MarketMinder

Headlines

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.


After Pain at the Pump Comes the Electric Shock

MarketMinder’s View: Are Utilities safe ports during the market storm? Not necessarily, and this article helpfully explores Utilities’ general drivers—and some unique headwinds facing the sector today. Many view Utilities as “defensive” (read: stable) because people still need to keep the lights on in a recession. True, Utilities companies aren’t as likely to go out of business and tend to outperform during bear markets. But we think stocks today are in a correction (sharp, sentiment-fueled drop of -10% to -20%), not a bear market—which is the deeper, longer, fundamentally driven decline that often precedes a recession. Moreover, a big reason Utilities tend to be defensive is that their earnings hold up relatively well during tough times, which might not be the case in the period ahead due to higher energy costs. As explained here: “Most businesses welcome the chance to charge their customers more. But utilities, being regulated monopolies, are not most businesses. Inflation presents them with several difficulties. Whereas an ordinary business can raise prices immediately to deal with higher input costs, utilities face constraints. They can pass through higher fuel and power costs, of course, although even this presents some difficulty. Recall that falling fuel and power costs allowed regulators some room to approve higher investment spending during the 2010s. But inflation complicates those approvals going forward, especially as regulators are usually appointed by state politicians or directly elected. More pernicious is the fact that, pass-through costs aside, utility economics don’t really account for inflation, not in real time anyway. Utilities earn a return on the book value of their regulated assets, so inflation erodes their real earning potential. Moreover, adjusting bills to take account of rising inflation requires regulatory approval, which can take many months, causing a lag.” We think sector diversification and having counterstrategies (i.e., owning positions in areas of the market you don’t think will do well in case your views prove wrong) are important, but understanding the nitty-gritty of companies’ underlying business models is critical in making those decisions. Just because conventional wisdom considers a sector “safe” doesn’t mean it will behave that way in every single market environment.

EV Stocks Face a Long Road to Redemption

MarketMinder’s View: This is a tale as old as markets—hot new industry generates pie-in-the-sky hopes and attracts heat-chasing investors from all corners, then crashes spectacularly. MarketMinder doesn’t make individual security recommendations, but the electric vehicle (EV) stocks discussed here illustrate the anatomy of an investment fad or bubble perfectly. Investors pour in cash on the thesis that hot new companies in an emerging industry will rule the roost in 10, 15 or 20 years. Investors ignore or overlook a lack of profits and high cash burn rates. When the bubble bursts, the stocks fall hard, leaving many of the companies struggling to survive. (This can and has happened many times amid broader bull markets, like the master limited partnership collapse in the mid-2010s, silver around that time or or or.) Even if the long-term thesis proves correct, none of the recent high flyers are guaranteed to be winners in the long run. How could investors have avoided this pitfall? In our view, by taking a measured assessment of profit potential and being realistic when it became clear that EV startups were burning through cash while operating deep in the red and easy financing wouldn’t last forever. “While the rising cost of capital is hitting speculative stocks in other sectors too, EV startups have more to lose than most. Launching a new car maker is extraordinarily expensive, and the costs come years before the profits. Bridging this gap is much easier if money is essentially free, as was the case with the influx of cash from special-purpose acquisition companies last year. Those days are fading fast.” Legacy automakers can use gas guzzlers to subsidize EVs, which are much more expensive to manufacture, but pure-play EV companies don’t have that option. The writing was always on the wall—the key, always, is to shun euphoria and focus on realistic probabilities, not distant possibilities.

Cost of Living Crisis Slows UK Consumer Spending but Holiday Bookings Take Off

MarketMinder’s View: Official UK retail sales for April aren’t in yet, but the British Retail Consortium’s (BRC’s) monthly survey and Barclaycard’s measure of credit card spending show trends there largely echo what we have seen in the US: Spending shifting from goods to services as people cut fuel consumption and bargain-hunt at the grocery store to manage rising costs while travel and leisure return to the fore now that COVID restrictions are done. With that said, we recommend not relying on the actual numbers here to give an accurate read on total UK consumer spending in April. It might seem encouraging that BRC’s survey showed retail sales falling by just -0.3% m/m, but BRC doesn’t adjust for inflation. The Office for National Statistics’ report on retail sales volumes (the quantity of goods sold, rather than the value) could look worse. Similarly, while Barclaycard reported an 18.1% increase in “consumer spending,” driven by travel spending, that accounts for only half of the country’s credit card transactions, which doesn’t capture all spending activity. It is also an 18.1% increase from April 2019, which omits almost a full year of pre-pandemic spending growth. That is such a weird base comparison that it is next to useless for divining recent spending trends. Note, too, that April is when the higher home energy price cap kicked in and stealth tax hikes took effect, illustrating the importance of waiting for seasonally adjusted, inflation-adjusted month-over-month data and maintaining realistic expectations.

