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 that stocks’ big first-half swings—almost back to even year to date after Q1’s swift bear market decline—and other large reversals in recent years is a sign of increasing market “fragility” since 2008’s global financial crisis. The idea behind fragility is that market participants herd together from bandwagon to bandwagon, exacerbating market moves. The result of this herd mentality is “market shocks becoming ever-more unpredictable and the intermittent rallies painful to miss.” While we agree it hurts missing rallies, we think market moves are far more rational than this gives them credit for. It seems to us markets correctly anticipated the economy’s sudden downturn as society responded to COVID-19 by shutting down most activity, and the rally since March 23 reflects the recovery enabled by those lockdowns lifting. We think the evidence points to markets acting normally as a leading indicator. As for the other episodes noted herein—2018’s twin corrections—we’d note that sentiment-driven corrections have always come with bull markets. This, too, is normal, albeit in a different way than 2020’s market moves.
MarketMinder’s View: As businesses seek to conserve cash during COVID-19 lockdowns, “The net change in Q2 [dividend] payouts, or the difference between increases and decreases, for all domestic common stocks registered a decline of $42.5 billion from a year earlier, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.” Moreover, “While Silverblatt said there are signs that the worst is in for dividend pullbacks, the damage is likely to continue into the third quarter. He said dividend suspensions rather than outright decreases will be more prevalent. Much of that, though, will depend on the path of the virus and the extent to which the economy can reopen successfully.” We think this is a good reminder that dividends aren’t assured, making it less than ideal to build an investment strategy around them alone. In our view, focusing on stocks’ total return (price appreciation plus dividends) is a better way to design a portfolio to reach your long-term goals and needs. For more on why a focus on dividend-paying stocks can prove problematic, please see our 5/7/2020 commentary, “COVID-19 Highlights the Perils of Relying on Dividends for Cash Flow.”
MarketMinder’s View: If you are approaching retirement, this may be a useful refresher on how Social Security works, how to apply, the qualifications to receive benefits and what it can—and can’t—provide for your income needs. For example, everyone’s financial circumstances differ, but on average, “Social Security benefits represent approximately 33% of the income the elderly receive, according to the Social Security Administration.” It likely won’t be your sole source of retirement income, which you should plan for. Also consider: Full benefits don’t necessarily start at age 65, divorcees can collect spousal benefits if they meet certain criteria, and you needn’t stop working entirely to receive full benefits. Read on for more information, and consult your financial professional if you have further questions.
MarketMinder’s View: This article highlights a paper by ECB economists attempting to model lockdowns’ impact on consumption in the US. Unsurprisingly to us, they conclude a short shutdown—no longer than two quarters—should lead to a “swift recovery in consumer spending to its pre-crisis levels.” In contrast, “if the shutdown lasts for a year and the unemployment rate hits 20%, ‘we find that the return of spending toward its no-pandemic path takes roughly three years.’” Any precision on such hypothetical modeling is debatable, but we find the rough outlines plausible—the downturn’s duration depends on lockdowns’ extent. For markets, we think that is why ending lockdowns is key—not supposed “stimulus.” This article suggests government programs help, and we agree they benefit the people and families in need, but they aren’t the critical factor.
MarketMinder’s View: UK finance minister Rishi Sunak unveiled an array of programs to support the British economy, which this article details. They include: “a 1,000-pound bonus [paid to companies] for every worker brought back from furlough and kept on until the end of January;” value-added tax (VAT) cuts on hospitality and tourism spending; discounts to encourage eating in restaurants; property purchase tax cuts; subsidies for businesses employing young people out of work; funds to improve residential and commercial buildings’ energy efficiency; and more resources for job training. As with any set of similar measures, these create winners and losers, but they likely won’t have a huge economic impact—most of these measures are temporary. They may boost sentiment a tad, but a full reopening remains the ticket to economic recovery.
MarketMinder’s View: Noting “the lifting of COVID-19 lockdown measures in euro zone countries was proceeding less swiftly than it had initially predicted,” the European Commission (EC) lowered its forecast for eurozone GDP growth this year and next. That estimated 2020 contraction of -8.7% may turn out to be true, especially if lockdowns linger or ramp up again, but it isn’t a certainty. Forecasts are simply opinions, usually influenced by recent events and current worries, and even if this one turns out to be correct, GDP and stocks don’t move hand in hand. In this light, we think this projection says less about future economic conditions than it does about presently entrenched pessimism. The EC’s reasons for caution also amount to a laundry list of well-known fears: “a potential wave of new infections, more permanent scars from the crisis including unemployment and corporate insolvencies, and the absence of a future relationship deal between the EU and post-Brexit Britain.” While we don’t dismiss those concerns, they are also widely discussed. That diminishes their potential surprise power, making it easier for reality to beat expectations—a boost for stocks.
