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: This article argues the economy—and stocks—will tank when “the average unemployment benefit for Americans put out of work will tumble by more than 60% at the end of July, hobbling the incomes of millions of laid off workers -- many of whom may not be able to return to their jobs given the renewed shutdowns now affecting swathes of the economy from California to Florida.” We don’t dismiss the hardship many households may face whenever that benefit goes away—whether in the next couple weeks or at a later date should Congress decide to kick the can down the road. However, from an investing perspective, this piece’s thesis is tantamount to saying markets aren’t aware of this widely known deadline. Yet in our view, stocks are efficient discounters of all widely available information—and that includes CARES Act provisions. Stocks know unemployment benefits are less critical to an economic recovery than ongoing reopening in the US and abroad—and monitoring this progress is more important, in our view.
MarketMinder’s View: We don’t think this is a perfect take on June’s consumer price index (CPI) report, which stated consumer prices rose 0.6% y/y (and 0.6% m/m). However, it provides an important reminder about a common misperception about headline inflation—namely, it won’t necessarily reflect individuals’ experience with rising prices. Consider: “prices for food at home were up 5.6% from a year earlier, a reflection of both the increase in demand grocery stores have experienced and the increased food production and transportation costs the virus has brought on. This matters when it comes to inflation expectations because consumers tend to pay closer attention to food prices than they do to prices on items that they buy less frequently.” Your personal cost of living will depend on myriad factors including where you live, your stage of life and even your preferred activities. The national CPI report tracks a basket of different goods and services, and it won’t necessarily tell you about the prices most relevant to your personal situation.
MarketMinder’s View: Europe has been a bright spot lately, a heartening development, in our view. After suffering some of the worst outbreaks during the virus’s first wave, the Continent has been slowly returning to normalcy—and the data back it up. As noted here, May eurozone retail sales surged 17.8% m/m as most of Western Europe began reopening, and some economists are even revising their outlooks from “disastrous” to simply “bad.” However, this article also shows plenty of skepticism persists, from arguments that government aid measures are supporting consumer spending to doubts about the recovery’s sustainability—particularly if a new COVID wave strikes. In our view, this is further evidence of how entrenched the “Pessimism of Disbelief” is right now—a common feature of young bull markets. We acknowledge some government programs have likely helped tide many individuals though the recent rough patch. However, in our view, fewer government restrictions—i.e., allowing businesses to reopen—are the primary driver for the recent rebound in economic activity. As for the prospect of the virus causing European nations to shut down again, it is possible—Germany, Spain and the UK, for example, have already imposed targeted local lockdowns—but not inevitable, in our view. We aren’t dismissing the risk, and the recovery doesn’t have a set path from here. But most experts seem to be defaulting to a worst-case scenario—information for markets to digest, which helps saps negative surprise power should it occur.
MarketMinder’s View: China’s exports and imports rose in June, beating expectations and rebounding from a contractionary May. Specifically, exports were up 0.5% y/y and imports enjoyed a 2.7% y/y uptick (compared to May’s declines of -3.3% and -16.7%, respectively). While these numbers provide further evidence of the global economy’s gradual reopening progress, we thought this coverage highlighted an interesting tidbit: “Chinese imports from the U.S. rose for the first time since the new coronavirus emerged earlier this year, showcasing Beijing’s post-pandemic purchasing power even as political tension between the world’s two largest economies continues to rise. China’s appetite for meat and other agricultural goods helped Chinese imports of U.S. goods to jump by 11.3% in June from a year earlier, after a 13.5% drop in May, data from Beijing’s General Administration of Customs showed Tuesday. The Chinese buying helped to narrow Washington’s trade deficit with Beijing from a year earlier, though Chinese exports to the U.S. also improved, rising 1.4% in June from a year earlier after a 1.3% decline in May.” In our view, this is a timely reminder of the importance of separating economic reality and political chatter. Harsh rhetoric between US and China will grab headlines and stir concerns of possible economic fallout. Yet the data tell a different story: Politicking doesn’t mean business stops, especially as COVID restrictions ease.
