Daily Commentary

MarketMinder’s View: We aren’t aware of anyone who said finding workarounds for the Strait of Hormuz was easy. But it isn’t impossible, especially if the potential profit incentive motivates firms to act. See how certain Gulf nations have adapted to moving crude oil. “The UAE has also been using its own, smaller pipeline to Fujairah on its eastern coast to bypass Hormuz. Before the outbreak of war, the pipeline was transporting 1.1 million barrels per day, leaving at least a third of its capacity unused, according to the IEA. In June, exports from Fujairah’s terminals, which also draw on a nearby storage complex, climbed to nearly double that level, according to ship tracking data. A new line is scheduled to be completed by early next year, which would increase Abu Dhabi’s transit capacity to roughly four million barrels per day. … The Saudi and UAE bypass routes have already played significant roles in keeping markets well supplied and preventing even sharper increases in oil prices. Their investments could reduce oil flows through Hormuz to less than half of pre-war levels by 2030, according to Eurasia Group.” The article goes on to cover an array of other means by which producers are looking to mitigate Hormuz—a sensible look at markets adapting. Producers have applied this adaptability to moving several different commodities and is a major (and overlooked) reason why the global economy isn’t short on energy products. For more, see last week’s commentary, “Don’t Fret the EU’s Low Summertime Gas Storage Levels.”

MarketMinder’s View: Dividends appear to be a popular topic in financial headlines this week, as we noted in yesterday’s “Headlines” section. As this specific article focuses on interviewed investors’ perceptions of dividends, we think it is worth delving into this issue further to hit some key points. Positively, the piece acknowledges the shortcomings of a heavy-dividend focus. “Investors often view them as ‘free money’ rather than a payout that comes out of the stock’s underlying share price—a common error dubbed the ‘free dividend fallacy’ by Samuel Hartzmark, a finance professor at the Boston College Carroll School of Management. This view is especially common among retirees who chase income rather than focusing on total returns—meaning growth plus dividends … By targeting yield as a primary goal, investors often compromise their performance through poor portfolio diversification, heavier tax burdens and overpaying for dividend-paying stocks, Hartzmark said.” Correct. Yet much of the article glosses over these truths and reinforces the myths. Like the notion of “psychological comfort” in receiving a periodic cash payment (even though a dividend is a return of your investment, not a return on your investment). Or that dividend-related cash flow can be a “vital cash bridge” in times of unexpected need. It isn’t that we are against dividend-paying stocks. But don’t treat them as more special or inherently superior than non-dividend payers. A stock is a stock, and what matters most is your total return, regardless of how you earn it. For more, see our May commentary, “A Reminder Primer: How Dividends Really Work.”

MarketMinder’s View: Please note MarketMinder doesn’t make individual security recommendations, and the firms here are coincident to a broader theme we wish to highlight. Now, we can dive into how those titular bits of jargon will supposedly prophesize where markets go from here (and in case you are curious, those terms are “AI agents,” “tokens,” “open-weight models” and “compute”). But to summarize the central fear: “Revenue from users deploying A.I. agents is one way to pay for compute, but the costs of token usage, along with the existence of inexpensive open-weight alternatives, suggest there may be limits to how much money these tech giants can make.” Or, at the risk of oversimplifying, this essay posits that America’s Tech giants are propping up the market with their AI spending, and should those investments flop, the market will crash. Look, we agree AI investment is contributing to US economic growth, but as the latest GDP report implies, business spending is much broader than tech alone. Moreover, stocks outside the US are leading year to date, and those are much less Tech and AI focused. The hyperfocus on AI and concern that the technology alone is driving the bull market suggests broad sentiment is closer to optimism than late-stage euphoria—helpful when setting expectations.