Daily Commentary

MarketMinder’s View: Following America’s April Liberation Day tariffs, we outlined three scenarios on how they could go, and since then, have added a fourth: freer trade outside the US. This has been happening, with another example reported here: “The EU and Indonesia have concluded talks on a trade deal and plan to sign it next week as they accelerate efforts to reduce their dependence on China and the US. ... US President Donald Trump’s import tariffs on both accelerated the talks. Washington has forced Jakarta to accept a 19 per cent rate across the board and Brussels to agree to a 15 per cent rate on most products.” Nine years in the works, the deal cuts EU tariffs on 80% of Indonesia’s commodity exports to zero, while lowering Indonesian tariffs on EU industrial and agricultural exports. The deal still requires ratification, which could take a year (or more), and implementation will be gradual, so it isn’t a market gamechanger. However, this isn’t an isolated incident—it is part of a growing trend: “The EU concluded a deal with the Mercosur bloc in South America in December and is in talks with several other countries including India, Malaysia, the Philippines and Australia.” Meanwhile, China is courting India and Brazil for stronger trade ties, South Korea is seeking to normalize trade with China and Brazil is readying a trade agreement with Mexico. Although these deals lack immediate impact, they undercut the notion the world’s trade is faltering—or “deglobalizing”—a bullish surprise for global stocks.

MarketMinder’s View: This article reprises the view the economy is “K-shaped,” bifurcating into haves and have-nots—i.e., high earners are doing well and their prospects look (relatively) bright while low-income workers are struggling. That divide is a sociological issue—important, to be sure, but our focus is on the investment implications. On that front, we don’t think this divide means much for investors, as it isn’t a market driver. Stocks are callous, caring mostly about future earnings. Of course, the economy influences earnings, but as the piece notes: “The top 10% of earners—households making about $250,000 a year or more—account for more of the nation’s total spending than ever, reaching 49.2% in the second quarter, compared with 45.7% a decade ago, according to Moody’s Analytics.” Whether you think this is fair or not is, again, a matter of sociology—it doesn’t enter into stocks’ calculus. Though some pockets may be weak, the economy overall is chugging along, which is what matters most for markets. For more on this matter, please see our March commentary, “So Go the Top Earners, So Goes the Economy?”

MarketMinder’s View: Please note MarketMinder is nonpartisan, preferring no party nor any politician. Our focus here is only on the titular developments’ potentially affecting workers’ personal finances. Note, too, that we don’t make individual security recommendations. Companies mentioned here are incidental to the broader theme: Are big changes coming to 401(k)s—employer-sponsored retirement plans—with the financial industry and the Trump administration pushing to include “alternative investments, such as private equity and crypto” as investment options? As the article explains, this could take a while: “The law governing 401(k) plans requires companies to act in the best interests of plan participants, a vague standard that has opened the door for employees to launch hundreds of lawsuits against employers over the past two decades. Many of the suits alleged excessive fees, and some have resulted in multimillion-dollar settlements for workers ... . Although federal law doesn’t prohibit the use of alternative investments in 401(k)s, the fear of being sued encourages employers to stick to plain-vanilla investments with low fees rather than options like private equity, which cost more but have the potential for higher returns over the long term.” While we have nothing against private equity (or crypto) per se, the legal pushback highlights some of the headwinds facing those alternative investment options—so if you are interested, recalibrate your expectations accordingly. Also, while we aren’t for or against these legal threats, we do think “private investments’ high fees, lack of transparency, complexity and illiquidity make them a tough fit for 401(k) plans.” Crypto just lacks history and is enormously volatile, rendering it very speculative. For more on 401(k)s’ potentially expanding investment menu, please see our June commentary, “Inside Wall Street’s Private Equity Push.”