Here we analyze a selection of third-party news articles—both those we agree and disagree with.
Please note: Though we make every effort to source articles from freely available sites, we will also regularly include articles on sites that have limited content for non-subscribers. Doing so is increasingly unavoidable, as more and more financial media is published behind paywalls.
MarketMinder’s View: When volatility strikes, the search for a culprit goes into overdrive. This piece argues investors are fleeing European stocks not just because of rising COVID cases and new restrictions—most notably in Germany and France, the Continent’s two largest economies—but also because of the US presidential election’s uncertainty. Specifically, “At the back of all traders’ minds is the risk that this could be a contested election result or a drawn out conclusion like the 2000 ‘hanging chad’ vote. A prolonged delay would probably bring carnage to the markets, pushing the dollar and equities sharply lower.” During times like this, we remind investors that short-term volatility can arise for any or no reason at all. This is one of the primary challenges of long-term investing: remaining disciplined during the rocky periods. On the COVID front, we don’t dismiss the risk that today’s restrictions escalate and turn much harsher, panicking investors anew—but that is only a possibility, not a probability, right now. As for the presidential election, yes, we may not know the final results on November 3, but certainty will eventually arrive—if not in November, then by mid-December at the latest. It is possible negative volatility sticks around for the next couple weeks or longer, but in our view, staying cool and rationally assessing probabilities is more beneficial than reacting emotionally. For more, see today’s commentary, “The Best Asset in a Fearful Time: An Even Keel."
MarketMinder’s View: As China slowly and gradually opens its markets to foreign investment, global market forces start having greater influence—a point raised by this article. With the yuan strengthening this year, the People’s Bank of China seems to want to temper the currency’s rise. But more foreign investors owning Chinese government bonds limits policymakers’ options to an extent. “For a developing economy with fewer capital controls, the response to a currency strengthening beyond the levels the government wanted could be relatively simple. The central bank could cut interest rates, or at least allow the prices of the bonds to rally, bringing market yields down. That is an awkward option for Chinese authorities, with the central government nervous of unleashing the sort of corporate credit boom it did in the aftermath of the financial crisis in 2008-10, or fueling the continuing surge in household debt centered on the real-estate market.” Now, we aren’t overstating foreign investors’ influence here—according to a Wall Street Journal/Bureau of the Fiscal Service estimate, foreign investors own about 2.5% of Chinese bonds, whereas in the US, foreigners own about 29% of US debt. Rather, we raise this more as an interesting development: Whatever your thoughts are of China, its ties with global markets are strengthening—a long-term positive, in our view.
MarketMinder’s View: Here is a spate of the latest high-frequency economic data, from retail foot traffic and restaurant seatings to small business working hours and job openings. The broad conclusion: The data are slowing, and some fear the economic recovery has stalled in recent weeks—a trend that may worsen with COVID cases rising. It is possible growth slows in the near future, though that wouldn’t be surprising. The potential impact of COVID restrictions notwithstanding, reopenings following springtime COVID lockdowns led to summertime surges in economic activity. Slower future growth shouldn’t shock since the base is now higher. Plus, while these indicators can be a handy snapshot, many come with caveats, and because they are so widely followed now, we don’t think they give investors much of an advantage. For more, see our 9/30/2020 commentary, “The Real Limits of Real-Time Data.”
MarketMinder’s View: Fund flows are an imperfect metric as they show you only one half of a decision—investors may be selling out of Tech exchange-traded funds (ETFs), but what they did with the proceeds is unknown. With that said, fund flows can provide a sense of sentiment, and the latest suggest fear is prominent now. “Investors are on course to pull the most money out of technology-focused exchange-traded funds since May last year, according to data compiled by Bloomberg. More than $1.5 billion has exited so far in October.” Folks, this is a real time example of people reacting to volatility and selling into a downturn—a classic error, in our view. Always look forward, not backward, and look most at the sector’s fundamentals. Do so with Tech and Tech-like stocks, and you will see strong demand globally for hardware, software and cloud services, which should buoy these companies’ earnings and revenues over the foreseeable future.
MarketMinder’s View: This piece shows the importance of reading beyond the headline. Yes, September Japanese retail sales fell -8.7%, its seventh straight negative monthly reading—but on a year-over-year basis, meaning developments from 12 months ago still affect the headline number. That is relevant in Japan’s case since a sales tax hike took effect October 1, 2019, which likely pulled some retail sales forward. Math-wise, that boosted the base for September’s year-over-year comparison, as noted here: “Analysts also said the year-on-year decline was exacerbated as people rushed to buy ahead of a sales tax hike in October last year.” On a month-over-month basis—which provides a better sense of what recently happened—September retail sales fell a more modest -0.1% following August’s 4.6% rise. We aren’t saying Japanese personal consumption is doing better than appreciated—on a monthly basis, retail sales are mixed, having dipped four times and risen five this year. Rather, in our view, looking under the hood shows reality is a bit more nuanced than headlines portray it.