A United Ireland Would Be an Economic Disaster

MarketMinder’s View: As always, we are politically agnostic. We aren’t for or against any politician, party or policy initiative, and we assess political developments for their potential market impact only. To that end, we caution investors against putting much stock into pieces like this one, which argues that reuniting Ireland and Northern Ireland would cause such big economic problems that a referendum on the question is unlikely ever to pass. We don’t dispute the economic forecast part of this, as the reunification of East and West Germany shows the struggles likely to ensue. It caused a deep recession in former East Germany and steep inflation in the prosperous former West Germany, and there is still a clear economic divide between the two halves over a full generation later. However, the notion that this would doom a referendum to failure is wildly speculative and ignores the lessons of Brexit, when a campaign dubbed “Project Fear” failed to sway voters to stay in the EU by warning of economic collapse if the UK left. Now, we also think this is all very much beside the point, as a referendum is exceedingly unlikely in the near term. While the Irish nationalist party Sinn Féin won a plurality at last week’s Northern Irish Assembly election, it won on its leftist economic platform, not nationalism, which remains unpopular in the north. Things aren’t always what simplistic headlines would have you believe.

Japan Has Long Sought More Inflation and a Weak Yen. But Not Like This.

MarketMinder’s View: This is a very nice rundown of the Bank of Japan’s failures to stimulate Japanese domestic demand despite nearly a decade of allegedly extraordinary monetary stimulus. It catalogues not only the stubborn persistence of weak inflation and growth, but it also explains why the weak yen hasn’t been as big a boon as advertised: While it enables Japanese exporters to reap larger profits via currency translation, it also raises import costs, which hits all the companies (exporters included) that import raw materials, components and labor. Japan also relies on imported energy, making the two-hit combo of high natural gas and oil prices and the weak yen a particular burden—especially now. Meanwhile, all of Japan’s structural economic inefficiencies remain unaddressed, adding headwinds. All of these observations are sound. But also, they aren’t new. Longtime MarketMinder readers may have noticed that we have been pointing all of this out for nearly 10 years now. Nothing here is at all surprising to markets, which we think have long since figured out that Japanese monetary policy creates winners and losers without providing actual stimulus. The only thing different now is that the world notices, which is a sign of sentiment’s severe deterioration. People no longer have irrational expectations for Japan, which probably helps Japanese stocks moving forward as it sets a much lower bar for reality to clear.

China’s Export Growth Slows Sharply as Zero-COVID Rules Hit Economy

MarketMinder’s View: Chinese trade data were pretty ugly in April, with exports slowing from 14.7% y/y in March to just 3.9% in April, while import growth barely budged (-0.1% y/y in March, 0.0% in April). This weakness likely is, as the article notes, heavily tied to the country’s ongoing battle against COVID, having locked down much of the populace over the past six weeks or so. There is also some base effect skew going on, as early 2021 saw surging trade tied to global reopenings. China’s lockdowns are an economic negative, again rocking supply chains. But for markets, we don’t think these impacts are so huge. The lockdown script is pretty well known at this point, and while it likely is creating some issues right now, recoveries tend to be swift once they lift. Of note, imports from Russia bucked the flattish overall result, surging 56.6% y/y in April. While product-level detail isn’t out yet, this gives some context to the notion that China is gobbling up Russian oil in the wake of the Ukraine invasion.