MarketMinder’s View: This argument’s thesis: COVID-19 has accelerated Social Security and state pensions’ funding issues, and the remedies are different flavors of pain. For example, in the case of Social Security, “The Trust Fund Trustees state that ensuring solvency over the next 75 years would require a 3.1- percentage point rise in the 12.4% current payroll tax that is split between employees and employers. Even less politically attractive would be an immediate 19% across-the-board cut in benefits. Waiting for the Trust Fund money to run out in 2035 would require a 4.1-percentage-point rise in the combined payroll tax or a 25% cut in benefits, the Trustees calculate.” No doubt the novel coronavirus has wrecked all sorts of economic forecasts, from 2020 corporate earnings to future long-term benefits. Yet we caution investors—especially those who may be receiving Social Security now or in the near future—against assuming their personal benefits will take a hit. For one, long-term forecasts aren’t prescient—far too much can change between now and 2035 for better or worse (see COVID-19 with any questions on that). But two, this article inadvertently shows why Social Security’s future isn’t necessarily in jeopardy: Political decisions play a big role here, and politicians have a tendency to kick issues down the road until they absolutely must act. Congress has changed the rules before, and while we won’t predict what future updates may be, we rather doubt pols’ behavior will change materially. They are in the business of getting reelected, and they will likely do what is necessary to keep their constituents’ support. For more, see Elisabeth Dellinger’s column, “Social Security Is Still Pretty Secure.”
MarketMinder’s View: UK GDP rose 1.8% m/m in May after April’s historic -20.3% plunge. The positive read disappointed some, as economists forecast a 5.5% rebound. Though production rose 6.0% m/m (and the manufacturing subsector grew 8.4%), the services sector was up just 0.9%. Services comprise around 80% of UK GDP, so its growth or contraction will heavily influence the headline number. Given the UK didn’t start reopening until May—and many restrictions applying to services-oriented businesses like restaurants remained in place through June—slower-than-expected monthly growth isn’t surprising. For investors, this report provides a preview of Q2 GDP, and spoiler alert, the numbers will almost certainly be worse than Q1’s weak figures. But while many experts are resigned to weak future growth due to potential “economic scarring,” poor April – June data don’t tell you where the economy is headed next. Nor do they predict stocks, which are typically forward-looking. We don’t know what the recovery will look like—that largely depends on economic reopening progress—but today’s prevalence of dour sentiment sets a low bar for reality to clear. That is a bullish development, in our view.
MarketMinder’s View: Many Energy market observers are waiting with bated breath as OPEC+ meets for a check-in this week. The reason: The group will discuss whether they should extend output cuts or allow members to boost production. We won’t speculate on the meeting’s outcome—importantly, the oil ministers will make only a recommendation, not a policy decision, so a lot can still change. However, this piece makes far too much of OPEC+’s role in today’s global Energy markets, in our view. Sure, their threats and policy decisions can roil sentiment in the short term. But OPEC+’s control over oil prices isn’t what it used to be thanks to non-OPEC+ producers (e.g., American shale). As noted here, the slump in US oil production appears to have stabilized—perhaps a sign some companies are reopening their wells. Moreover, some OPEC+ members appear to be accounting for more production: “… producers are already starting to implement the tapering. With allocations of August cargoes now underway, several producers, including Russia, have already factored an easing of the output cuts into their production and loading plans. It will be difficult at this late stage for them to reverse that process.” Not to mention production cuts rely on compliance from member states like Iraq and Nigeria—which have a spotty record of adhering to their quotas. For those monitoring oil prices, we believe the factors affecting supply and demand extend far beyond the discussions of an increasingly irrelevant cartel.