MarketMinder’s View: This article details Germany’s so-called “lockdown light,” which will take effect nationwide starting November 2 and last at least one month. The new rules include a return to strict social distancing measures, travel restrictions and working from home for non-essential business. However, schools, shops and restaurants (for takeout) will remain open. The latter half of the article highlights the public’s reaction, which indicates growing dissatisfaction with the measures. For example, some surveys have found “... there is a growing number of people critical of restrictions, who believe that fighting the virus should be a question of personal responsibility. The most recent survey shows that a narrow majority of Germans agree with this view: 54% compared to 43% who say authorities should put restrictions in place.” Although political decisions defy forecasting, it seems officials are aware of the public mood and remain rather reluctant to impose more draconian measures—the type of restrictions from this past winter and spring. We will continue closely monitoring the lockdown situation in Germany—and globally—for any evidence that is changing.
MarketMinder’s View: This short article highlights why tariffs’ consequences are more political than economic—particularly under President Trump. In 2019, Trump had granted Canada a 10% tariff exclusion on its raw aluminum exports to the US, but after a surge in Canadian non-alloyed, unwrought aluminum imports, the president re-imposed the tariff in August—angering Ottawa. Then, “After consulting with Canadian counterparts, [the Office of the US Trade Representative] said Canada was now expected to export just 70,000 to 83,000 tons of raw aluminum per month through December -- about half the monthly rate from January to July.” That prompted the president to lift the tariff again (retroactive to September 1). We highlight this duty dance because for all the sound and fury surrounding tariffs, the actual impact has yet to be consequential economically. We think the one-month tariff on Canadian aluminum is a microcosm of how “trade war” bluster hasn’t matched the feared hype.
MarketMinder’s View: Please note MarketMinder is politically agnostic, favoring no party or politician. We assess political and policy developments solely for their potential market impact. In June, we wrote about the titular law—Section 230 of the Communications Decency Act— after President Trump’s executive order questioned social media platforms’ online speech protections. With Tech executives in the news today testifying about the law before the Senate, our opinion remains the same: This issue seems more political bark than bite right now. This article provides some helpful background about the law’s history for those interested, but in terms of potential legislative change, little is likely to happen overnight: “In September, the Justice Department proposed that Congress take up legislation to curb [Section 230 protections]. The bill would need congressional approval and is not likely to see action until next year at the earliest.” Changes may (or may not) come, but any that do will probably be glacial—and unsurprising at this point. It isn’t as if stocks are unaware of these highly publicized discussions and possible legislation—and it is the surprise factor that moves stock prices most, in our view.
MarketMinder’s View: Are big changes afoot for Social Security? This article surmises that whoever wins the presidency “... will have little choice but to stretch out his hand toward the third rail of politics.” It then shares some of President Trump’s and former Vice President Biden’s ideas for Social Security reform—e.g., eliminating the payroll tax and paying for the program through the federal budget for the former, taxing higher earners for the latter. However, rather than getting too worked up over either candidates’ words, we think looking at previous Social Security reform is more instructive. When Congress last touched the third rail in 1982, its reforms were more incremental than sweeping, including raising Social Security taxes a tad higher and lifting the age to be eligible for full benefits to 67 for workers born in 1938—who, at that time, were 23 years from said retirement age. These and other tweaks were sufficient to put the program on sound footing for the next several decades. We don’t know what the next administration and Congress have in store, but we wouldn’t automatically assume anything radical. For more on why, please see Elisabeth Dellinger’s column, “Social Security Is Still Pretty Secure.”
MarketMinder’s View: There is potential retirement legislation on the horizon that appears to have bipartisan support, giving it a chance to become law regardless of the election’s outcome. “The bill would automatically enroll employees in their company’s 401(k) retirement plan, increase a tax credit for low-and-middle income individuals who save for retirement, and allow individuals who are at least 60 years old to save more for retirement in tax-favored accounts.” Moreover, as the article notes, the legislation would raise the age investors must take a required minimum distribution (RMD) from qualified retirement accounts from 72 to 75. It would also allow young workers to, “... pay down student debt instead of contributing to their retirement account, but still receive an employer match in their retirement plan.” Whether you think that sounds grand or not, the devil is in the details, and rule changes create new winners and losers. In our view, it is something worth keeping an eye on.