How the Dollar Is Beating Stocks and Bonds and Hurting Big Companies

MarketMinder’s View: The sensible parts of this are its explanations of what has already happened in currency markets, but where the article veers is in the interpretation of past events—and extrapolating them going forward. Yes, divergence in monetary policy has seemingly led many investors to expect persistently higher interest rates in the US versus the eurozone and Japan. Currencies often move with expectations of interest rates, so that likely has driven the dollar up versus many currencies, including the euro and yen. And, yes, there is good and bad to this, in the sense that it may lower companies’ input costs (potentially slowing inflation somewhat in the process) while possibly making exports more costly. But one shouldn’t overstate the effect. After all, the same company can see headwinds and tailwinds from currency effects, which tend to be pretty fleeting. Further, most large companies hedge for currency swings, muting the impact for good or ill. But above all, the notion that a widely expected raft of additional Fed hikes will make the dollar even stronger while hurting stocks with more overseas revenue exposure assumes markets are pretty inefficient. The expectation of future hikes is likely why, in part, the dollar is up as much as it is. The same holds for the effect on stocks. Finally, citing return differentials between the S&P 500 US Revenue Exposure Index and Foreign Revenue Exposure Index’s returns in a correction as evidence is a little less telling than it may seem. These gauges have huge differences in sector and company composition, with the former being more value oriented than the latter. Additionally, the US Revenue Exposure Index has vastly more defensive stocks in it, given 15.9% of the index is in Health Care and 9% in Utilities, per S&P Global Indices. That suggests that the gauge holding up better than the Foreign Revenue Exposure Index may be less about the dollar and more about which sectors have been in or out of favor during this year’s correction.

Ministers Reject Claims of Impending UK Break-Up After Northern Ireland Polls

MarketMinder’s View: First, please note that MarketMinder favors no party nor any politician, assessing developments solely for their potential market impacts. Following the Irish nationalist Sinn Féin party’s winning the plurality of seats in the election for Northern Ireland’s devolved parliament for the first time, many are speculating an independence referendum push akin to the Scottish National Party’s could be coming. This article takes a broad look at the vote though, providing some pretty sound evidence this isn’t likely. While “[t]he Northern Ireland Act of 1998 requires the British government to allow a border poll ‘if at any time it appears likely’ that a majority would express a wish for the region to leave the UK and form part of a united Ireland,” there are reasons to doubt that is now. For one, “‘… 58 per cent of those voting in these elections voted for either those that support the union or don’t want to see constitutional change.’” Additionally, Sinn Féin’s 27 seats are unchanged from 2017’s election and it holds just 27 of the parliament’s 90 seats. This article spends a considerable amount of time discussing the Northern Irish trade protocol, as this is a headache and key political issue in the region. Yet the reality is, despite those issues, Sinn Féin doesn’t seem to have materially capitalized as much as splinter parties divided up the pro-union vote. Hence, while the vote is interesting, the impacts are likely pretty small, and we don’t expect the United Kingdom to splinter any time soon.

Japan’s Kishida Says Phasing Out Russian Oil to Take Time

MarketMinder’s View: Over the weekend, Japanese Prime Minister Fumio Kishida announced the country would ban imports of Russian oil and coal, calling it “an extremely difficult decision for a country that imports most of its energy … .” Perhaps. But the thing is, Japan banning Russian oil lacks real teeth, considering “… the country imported only 3.6% of its crude oil from Russia in March, compared to 10.8% of its coal and 8.8% of its gas in 2021.” While Russian coal has a higher share, it is worth remembering coal provides about 32% of Japanese electricity, lower than natural gas’s 39% (data per Nippon). The country has also been trying to replace coal with gas, so it seems rather telling that “Kishida also told reporters in Tokyo on Monday there was no change to the plan for Japan to retain its interests in the Sakhalin 1 and 2 Russian oil and natural gas projects.” These projects are actually ramping up output, so this seems a bit more like a shift in type of imported fuel than a ban on Russian energy.

Contra Simpleton Pundits, ‘the Fed’ Didn’t Cause the Stock-Market Correction

MarketMinder’s View: This is an interesting piece that we think raises some excellent questions about the all-too-common theory that the Fed’s actions dictate market direction, spurring equity market rallies through allegedly “easy” money, low-interest-rate policies and stoking corrections and negativity when they “tighten.” Along the way, it does mention both some individual stocks and delve into midterm politics, so a dual reminder: MarketMinder doesn’t make individual security recommendations, and we favor no party or politician, assessing political issues and developments solely for their potential market and/or economic effects. With that, consider this stellar snippet: “Among other things, if market rallies are as simple as an ‘easy’ central bank, why is Japan’s Nikkei 225 still well below highs last reached in 1989? Why are European indices so far behind U.S. indices despite the ECB’s allegedly ‘easy money’ policies that have so often mirrored those of the Fed? These questions are never answered. Similarly not answered is why U.S. companies that risk-averse U.S. banks wouldn’t have paid a second of attention to during their much more than uncertain ascendance have their fates so explicitly tied to the alleged stinginess of banks now.” Whether or not you agree with the discussion of possible volatility drivers late in the piece is, in our view, not tremendously important. Raising questions about the common Fed narrative that is so widely accepted as gospel is an uncommon and sensible take.

