Daily Commentary

MarketMinder’s View: We agree with the general argument that bonds’ performance in recent years doesn’t negate the reasons to own them, but the broad discussion misses the mark. It focuses on long-term Treasurys’ performance over the last five years, all but anchoring to long rates’ lowest point in modern history (the low occurred in August 2020, while this analysis starts that October 20, when the 10-year US Treasury yield was 26 basis points higher, per FactSet). The problem? Long-term Treasurys are highly interest rate-sensitive and will naturally fall more than shorter maturities when interest rates rise, as they did through much of this span. That doesn’t really tell you anything about whether a diversified bond portfolio, which has ways to mitigate interest rate risk, can do its job of reducing expected volatility versus an all-stock portfolio. So we crunched some data, comparing quarterly swings in the ICE BofA US 7-10 Year Corporate & Government Index with the S&P 500, to see if the magnitude of bonds’ swings up or down has suddenly become much greater than stocks’ swings. It hasn’t. Bonds have swung more than stocks in 5 of 20 completed quarters since 9/30/2020, again per FactSet. That 25% frequency just about matches the overall 24.2% frequency of bigger bond swings from Q1 1997, when our bond data begin, through 9/30/2020. Seems to us bonds are still cushioning volatility the vast majority of the time, even if absolute returns have occasionally disappointed. Dampening volatility is the point here, friends. And given how utterly familiar markets are with debt ceiling standoffs and government shutdowns, we don’t think the current shutdown presents some huge new risk to bonds, as the article alleges. The 10-year Treasury yield is actually down since the shutdown began. Markets seem over it.

MarketMinder’s View: As always, we prefer no politician nor any party, so we present this policy proposal for its broader implications only. Nothing is final or close to it, but the Secretary of the Interior posed an interesting idea for the long-in-development liquefied natural gas (LNG) project in Alaska’s North Slope. “The planned Alaska LNG project currently under development includes a new pipeline about 800 miles (1,288 kilometers) long that would deliver the gas from the North Slope to an export facility in Nikiski, Alaska, as well as the residential area of Anchorage, which is facing a decline in domestic gas. The plant would have a capacity of 20 million metric tons per year.” Chilling and shipping the gas straight from the North Slope would have some logistical challenges, given the amount of ice, but foreign investors are reportedly interested. If this were to go through, we wouldn’t expect it to radically increase US natural gas supply, for a simple reason: The Jones Act requires all oil and gas transported from one US port to another to be on a US-flagged tanker, which are in short supply. So this is more a factor for export capacity. That is still beneficial for US consumers, as it adds to global supply in a market where prices are set globally, making it a stabilizing force. So we see this as a potential long-term positive for the global LNG market, not a gamechanger for US energy supply or oil and gas stocks in the near term.

MarketMinder’s View: Talk about spinning good news into bad. UK retail sales notched their fourth straight rise in September, beating expectations at 0.5% m/m. That is sales volumes, not values, so it isn’t an inflation illusion. But this piece implies the only reason sales rose is that more people bought physical gold at jewelry stores, tying it all to gold’s rally and the usual list of attendant geopolitical and economic concerns. It all seems like a stretch to us. If you are worried about an AI bubble or geopolitical instability tanking stocks, you probably don’t go to the jewelry store and buy a glittery bracelet. There are other, more cost-efficient and liquid ways to chase gold’s hot returns. We suspect jewelry stores’ 2.2% sales rise had more to do with people trying to buy whatever is on their list before prices potentially rise more. At any rate, sales were actually pretty ok across the board. All major categories save grocery stores rose, and food’s decline was a scant -0.1% m/m. So gold alone didn’t prop up sales, and this seems overall like more evidence UK consumption is fine despite fears of higher prices knocking it as employers pass tax hikes to customers. Reality is going better than expected, helping UK stocks climb the wall of worry.