MarketMinder’s View: This uses correlations to argue the headline thesis, then goes too far in concluding that not only are stocks not the economy, but “the stock market just doesn’t care about the economy.” We agree with the broader thrust that stocks aren’t GDP, but basing this on correlations between the S&P 500 and GDP strikes us as getting too cute with data and ignoring the big picture. One, as the article notes, they measure different things. The stock market represents the value of corporations’ future earnings. GDP captures all economic activity, including the small businesses and self-employed people excluded by the stock market—as well as government spending, which it treats as always and everywhere positive, as if federal and state officials never spent a single dime inefficiently. But none of this is a valid reason to say stocks don’t care about the economy, in our view, because economic trends influence corporate sales and earnings. As for correlations, which measure how frequently two variables move in the same direction, stocks and GDP often diverge for three reasons. One, stocks are volatile in the short term, often wobbling along a broader trajectory. Two, stocks are leading economic indicators. Bear markets usually begin and end several months before their corresponding recessions. Three, the economy isn’t the only influence on stocks—political drivers matter, too.
MarketMinder’s View: This is a smattering of sociology and anecdotal evidence writ large, but it illustrates a critical point: Households, by and large, entered this recession with strong balance sheets and have faced the past few months with creativity and frugality. That cuts against the widespread theory, which peppers this article’s last few paragraphs, that the expiration (and only partial replacement) of extra federal unemployment benefits would kill consumer spending and the nascent economic recovery. “Despite the pandemic’s economic devastation, which has tipped millions of people into unemployment, many American households are in relatively good shape. Since April, consumer savings have increased, credit scores have surged to a record high and household debt has dropped. The billions of dollars that banks set aside at the start of the crisis to cover anticipated losses on loans to customers have been largely untouched. And lending at pawn shops and payday lenders, where business tends to boom during downturns, has been unexpectedly slow.” With this backdrop, we don’t think it is shocking that retail sales surpassed pre-pandemic highs after the CARES Act provisions expired (consumer spending data for September will be out later this week), and we don’t think it is unreasonable to expect growth to continue.
MarketMinder’s View: As always, MarketMinder is politically agnostic. We favor no political party or politician and assess political developments solely for their potential market or economic impact. From that standpoint, the Supreme Court’s 5 – 3 decision to reject a request to extend Wisconsin’s mail-in ballot receipt deadline beyond November 3 settles some lingering uncertainty over how long it will take for investors to get the results from one key swing state, helping solidify the timeline. Now, you may wonder how the court justified this, given it left Pennsylvania’s extension unchanged in a ruling last week. In short, Pennsylvania’s extension stemmed from a state-court ruling. Wisconsin’s was a federal court ruling, and the states have purview over voting rules and deadlines. Beyond that, we think these rulings are a preview for how all election-related legal challenges will likely proceed: orderly and quickly, with an eye toward all relevant deadlines. This should help limit the chaos, despite what you might hear from extra-shouty partisan pundits. For more, see our 10/20/2020 commentary, “Election Clarity: Possibly a Bit Delayed, but Still Coming Soon.”
MarketMinder’s View: While the UK’s official October retail sales report won’t be out until a few weeks after the month actually ends, the Confederation of British Industry’s survey showed retail sales volumes falling -22% y/y (according to the official press release), with 23% more businesses reporting falling sales than rising sales. We have explained before how this survey differs from the official report, making it a relatively unreliable predictor, and we won’t belabor that again. Instead we ask: What if it is correct and sales are tumbling anew? Considering a renewed economic contraction is widely expected, we just don’t see much long-term market-moving surprise power here. If anything, surveys like this help set expectations lower, extending stocks’ wall of worry. We aren’t dismissing a new COVID wave and mass lockdowns as a risk for stocks, but in our view, weakening UK retail sales just aren’t sufficient evidence of this coming to fruition—especially with only Wales actually closing businesses right now.
MarketMinder’s View: Here is a positive economic tidbit for your Tuesday: South Korea’s Q3 GDP beat expectations, rising 1.9% q/q—its fastest expansion since Q1 2010—reversing Q2’s -3.2% q/q decline. Underpinning growth: Exports, which soared 15.6% q/q thanks to economic reopening globally, as well as strong demand for high-tech goods necessary for remote working and learning. Additionally, private consumption fell less than expected, dropping -0.1% q/q—undercutting fears of South Korean demand drying up due to renewed coronavirus restrictions in place for much of August and September. While this is all backward-looking—largely meaningless to forward-looking stocks—growth in Asia’s fourth-largest, Tech-heavy economy is a positive for the global economy. We don’t have a lot of use for the anecdotal evidence of growth at the back end of this piece, but if you need a little encouragement that life can return to normalcy after the pandemic, perhaps they provide that.