US Senate Committee Passes Bill Pressuring OPEC

MarketMinder’s View: As always, we prefer no political party nor any politician, and we assess political developments for their potential economic and market impact only. To that end: The Senate Judiciary Committee passed the bipartisan No Oil Producing or Exporting Cartels (NOPEC) Act yesterday, sending it to the full Senate. If passed, the bill “would change US antitrust law to revoke the sovereign immunity that has long protected Opec and its national oil companies from lawsuits.” While various versions of this bill have failed in Congress over the past two decades, this one is gaining traction because OPEC oil output hasn’t met increased quotas amid high prices and a feared global supply shortage. Theoretically, revoking sovereign immunity would let the US sue these companies for violating anti-trust laws, which Congress seems to think would help strong arm them into boosting output. We are very skeptical, as the enforcement mechanism is far from clear. Moreover, there is a risk of downstream side effects, including retaliatory bills targeting US agriculture for withholding output to support domestic farming. Or OPEC nations could increase the price of oil sold to the US. While we don’t think these consequences are likely to be big enough to wallop global markets, they are worth watching. With that said, however, clearing committee is only the first step. It isn’t yet clear that the full Senate has the votes to pass this bill. Nor has President Joe Biden shown any indication he would sign it. Rather, the White House has warned of unintended consequences. So we will keep an eye on this, but for now, we don’t think it is actionable for investors.

Germany Heading for Recession as Putin’s War Hits Factory Production

MarketMinder’s View: Our beef here isn’t so much with the economic forecast, as it is entirely possible that Germany is heading for a recession. German stocks are acting as if this is the case, as the DAX has breached -20% (often considered the threshold for a bear market) during this global stock market correction. It isn’t unusual for individual countries to hit bear market territory during a global correction, as sentiment can hit some areas harder than others, but the move is noteworthy all the same. But we are skeptical of the reasoning here, which implies German industrial production’s -3.9% m/m plunge is the start of worse declines to come. As with exports, which also fell in March, much of the decline could be a one-time drop due to March being the first full month with sanctions in effect. We don’t dismiss the supply chain headwinds, including automakers’ difficulty sourcing necessary parts from Ukraine, but China’s reopening—whenever it happens—could help counterbalance this. So could increased demand for aerospace and defense equipment. More importantly, while manufacturing has a larger presence in Germany than many other developed countries, it is still just 18% of economic output, according to the World Bank. Services, which is much more insulated from the conflict, is about 63%. Continued growth there could help offset weakness in heavy industry. Economies are complex, decentralized beasts, and for investors, it is important to look at all parts of the whole—and look forward, as markets do.

NFTs: The Great Rush May Be Over – But Are They in Actual Decline?

MarketMinder’s View: This is an interesting look at how a lot of the froth has fizzled out of one corner of a very speculative market: non-fungible tokens, or NFTs, which are digital assets certified to be unique or in very limited supply. While sales of some NFTs remain strong, people who shelled out mega bucks for some high-profile NFTs last year are having trouble reselling them now. The most striking example: Last year, someone paid $2.9 million for an NFT of Twitter founder Jack Dorsey’s first tweet. “The Dorsey NFT was put up for auction in April by its owner, the cryptocurrency entrepreneur Sina Estavi, who said: ‘This NFT is not just a tweet, this is the Mona Lisa of the digital world.’ Estavi hoped to raise more than $25m from the sale and offered to donate half his takings to charity. When bids reached just $14,000, he pulled the auction entirely.” While this is an extreme case, sales of NFTs overall have leveled off. Overall, we see this as a sign of how sentiment has evolved since last spring. Back then, there were pockets of euphoria, with NFTs being a shining example. That is largely absent now, with no “greater fools” willing to buy big NFTs at even higher prices than the initial buyers paid. The broader investment world has seen a similar retracement in sentiment as stocks’ correction has squeezed out last year’s optimism. In our view, this should help set the stage for a recovery sooner than many seem to anticipate today.

