal from the noise. The proposal would allow companies the option to file semi-annual reports instead of the current quarterly cadence. President Trump reignited this long running bipartisan discussion last year, suggesting regulators shift to a six-month reporting schedule. This isn't the first time this idea has come up. President Trump floated a similar proposal back in 2018 during his first term, asking the SEC to study the matter. No actionable recommendations followed then. Whether this time proves different remains to be seen. Proponents argue that reducing reporting frequency could ease compliance burdens and encourage more companies to go public. It's worth noting that this would not be unchartered territory. Semi-annual reporting is already the norm in the European Union, with no notable negative impact on stocks there. For investors, regulatory changes like this tend to draw plenty of attention, especially when they touch on something as closely watched as quarterly earnings. Changes are worth monitoring, but historically, rule changes like this take years from initial discussion to implementation. That gives markets ample time to digest and adjust well before any shift takes effect.

And that's it for this episode of 3 Things You Need to Know this Week.
For more of our thoughts on markets, check out This Week in Review, released every Friday. You can also visit fisherinvestments.com. Thanks for tuning in, and don't forget to hit like and subscribe.