MarketMinder’s View: We urge investors to set aside any partisan biases this piece may trigger, as they hamper sound investment decision-making. Markets don’t prefer any political party or candidate. Now to the article’s thesis: Couple former Vice President Joe Biden’s polling edge over incumbent President Donald Trump with the prospect of Democrats capturing the Senate, and some investors are nervous about what awaits in November. As described here, “such unified control could mean a sudden shift away from a range of policies—like corporate tax cuts, deregulation and weapons sales to foreign governments—that have helped push up stock prices in recent years.” We see this differently. First, we think it gives politics far too much credit for stock returns, ignoring economic drivers and seemingly forgetting that the present administration’s supposedly business-friendly legislation was a watered-down version of what many investors hoped for. Second, no policy is automatically positive or negative for stocks—same goes for parties and politicians. What matters more is how those politicians’ enacted policies compare to expectations. For example, since investors often view Democratic control as worse for markets, this can tee up positive surprise once a Democratic president moderates in office and/or accomplishes less than feared. Finally, it is simply too early to forecast November’s outcome and its implications for markets. The time will come, but it isn’t here yet. For more, see our 4/9/2020 piece, “We Have Presumptive Nominees.”
MarketMinder’s View: “Japan's household spending in May sank a record 16.2 percent from a year earlier as the government's stay-at-home request under the nationwide state of emergency, then in force over the coronavirus pandemic, dampened consumption, government data showed Tuesday.” Faster spending growth a year ago due to “an unprecedented 10-day holiday period” celebrating Japan’s new (largely ceremonial) emperor made the year-over-year comparison extra unfavorable, but this is still evidence of COVID-driven lockdowns’ severe toll. Since the country-wide state of emergency lifted in late May, it wouldn’t shock if June spending rebounded some. With that said, Japan’s household consumption problems didn’t start with COVID restrictions. “Spending in real terms by households with two or more people averaged ¥252,017 ($2,300), down for the eighth consecutive month since October last year, when the consumption tax rate was raised from 8 percent to 10 percent,” and domestic demand has been tepid for years. COVID developments likely determine Japanese stocks’ path in the near term, but we think domestic headwinds will remain even after relaxed restrictions let Japanese consumers return to normal spending patterns.
MarketMinder’s View: Nothing here is actionable for investors, as jobs data are backward-looking and the featured report covers May. We highlight it because it reinforces an important trend—that as businesses are allowed to reopen, hiring picks up, especially in the hardest-hit industries like hospitality. “The monthly Job Openings and Labor Turnover Survey, or JOLTS, report showed hiring accelerated by 2.4 million jobs to 6.5 million, the highest since the government started tracking the series in 2000. … Hiring in May was driven by the accommodation and food services industry. There were also increases in the healthcare and social assistance and construction businesses.” As noted here, renewed lockdowns in response to rising COVID case counts could slow or reverse this progress, forcing businesses to close and lay off workers. But for now, state governments don’t appear to be responding with the same scale or severity of initial shutdowns. While it is uncertain whether states will remain open or not—those are political decisions, which are impossible to forecast—even gradual easing should allow the recovery to continue, likely pulling labor markets along with it.
MarketMinders’ View: With multiple new federal relief programs—plus widespread worry over COVID-related financial strains—conditions are unfortunately perfect for scammers. In our view, recognizing their favorite tactics can help protect yourself. For example: Beware those offering assistance in order to extract sensitive personal or financial information, perhaps “in the guise of helping them to receive their [stimulus] checks faster. … In some cases, they will pose as individuals helping file for unemployment benefits and then steal personal information.” Playing to folks’ fears is another common method: “Americans have also fallen prey to other scams, such as ones tied to fake treatments and cures for Covid-19 and fraudulent threats of utility shutoffs to coax money out of consumers.” For more, see our 6/18/2020 commentary, “Keep Your Guard Up Against COVID Wrongdoers.”