MarketMinder’s View: This article documents the fact that the COVID-related lockdowns’ unprecedented economic impact has thrown analysts for a loop in trying to estimate Q2 earnings. After all, “more than 180 companies in the S&P 500 have pulled their earnings guidance in the wake of the economic crisis wrought by the coronavirus pandemic, limiting the visibility of investors. … With limited corporate guidance, the median spread on analysts’ earnings forecasts for companies in the S&P 500 has jumped to 40 cents for the second quarter from 30 cents in the first, according to Dow Jones Market Data. In comparison, the median spread ranged from 9 cents to 16 cents over the previous 13 years.” It argues this is a negative, leaving investors blind entering a key stretch in the market. We see this differently. Q2 is already over and no one expected results to be good. The huge disparity in estimates, in our view, is something markets were well aware of. See our 6/30/2020 article, “With Q2 Data Coming Soon, Expect Awful,” for more on that. We think it is one reason why markets are likely looking far past this quarter—effectively writing it off. While there likely still will be very short-term reactions to releases, we doubt Q2 earnings season is really all that much of a watershed time for stocks. In the end, simply getting more information of COVID-19’s impact on companies should help further shape expectations, reducing uncertainty.
MarketMinder’s View: “Companies around the world will take on as much as $1 trillion of new debt in 2020, as they try to shore up their finances against the coronavirus, a new study of 900 top firms has estimated. The unprecedented increase will see total global corporate debt jump by 12% to around $9.3 trillion, adding to years of accumulation that has left the world’s most indebted firms owing as much as many medium-sized countries.” Possibly. We don’t doubt global corporate debt will rise significantly this year. But the more important question to ask is whether soaring corporate debt figures spell future trouble, and this article does little to try to assess or scale these figures beyond simply estimating what certain countries’ corporate debt loads will be at 2020’s end. Absolute figures—like the $1 trillion number this throws out—don’t help much. In our view, it is far more telling that US and developed world interest coverage ratios—the ratio of earnings before interest and taxes to interest expense—are still above 6, where they have been since 2016. (Source: FactSet) While this could certainly change if rates rise, it would likely take considerable time, given most corporate debt is issued at fixed rates. Hence, rising global corporate debt doesn’t seem likely to trigger a vast wave of defaults ahead.
MarketMinder’s View: Following a broad trend among investors and analysts, Germany’s central bank built an index of nine timely indicators, which it dubbed the Weekly Activity Index. These include electricity consumption, truck tolls, air traffic, pollution—and a few rather questionable things like consumer confidence and various Google searches around unemployment. It then tallies them over rolling 13-week periods—odd, considering the point of high-frequency data is to capture newly emerging shifts. Regardless, in the 13 weeks to July 12, the WAI registered a -2.7% contraction—a far slower rate than the prior week’s -3.5% and less than half June 14’s cycle low (-6.66%). While these data don’t predict economies’ or markets’ direction, we think they help show the impact of economic reopening.
MarketMinder’s View: The investment being: Sovereign bonds tying their yield to GDP growth—it would rise in expansions and fall in contraction. The article argues they are particularly interesting and sensible because they are actually tied to the economy—which it goes on to say is unique and a crucial characteristic, seeing as this year has supposedly demonstrated that stocks and traditional bonds are disconnected from it. However, this perception misses a couple of points, in our view: Markets lead the economy. They typically look ahead to potential economic scenarios 3 – 30 months from now. Hence, they typically reflect GDP improvements months before data actually show them. Moreover, there is little reason to think these bonds would work differently. If the market were sufficiently deep and liquid, it is highly likely investors would act in anticipation of economic conditions, with bond prices rising and falling to shift the actual yield investors earned. Finally, GDP growth isn’t a direct reflection of “the economy,” for both calculation reasons and its inability to keep up with innovations and shifts as economies dynamically change.
