Daily Commentary

MarketMinder’s View: America’s national debt has reclaimed headlines after surpassing a round number milestone ($40 trillion) this week. Now, this refers to gross debt, which includes bonds the government owns. Since those bonds are the government’s assets and liabilities, they effectively cancel. (Debt held by the public, also known as net public debt, is “only” $32 trillion.) However, whenever the national debt crosses such a big round number, pundits tend to shriek about looming problems, from higher interest rates to slower economic growth. Thing is, the total amount of debt outstanding tells you little about these downstream implications. Governments don’t pay their debt all at once—rather, they service the interest and principal on maturing bonds. On this front, US interest payments comprised nearly 20% of total tax receipts in fiscal 2025, and while this is on the higher end in the postwar era, it also means revenue is five times debt service. Could this change? Yes, but not overnight, as bonds take time to mature and get refinanced at then-prevailing rates, which may be higher or lower than today’s. Besides, for all the recent handwringing over Treasurys, today’s “higher” long-term yields aren’t so abnormal relative to history. This is a false fear, folks. For more on why, see last week’s commentary, “Why Treasurys Aren’t in Trouble.”

MarketMinder’s View: As this roundup mentions a couple of specific companies, please note MarketMinder doesn’t make individual security recommendations and our interest is with the commentary about stock buybacks. The world isn’t black and white, and there is no one perfect way companies can return cash to shareholders. Just as dividends have their shortcomings, so, too, do stock buybacks. “Buybacks give long-term investors a larger stake in a smaller company instead of handing them cash they may not need and a dividend tax bill they definitely don’t. … But buybacks aren’t always a good idea because sometimes stocks are expensive. Companies that grant lots of stock options can be indifferent because they want to soak up those cheaply issued shares.” As the chart here illustrates, buybacks don’t shed much light on companies’ prospects going forward—rather, they are more a coincident indicator (which makes sense philosophically—companies often tighten the purse strings during a recession and bear market and may use their cash to make it through the lean times). For investors, we think it is wise to be agnostic about how your stocks deliver profits to you (whether through dividends, buybacks or reinvesting them in the business to foster growth) and focus on total return.  

MarketMinder’s View: This analysis reinforces a useful lesson for investors: The economy and stock market aren’t the same thing. That is worth keeping in mind given dour moods are more prevalent on the Continent relative to America—even as Europe’s stocks have fared well. “Many investors conflate Europe’s relatively weak economic growth its stock market. There is some link, but it is not as great as is often thought. About 40 per cent of the revenue generated by Europe Stoxx companies is homegrown. The rest comes from overseas business, with a quarter stemming from North America. The FTSE 100 is another good example, with more than three-quarters of sales coming from outside the UK.” Another illustrative example: China’s ascent as a global exporter has hit German manufacturing but that hasn’t necessarily imperiled European markets. “But again, much of the explanation is index composition. Auto companies are now just 1 per cent of the European equity market. The majority of listed sectors are less vulnerable to Chinese manufacturing pushing down prices, including financials, energy, media, travel and leisure, and domestic sectors such as real estate, telecoms and utilities.” That being said, it also isn’t as if current European growth is hugely lagging America’s. Per Eurostat and US Bureau of Economic Analysis data, the eurozone grew 1.8% annualized in Q2. America? 1.5%. Now, the US has grown quicker in some prior quarters, but there is headline skew that gets into the mix, especially since the eurozone aggregates 21 different nations. At any rate, that so many overlook these points highlights the relatively higher wall of worry for non-US stocks, especially in the eurozone, which should help them continue to fare well going into the back half of the year. For more, see our Tuesday commentary, “A Midsummer Check-In on Global Stocks.”