MarketMinder’s View: This informative, concise article answers several questions about 2020’s coronavirus-delayed Federal tax day—now next Wednesday, July 15—including revised federal and state filing, retirement account contribution and quarterly estimated tax payment deadlines. Note, 40 states and the District of Columbia have postponed individual income-tax filing and payment deadlines from April 15 to July 15, so make sure to double-check your state’s rules. As an interesting note, those forced to wait for a refund “will be paid with interest, as long as the return is filed by July 15. The IRS said the interest payments may arrive separately from tax refunds. … When such refunds are delayed, the agency pays interest at far higher rates than bank accounts do: 5% compounded daily for the second quarter ended June 30, and 3% compounded daily for the third quarter beginning July 1. This interest is taxable.” If you have more in-depth tax questions, be sure to consult with your tax advisor.
MarketMinder’s View: MarketMinder doesn’t make individual security recommendations, and we highlight this interesting piece to speak to a particular theme. That theme: Some are wondering why Health Care has underperformed recently. The sector—widely considered a “defensive” haven well-equipped to handle tough economic times—also seems like the most logical beneficiary of society’s fight against COVID-19. What many seem to overlook, though, is that Health Care is much more diverse than many appreciate. Pharmaceuticals, for example, fit Health Care’s “defensive” reputation since demand for prescription drugs tends to be stable. But other Health Care segments—like Health Care Equipment and Services—are more economically sensitive. This piece highlights some of the headwinds facing Health Care: “Rising coronavirus infections have already halted elective surgeries in some parts of the country, eating into revenue as hospitals preserve capacity. Meanwhile, companies working on virus remedies are facing pressure to keep drug costs low. Investors are also beginning to fear a Democratic sweep in November’s election that could lead to industry changes—especially if a more progressive candidate is chosen to run as vice president.” While the last point might be a tad overstated right now—it is far too early to know who will be in the White House next year, and while major legislative change is always a risk, it is more possibility than probability today—the other two illustrate the varying factors impacting Health Care at large. For more, see our 5/8/2020 commentary, “How to Think About Health Care Stocks Now.”
MarketMinder’s View: The latest economic green shoots out of Europe: “Sales in the 19 countries sharing the euro zone rose by 17.8% in May from April, Eurostat said, in the steepest increase since euro zone records for retail sales began in 1999.” Unsurprisingly, in our view, the retail categories hurt most by shutdown orders benefited significantly: “Sales of clothes and footwear, the sector most hit by reduced trade during the pandemic, posted a 147.0% increase in May from April, although were still down 50.5% year-on-year. Shoppers also increased by 38.4% their purchases of fuel for cars. Trade of electrical goods and furniture shot up by 37.9%. Books and computer equipment posted a 26.8% rise in sales.” This is evidence of some pent-up demand finding a release, though the data are old news for markets at this point. Forward-looking stocks moved months ago on what these backward-looking data finally confirmed: Reopening progress will determine the economic recovery. For more, see our 6/16/2020 commentary, “More May Data Hint a Recovery May Be Underway.”
MarketMinder’s View: These are old data at this point—not relevant to forward-looking stocks—but they help show why countries’ economic recoveries may not look uniform. While the headline figure looked impressive—factory orders up 10.4% m/m in May, rebounding a bit from April’s -26.2% plunge—a look under the hood shows, “domestic orders increased 12.3 percent and foreign orders rose 8.8 percent in May. Orders from euro area registered a double digit growth of 20.9 percent, while that from other countries gained only 2 percent.” This isn’t surprising given major economies haven’t all opened at the same time. For example, although China was first to reopen, its export orders have suffered since much of the world isn’t at a similar stage of reopening. Just another factor to keep in mind as Q2 data continue trickling out.
MarketMinder’s View: The Institute for Supply Management’s (ISM) June non-manufacturing purchasing managers’ index (PMI)—which includes a broad swath of US services industries—rose to 57.1 from May’s 45.4. Readings above 50 indicate more firms grew rather than contracted, and the nearly 12-point jump was the biggest in ISM’s history. Fourteen of 18 industries reported growth, and positively, the forward-looking New Orders subindex jumped nearly 20 points, from May’s 41.9 to June’s 61.6. Still, as industry leaders quoted here cautioned, headwinds persist—namely, the return of COVID-driven lockdowns would hurt growth. Also, PMIs indicate only the breadth of growth, not the magnitude, so this positive June report tells us little about the scale of the recovery. However, these US data are consistent with the numbers out of other major economies that have reopened—evidence a nascent recovery is underway.