China’s Economic Troubles Won’t Stay at Home

MarketMinder’s View: No, no they won’t—but there is some important context for investors to keep in mind. The local economic impact of China’s latest lockdowns is well known, as is the likely regional spillover. Stocks have dealt with headlines warning of closed cities, factories and ports for several weeks now, making the impact on other nations’ exports to China a foregone conclusion. Pundits have also warned of the effect on supply chains and factories’ ability to source parts from China. In our view, these stories bear much of the blame for the sentiment plunge that renewed global stocks’ correction (sharp, sentiment-fueled drop of -10% to -20%) last month. But, crucially, we also have a strong playbook showing what happens when restrictions lift: a quick economic rebound as consumers unleash pent-up demand and factories race to fulfill backorders. That is what happened after China’s initial 2020 lockdowns. It happened when the US, Europe and Japan reopened from their lockdowns. Whenever China lifts restrictions this time, it seems logical to expect the same, which likely renders the speculation about permanently destroyed demand and activity a mite overstated. We aren’t dismissing today’s problems, but stocks look 3 – 30 months out, and within that window, we see strong potential for reopening in China to help reality beat today’s dim expectations.

Millions Retired Early During the Pandemic. Many Are Now Returning to Work, New Data Shows.

MarketMinder’s View: During the height of the pandemic, financial headlines often speculated about COVID-driven paradigm shifts. The labor market was a popular focus, and we read many thought pieces arguing COVID-influenced retirements would permanently alter the US workforce. As this article discusses, though, reality is turning out to be a bit more complicated. “An estimated 1.5 million retirees have reentered the U.S. labor market over the past year, according to an analysis of Labor Department data by Nick Bunker, an economist at Indeed. That means the economy has made up most of the extra losses of retirees since February 2020, a Washington Post analysis shows. Many retirees are being pulled back to jobs by a combination of diminishing covid concerns and more flexible work arrangements at a time when employers are desperate for workers. In some cases, workers say rising costs — and the inability to keep up while on a fixed income — are factoring heavily into their decisions as well.” Though the piece touches on some sociology and is heavy on anecdotes, we think it nicely illustrates the myriad personal reasons why early retirees are going back to work. Some have resumed working out of necessity due to financial hardship, and we feel for them. But others have come back to the labor force because they want to—their job gives them fulfillment or a sense of purpose. For some, it gives them more fun money to spend as they see fit. We think that is worth keeping in mind whenever financial experts present macroeconomic trends in broad brushstrokes.

India Finds Russian Oil an Irresistible Deal, No Matter the Diplomatic Pressure

MarketMinder’s View: As the West tries to wean itself off Russian oil, many worry about the implications for global energy prices—e.g., would an EU embargo lead to a glut of Russian supply with no buyers, creating a shortage in global markets? In our view, that concern was a mite overstated since buyers exist outside Western sanctioning nations, and this piece highlights one of them. “India’s purchases of Russian crude have soared since the conflict’s start, rising from nothing in December and January to about 300,000 barrels a day in March and 700,000 a day in April. The crude now accounts for nearly 17 percent of Indian imports, up from less than 1 percent before the invasion. Last year, India imported about 33,000 barrels a day on average from Russia.” Note, too, that while India has purchased Russian oil for domestic consumption, Indian refiners are also using the crude to make petroleum products, including diesel and jet fuel, to sell overseas. “While Europe may be moving away from crude purchases from Russia, it is eager to buy the same oil after it is refined in India — one of the conundrums in crimping Moscow’s energy revenues. India’s exports of diesel and other refined products to Europe, where they are in short supply, reached 219,000 barrels a day, a new high, in March, before falling back in April as demand in India surged.” Now, the bad news is that this explains part of the reason why sanctions aren’t as effective as many think, which means the impact on Russia is smaller than Western leaders aim for. But also, from a pure economic viewpoint, the India example illustrates their limits: They can create winners and losers, causing some economic dislocations. But they seldom cause economic activity to completely dry up.

German Factory Orders Plummet as War Weighs on Manufacturers

MarketMinder’s View: German factory orders fell -4.7% m/m in March, worse than the median Bloomberg estimate of a -1.1% drop. Statistics agency Destatis noted weak demand abroad drove the decline: Foreign new orders dropped -6.7% m/m, with non-euro area orders down -13.2%. Now, the report wasn’t universally bad—eurozone new orders did rise 5.6% m/m—but otherwise, there is little to cheer. The Economy Ministry pinned the weak demand on war-related uncertainty—yet another headwind to go along with cost pressures and supply chain bottlenecks. The report doesn’t include a country-level look, but if yesterday’s export data are a hint, Russian sanctions could underpin a good chunk of the big drop in non-eurozone orders. We don’t dismiss the economic challenges facing Germany. But for investors, this is likely old news. Forward-looking stocks have likely pre-priced economic weakness: The MSCI Germany is down -20.9% year to date, nearly twice as low as global stocks’ -10.9% decline (per FactSet). March factory orders add some color on Germany’s economic struggles, but they likely don’t reveal much new information to stocks. Keep that in mind as other German and eurozone data roll in over the coming weeks—and headlines warn of their implications.