MarketMinder’s View: First off, to the notion of more readily available fractional shares’ spurring the titular stampede into stocks, don’t overstate the impact. Yes, younger investors do seem to be dabbling in stocks for the first time using this approach, in great numbers, but the data on account openings don’t go far enough back to determine whether the number of newcomers is far out of line with historical norms. Plus, if people are buying fractional shares because they aren’t putting enough to work to buy a whole share without losing diversification, they are not putting much in the market at all. This alleged rush into speculative day-trading amounts to a teensy sliver of total global stock market capitalization. But with all that out of the way, we have some philosophical quibbles with those here who pooh-pooh younger investors for starting out this way, with fractional shares on trading apps. Will they get rich quick? Of course not. But investing isn’t about getting rich quick. If people are investing for the first time with fractional shares and learning first-hand the power of compound growth, on however small a pool of money, that is a valuable learning experience that lays the ground work for decades of investing to come. Besides, two of the individuals here have degrees in Finance, so it would appear to us they are practicing what they learned in school. In our view, developments that democratize capital markets, extending their fruit to all, are overall good—not bad. For more, see Christopher Wong’s column, “Have Markets Gone Young, Wild and Free?”
MarketMinder’s View: With investors on tenterhooks over the possibility of a second global lockdown as COVID-19 cases resurge, Japan’s reaction to an uptick in cases shows why that outcome isn’t automatic. As officials noted today, while the virus is spiking in Tokyo, fewer patients have severe cases, and most of those infected are in low-risk groups. That has eased the strain on the hospital system, negating the need for a return to lockdown for now. So long as this remains the situation, overall and on average, reality should prove better than investors broadly fear at the moment.
MarketMinder’s View: Mainland Chinese stocks went parabolic this week, prompting fears of a repeat of 2015’s bubble and subsequent crash. People have scrutinized everything from state-run media editorials first encouraging, then discouraging, the rally, to central bank policy and the amount of margin debt outstanding. We would simply offer a couple of observations. One, a week’s performance doesn’t mean there is—or isn’t—a bubble. No market movement predicts future performance or is all-telling, and a week is a pretty darn short period of time. Two, mainland Chinese stocks have long functioned differently than their global counterparts due to the heavy restrictions on foreign investment. Within China, most investors view real estate as their preferred long-term asset. Stocks have historically been for dabbling rather than building long-term wealth, although that is perhaps gradually changing. At any rate, mainland Chinese stocks have always been somewhat detached from economic fundamentals, so trying to justify their performance based on what the economy is doing seems fruitless to us. Considering the vast majority of US investors can’t access stocks traded in Shanghai and Shenzhen anyway, we recommend staying detached from the hype. China’s last domestic stock market bubble and crash didn’t ripple globally, and capital controls haven’t much loosened since then. Plus, the Chinese stocks that US investors do have access to are traded globally and therefore somewhat separate from mainland exchanges’ wild trends, so none of this is hugely applicable for investors outside China—even those owning Chinese stocks—in our view.
MarketMinder’s View: The intended audience for this piece is small business owners, not investors, and it offers seven indicators that hint at short-term economic developments. In our view, they are a mixed bag. High-frequency indicators including restaurant reservations and TSA checkpoint traffic are real-time snapshots of how people are responding to easing lockdowns, and purchasing managers’ indexes are a fast look at the percentage of businesses reporting increased activity in a given month. They are handy pulse checks. But small business optimism simply measures sentiment, which is coincident at best, not predictive. Real estate metrics cover a sliver of economic activity. So does chemical usage. Keep an eye on any and all of them, if you like, along with others, but no indicator is all-telling—and nothing here will give you an investing edge, considering how widely used all of these are.
MarketMinder’s View: “The euro area’s third-largest economy saw production jump 42% from the previous month, compared with forecasts for a 24% increase. However, even with that gain, output is still down more than 20% from a year earlier.” That about sums up sentiment toward heavy industry’s recovery not just in Italy, but also France, Germany and Spain. France beat expectations, while Germany and Spain trailed. With output still not back to breakeven and some government support plans phasing out, the experts weighing in here expect a grinding recovery. For stocks, that shouldn’t be a problem. People often conflate stocks and the economy, presuming a V-shaped recovery in the former must be irrational if the economy doesn’t provide a perfect echo. But stocks usually recover faster than the economy, as they are leading indicators. During a recovery, they typically look not at the near future, but further out, over the next 30 months or so. See 2009 for an example. The path the economy takes to get to where stocks anticipate isn’t as important as whether reality at the end of it meets, beats or trails expectations. With pessimism still running rampant, a slower recovery wouldn’t qualify as a negative surprise, in our view.