MarketMinder’s View: June’s jobs report showed ongoing improvement in the US labor market as payrolls rose by 4.8 million, beating expectations, and the unemployment rate fell from May’s 13.3% to 11.1%. Many experts downplayed the positive tidbits, though, urging tempered expectations. This article runs through several of their reasons why: Unemployment remains historically high; those out of work may be left in a tough spot once unemployment aid expires after July; many temporary job losses are turning into permanent job losses as businesses shutter; and new COVID outbreaks have led to the return of targeted shutdowns, forcing some industries to close again. We agree the numbers are still historically bad, to say nothing of the personal struggles of people out of work. Two positively trending months don’t mean a recovery has taken hold, and it is possible growth may suffer again if states repeat broad lockdowns. However, from an investing perspective, the amount of people unemployed won’t tell you where the economy, let alone the stock market, is headed next. Labor numbers are late-lagging indicators, and as recent history shows, the unemployment rate can remain elevated well after a recovery has begun—today’s fears aren’t out of line with what people have argued in past recoveries. They are a twist on classic double-dip recession fears, which are a normal feature of new bull markets.
MarketMinder’s View: Despite the lack of a direct market takeaway, we think this speculative article provides a telling snapshot of sentiment today. It seems, in a word, dour. It looks ahead to the fall, positing that workers may have to split time between the office and home, students might have similar arrangements, businesses dependent on bustling downtowns will suffer and social life as we know it may not return for the foreseeable future. As summed up here, “None of this seems very promising for the economy’s near-term prospects. A fall where the coronavirus pandemic continues to put constraints on people’s ability to work, where parents are forced to balance their need for income with their children’s need for an education and where millions of people in service-industry jobs such as restaurants remain out of work isn’t what anybody wanted.” While it is impossible to know what life will look like in 2020’s back half, this type of forecast—which isn’t abnormal—shapes investors’ expectations. As these views grow more common, stocks digest the information and factor it into prices, so even if a version of the described scenario plays out, it is unlikely to shock markets. We also think it is worth noting that the prevalence of pessimism is a common feature in new bull markets, and contrary to what many may think, it is a positive sign for stocks.
MarketMinder’s View: 2020 has been a unique year in many ways, but here is one thing that hasn’t changed: Politicians will huff and puff and blow trade talks down. This case involves the UK and EU negotiating their post-Brexit trade relationship: “The two sides ended the week’s talks—the first held in person since February—a day ahead of the jointly agreed schedule amid evident frustration at the lack of progress in bridging what both [the EU’s chief negotiator Michel] Barnier and his UK counterpart, David Frost, described as ‘serious’ disagreements.” Those “serious disagreements” are over each party’s respective red lines—e.g., the UK doesn’t want to be bound to EU law—and each side is complaining the other isn’t engaging seriously. While we don’t forecast how negotiations play out, we wouldn’t be shocked if this spirited back-and-forth continued for the next several months as both sides angle for concessions. Yet even if the UK and EU don’t reach a deal, that doesn’t mean trade will cease—the UK has already established what Brexit on WTO terms would look like. For more, see our 5/26/2020 commentary, “The UK’s Post-Brexit Plan Undercuts Protectionism Fears.”
MarketMinder’s View: Those titular signs refer to the latest results from a spate of high-frequency data including the New York Fed’s weekly economic index, estimates of foot traffic to retail stores and restaurants, weekly credit card transactions and hours worked at small businesses. As the article details, many of these high-frequency measures show a noticeable drop in activity in the past week or two—likely related to many states applying local lockdowns to contain recent COVID outbreaks—which some experts worry is a troubling signal for the economy. Though high-frequency data are useful—they provided the first hints of a nascent recovery—we caution investors against treating them as the be all, end all. Data can be noisy on a monthly and quarterly basis—and even more so for weekly or daily figures. We don’t dismiss the pullback, and it wouldn’t be shocking if it were tied to states’ latest COVID containment efforts. However, it strikes us as a bit myopic to intensely focus on a narrow, backward-looking measurement, regardless of how timely it is—especially one so closely watched and well-known to stocks. Even a daily tracker tells you only what just happened—stocks care about what lies ahead, likely far further ahead than next week or next month, in our view.
MarketMinder’s View: Stocks had a Q2 for the record books—in a good way. For the S&P 500, “Since bottoming March 23, the benchmark for American equities has rallied 40%, a feat not done for almost nine decades.” The piece also suggests that if history is any guide, more gains are likely. While the optimism seems warranted, we disagree on the cause. Stocks don’t care about records. Upcoming economic and political conditions will determine future returns. Instead, use these trivia tidbits to impress the guests at your virtual July 4 BBQ as you celebrate America’s independence over Zoom (or in a socially distanced in-person setting, if your local guidelines permit).