MarketMinder’s View: Durable goods orders jumped another 1.9% m/m in September, with core capital goods orders (non-defense ex. aircraft) beating expectations with a 1.0% rise and surpassing pre-pandemic levels. This basically shows a slice of business investment in equipment has come all the way back, which is impressive when you consider that despite the article’s framing, Congress hasn’t unleashed a drop of actual stimulus on businesses (just bailouts). While this is good news, as the article also shows, people are already looking forward and dismissing September’s results as temporary, eyeing a potential virus resurgence and Q4 weakening. Keep this in mind if data do indeed worsen: Markets move most on surprises, and a weak Q4 is rapidly losing surprise power.
MarketMinder’s View: With the election just around the corner, this piece is but one example of many highlighting the historical tidbit that markets usually rise in the days leading to a US election. While fun for market trivia nerds, we remind long-term investors that what markets do in a given week—whether positive or negative—shouldn’t influence your decision-making. Any such move would be quite myopic and unwise, in our view.
MarketMinder’s View: As always, MarketMinder doesn’t make individual security recommendations, and we highlight this piece to emphasize a broader theme. That theme: what to make of the Health Care sector in the foreseeable future. We are of two minds on this piece. On the one hand, we agree that COVID-19’s initial impact on some Health Care stocks—namely, those more focused on non-essential surgeries and medical devices—seems behind us. However, we quibble with this piece’s argument that the Health Care sector’s recent performance may be a preview of future weakness related to Affordable Care Act uncertainty and a potential “blue wave” sweeping through Washington this year. For one, Health Care stocks outperformed the broader S&P 500 in September and they are in line with it this month to date—that has us questioning the notion that the approaching election is weighing on their returns. Beyond this, we still don’t know what the next government will look like, let alone what type of policy they will focus on—much less, pass. Two, the Health Care sector is much more diverse than the conventional wisdom suggests. Some industries (e.g., Pharmaceuticals) are pretty stable while others (e.g., Equipment & Supplies) are more economically sensitive. Treating the sector as a monolith overlooks these key differences. For more, see our 5/8/2020 commentary, “How to Think About Health Care Stocks Now.”
MarketMinder’s View: Please note, MarketMinder doesn’t make individual security recommendations, and we share this article to highlight a broader theme. One popular concern lately is that a sea of amateur investors, armed with time and boredom, are flooding stocks—a potential sign of irrational euphoria. This anecdotal piece shares how two frugal investors went from diligently saving and investing in index funds to monitoring the markets daily with the fervor of day traders. We have read similar stories to this one, and while interesting, we caution readers against treating these observations as definitive proof of anything. Yes, some account activity data suggest a surge in new brokerage accounts this year. A number of factors are likely at play, including the ease of trading, higher savings rates and the “boredom” theory. Yet this isn’t necessarily a bad thing. Investors, whatever their age and experience, participating in markets—and making mistakes—is a valuable educational experience. Note, too, the investors profiled here estimate 10% – 20% of their money is in this day trading—not quite the same as investors who borrowed to chase sky-high returns back in 2000. Moreover, what isn’t shared here—or in many of the other articles claiming this trend illustrates euphoria—is the small dollar amounts involved. This is why many of these stories document cheap trading in fractional shares. For more, please see Christopher Wong’s 6/25/2020 column, “Have Markets Gone Young, Wild and Free?”
MarketMinder’s View: This piece claims that if Congress doesn’t pass additional coronavirus aid before Election Day—unlikely, given we are now a week away—personal consumption will falter, stalling the US economic recovery and perhaps risking a broader economic collapse. We think that bleak scenario is off base. We don’t diminish the struggle millions of American households face this year, but the notion government aid alone is supporting the economy seems overstated, in our view. As this article acknowledges, “… lifelines that propped up the economy in the early weeks of the pandemic — like the $670 billion Paycheck Protection Program, a one-time $1,200 stimulus check and sweetened unemployment benefits — lapsed months ago.” Executive orders extended some of these benefits, but the assistance didn’t match the initial measures’ scale. Yet the economic recovery remains intact. People find ways to adapt during tough times, and most won’t roll over because government aid dries up. That said, don’t be surprised if this story remains in headlines for the next several months—politicians are fond of dragging out negotiations.