Daily Commentary

MarketMinder’s View: We agree with the opening argument here: “It’s a tough case to make that higher interest rates are having a substantially negative impact on the economy.” The rest of this article is mixed, in our view. High rates now may be fine, the argument goes, but if they stay that way, problems could ensue. Never mind high rates’ not tanking the economy so far is strong evidence undercutting that thesis. The problem we see is the pervasive belief that Fed policy directs the economy—e.g., the argument here that high rates distort financial markets. But we see no evidence for that. Bonds reflect inflation and inflation expectations, and stocks move most on earnings expectations versus reality—Fed rates affect those drivers only marginally and indirectly. Lastly, the article posits government spending masks high rates’ supposed chilling effects on economic activity, though over the longer term, mounting US debt and rising consumer delinquencies will eventually take their toll. But this ignores the facts. US debt remains affordable—and sustainable—while Americans’ household finances are in fine shape. Mostly, we see all the lingering fears here as bullish for investors, as they imply reality remains better than perceived—a sign of more wall of worry ahead for stocks to climb.

MarketMinder’s View: Please note MarketMinder doesn’t make individual security recommendations. Firms mentioned serve only to illustrate a broader point, which this article helpfully summarizes: “New tech supports record [oil] production.” Details within, but for a taste, “new oilfield innovations, which began being implemented more widely last year, have made it possible for fracking to be faster, less expensive and higher yielding. The advances in the past few years include the ability to double the length of lateral wells to three miles and equipment that can simultaneously frack two or three wells. Electric pumps can replace high-cost, high maintenance diesel equipment.” However, that productivity comes at a price: higher upfront capital costs—a development that favors big drillers over smaller ones. Hence, active drilling rigs have fallen -18% y/y. So while the US is producing record oil volumes (more than any other country, ever) with greater productivity and lower operating costs, further growth is likely limited, keeping supply in check and prices elevated—a big reason we are bullish on Energy this year.

MarketMinder’s View: Hong Kong’s once-bustling capital markets aren’t what they used to be, falling from the world’s top equity fundraising venue five years ago to eighth among global exchanges so far this year. Meanwhile, trading volume has tanked, with the special administrative region’s (SAR) stock exchanges’ average daily turnover down -22% y/y. The article suggests tougher Chinese mainland listing requirements could steer more IPOs to Hong Kong, possibly reviving its fortunes, but notes weak sentiment towards China remains an impediment. “A slowing Chinese economy, intensifying geopolitical tensions and China’s crackdown on industries like technology and real estate have all contributed to the current malaise in Chinese stocks and in Hong Kong.” We don’t dispute those headwinds, and they provide a useful reminder: Though index providers like MSCI categorize Hong Kong as a developed market, the SAR’s fortunes are inevitably tied to the mainland—and China’s headwinds are well-known. To us, China and Hong Kong chatter is more a reflection of sentiment, which remains pretty skeptical—worth keeping in mind for globally minded investors.