Daily Commentary

MarketMinder’s View: Please note, MarketMinder isn’t for or against specific policies or regulations, and we don’t make individual security recommendations. Our interest is in the broader theme of new rules’ potential economic and market implications only. Today the EU released some new artificial intelligence (AI) guidelines, which seek to improve transparency, copyright protection and public safety. These rules are part of a “code of practice”—a voluntary protocol to help companies comply with the EU’s AI Act. For instance, “Under the guidelines, tech companies will have to provide detailed breakdowns about the content used for training their algorithms, something long sought by media publishers concerned that their intellectual property is being used to train the A.I. systems.” Before getting too deep into the legal weeds and potential effects on companies with general-purpose AI and the Tech sector at large, keep some key details in mind. One, rules take effect August 2, but regulators can’t impose noncompliance penalties until August 2026—giving the industry time to prepare (not to mention the possibility of watered down rules). Two, not all companies are joining the voluntary code of practice. They still must be compliant with the AI Act, but it illustrates how squishy the current environment is. Three, as the back half of the article notes, Thursday’s guidelines “are just one part of a sprawling law that will take full effect in the coming years.” So while developments here merit watching, this is likely going to be a slow-moving process—sapping the type of surprise power that could materially weigh on stocks.

MarketMinder’s View: Here is a thorough look into one portion of the “critical mineral” supply chain showing why trade restrictions are generally more bark than bite. To set the stage: “China dominates the supply of antimony as well as gallium and germanium, used in telecommunications, semiconductors and military technology. Beijing banned exports of these minerals to the U.S. on December 3 following Washington’s crackdown on China’s chip sector.” Despite the ban, “U.S. imports of antimony, gallium and germanium this year are on track to equal or exceed levels before the ban, albeit at higher prices.” How did this occur? As the article details, companies are using creative workarounds (e.g., transshipment) to move product. “Specifically, trade data illustrate a re-routing of U.S. shipments via third countries—an issue Chinese officials have acknowledged. ... The U.S. imported 3,834 metric tons of antimony oxides from Thailand and Mexico between December and April, U.S. customs data show. That was more than almost the previous three years combined. Thailand and Mexico, meanwhile, shot into the top three export markets for Chinese antimony this year, according to Chinese customs data through May. Neither made the top 10 in 2023, the last full year before Beijing restricted exports.” Though this is only one small aspect of global commerce, it underscores the lengths businesses will go to trade (and take the risk for big potential profits). Don’t underestimate corporate adaptability and resilience: It is a big reason why export bans, tariffs, sanctions and the like are usually less onerous than feared.

MarketMinder’s View: Please note, MarketMinder is nonpartisan and assesses politics only for its potential market and personal finance ramifications. We also don’t make individual security recommendations; specific securities and funds mentioned are incidental to the broader theme we wish to discuss: Letting your personal politics guide your investment decisions can blind you from important details—namely, what exactly do you own? As this article points out, “principles-based investing” has become more popular, as evidenced by the uptick in funds claiming to invest based on certain political beliefs or values. Options span the political spectrum, but a closer look indicates many funds are “... either dressing up broad-based investing in ideological terms, or sacrificing returns in the name of ideological purity. A look under the hood of the American Conservative Values fund, for instance, reveals something a lot like an S&P 500 index fund with higher fees. Of roughly 370 holdings, some 335 also belong in the S&P 500, according to Dow Jones Market Data.” There can also be higher fees for various products peddling certain viewpoints: “The conservative ETF has an expense ratio of 0.75%, compared with under 0.1% for a fund that owns the broader market, such as the Vanguard S&P 500 ETF.” We aren’t picking on them here—the same holds for ESG ETFs, which may carry steeper fees. Again, we aren’t for or against any of the funds mentioned here. But it behooves interested investors to be aware of all the associated costs—both in terms of expense ratios and potential lag—and cut through potential sales spin before diving in. Make sure that, if such beliefs are important to you, that you know what you own and what is actually in said portfolio before you dive in.