MarketMinder’s View: With earnings season about to begin, many are expecting the worst—one estimate cited here has Q2 earnings for S&P 500 companies plunging more than -40% y/y. But as this article sensibly notes, “There is a tendency for analysts to set a low bar for earnings even in normal times. In the second quarter that tendency may have gone into hyperdrive. This is because the bulk of the downward revisions happened early in the quarter, before it was clear that the economy had started bouncing back. That bounceback hasn’t spurred many upward revisions.” Considering many S&P 500 companies have pulled their guidance due to COVID uncertainty and the virus has skewed data broadly, analysts are essentially guessing what earnings will be. That said, the conclusion implies upcoming earnings forecasts still point negatively and may actually be rosier than warranted should COVID news worsen. Yet all forecasts, whether we have a lot of guidance or none at all, aren’t prescient—they are simply opinions. For stocks, future earnings estimates are information that will help shape investor expectations. So will commentary talking those estimates down. But stocks generally move on the gap between expectations and reality over the next 3 – 30 months, making it myopic for investors to hinge everything on results in a given quarter.
MarketMinder’s View: With gold prices approaching nine-year highs and gold experts claiming “this time it’s different” looking ahead, the precious metal may look alluring to investors in a volatile 2020. In our view, all that glitters doesn’t necessarily have a place in a long-term, growth-seeking portfolio. The gold proponents cited here argue prices will continue to climb due to massive money supply growth—leading to higher inflation. While we don’t think higher inflation is inevitable, the recent past shows gold isn’t a great inflation hedge, either. Between 1990 - 2000, when inflation ranged from as low as 1% to as high as 6%, gold peaked in 1991 and steadily fell from there. That isn’t an isolated occurrence. More broadly, gold is a commodity and, like all commodities, moves on supply and demand. Since it has limited industrial use and physical demand rests largely on jewelry, investment and central banks, sentiment is the main swing factor. In our view, trying to time sentiment is impossible to do consistently, as it swings on a dime and is unpredictable.
MarketMinder’s View: Germany’s May trade figures recovered a bit after April’s big pullback: Exports rose 9.0% m/m and imports were up 3.5% (compared to April’s -29.7% and -21.7%, respectively). These numbers aren’t unique—they are in line with other recent positive data globally—but we found this tidbit illuminating: “The Statistics Office said exports to China were 12.3% lower than in May last year, while exports to the United States were down 36.5% year-on-year in May.” Consider: China first reopened in March while Germany and much of Europe started in April. Most American states, in contrast, didn’t begin reopening until May. While Germany’s trade with China won’t look exactly like it does with the US, we think this report highlights how easing COVID-related restrictions positively impacts economic activity—and why countries’ reopening progress is a key component to track in determining a near-term economic outlook.
MarketMinder’s View: Headlines stateside focus on the rise in COVID infections in Florida, Texas and California, but the US isn’t the only country grappling with virus containment. This week Hong Kong has seen its worst resurgence since April, and it isn’t alone: “The virus is flaring up again across the Asian region, a reminder that the pandemic is far from over, even in places with the best containment track records. Australia’s second-largest city, Melbourne, re-entered virus lockdown this week as cases surged in Victoria state, while Japan continues to find about a hundred new infections daily in its capital of Tokyo. In Beijing, schools remain closed to halt a new outbreak, which has largely been contained.” We aren’t epidemiologists or virologists, and we can’t predict how policymakers will react to case upticks. However, we caution investors against jumping to the most dire conclusions, including the return of draconian national lockdowns. That is a possibility to be aware of, but it isn’t inevitable despite many pundits’ warnings. From an investing perspective, it would take a huge negative markets aren’t seeing to send stocks plunging anew. Considering how widely discussed second, third and future COVID waves have been, we question how much surprise power new outbreaks have. For more, see our 7/7/2020 commentary, “The Hunt for a Pandemic Repeat Is Already Starting.”