Screen-Sharing Scams on the Rise, Watchdog Warns

MarketMinder’s View: Here is a scam that appears to be picking up steam, and while the focus is on UK victims, we think all MarketMinder readers benefit from being aware. “The Financial Conduct Authority (FCA) is warning people to beware of people posing as investment advisers and offering to help them set up new schemes via online meeting platforms. They ask their victim to share the screen and enable remote access - which hands over control of their device and, potentially their bank account. … Remote access software is a legitimate tool for services like IT support to troubleshoot problems without being in the room. But scammers are increasingly hijacking this familiarity to lure victims into granting access to more than just a picture of their screen.” As one victim here described, a seemingly legitimate investment company offered her the chance to earn big returns—all she had to do was download remote access software and let the company handle the rest. Unfortunately, the bad actors used that access to drain the victim’s pension fund. While it may sound obvious to refrain from giving anyone a direct path to your personal information, fraudsters can dupe even the most seasoned investors with tantalizing opportunities. Remember, healthy skepticism is a strong first defense against bad actors, so if an offer sounds too good to be true, chances are high that it is.

Rent Increases up Sharply Year-Over-Year, Pace May Be Slowing

MarketMinder’s View: This delves into some sociology upfront, which we suggest readers put aside because the article runs through a bunch of interesting (albeit narrow) tidbits on US rental supply and demand—a widely watched financial topic. On the housing front, “Currently there are 811 thousand multi-family units under construction. This is the highest level since May 1974! For multi-family, construction delays are probably also a factor. The completion of these units should help with rent pressure.” However, rental vacancy rates, while not as tight as last year, are still under pressure as apartment demand exceeds supply, with developers still struggling to build more units—in part due to the many shortages (e.g., materials and labor) across the global economy. Some of these factors are contributing to elevated inflation and will likely continue to this year. But as the chart at the end indicates, rental rates are starting to decelerate. So the article concludes: “My suspicion—based on all of the above data—is rent increases will slow over the coming months.” Not exactly relief, and we sympathize with those suffering through rising living costs, but for markets coldly evaluating economic conditions over the next 3 to 30 months, inflation looks more likely to slow than speed up as supply shortages ease—though it likely stays elevated longer than we initially expected. Markets seem to recognize this, too: 10-year Treasury yields, while at 3-year highs around 3%, remain historically low even with inflation at 40-year highs.

Why Does the Stock Market Go Up Over the Long-Term?

MarketMinder’s View: As this article provides a specific stock example, we remind readers MarketMinder doesn’t make individual security recommendations. The company mentioned serves only to highlight a broader theme, which is to answer the titular question: “the biggest reason the stock market goes up over time is because the economy grows and corporations earn more money. In 1928, earnings per share for the S&P 500 was $1.11 while corporations paid out $0.78 per share in dividends. ... By the end of 2021, those numbers [were] $197.87 and $60.40, respectively. This means over the past 94 years, earnings on the U.S. stock market have grown at an annual rate of 6% while dividends have grown 5% per year. Being an investor in the stock market means you get to take part in the profits and cash flows of corporations. You get to benefit from their innovation, investment and growth.” Underpinning this, in our view: productivity improvements and technological progress. Driven by the profit motive, companies generally attempt to economize—i.e., do more with less—to increase their earnings. This in turn can free up capital to pursue other growth initiatives—and greater profits. Crucially for investors, there isn’t a limit to businesses’ resourcefulness or how much earnings—and stocks’ returns—can grow over time. By and large, we think corporations have proven remarkably adept at supplying solutions to meet their customers’ demands. As that demand grows, so do the earnings prospects of corporations providing answers. But as the article notes, many underestimate this process, in part because it can involve huge booms and busts—progress doesn’t occur in a straight line. It isn’t easy, but stocks’ long-term returns are investors’ reward.