Daily Commentary

MarketMinder’s View: According to this argument, investors have another potential headwind to contend with: seasonality. “September and October are the two most volatile months for the market. September is the only one averaging a net negative return, going back to 1928. As for October, its ignominious milestones include the crashes of 1929 and 1987.” Combine that with semiconductor volatility, rising sovereign debt yields, inflationary pressures due to the Iran war and handwringing over a non-communicative Fed head Kevin Warsh, and this piece worries volatility will be coming back in a big way—and offers three “protective measures.” They include building a cash cushion, diversifying within equities and buying an annuity. Look, we can dive deeply into the merits (or lack thereof) of each of these suggestions, but from a higher level, we have problems with the notion investors should take any action based on seasonality. Think this through: How do returns from 40 years ago affect corporate profits over the next 3 – 30 months, which is the timeframe stocks care about? Is the fact that markets crashed in October 1929 supposed to influence semiconductor demand or energy prices today? To us, warnings about seasonality at this point in the calendar indicate sentiment in America has cooled relative to the start of the year (and/or that financial writers have scraped the bottom of the topic barrel this silly season). Either way, we suggest not letting a month’s historical average return determine your next portfolio move. (That said, we think this is an awful reason to buy an annuity, a costly, restrictive and illiquid product based on some seasonal urge. That would make a short-term timing mistake based on historical averages harder to reverse.)

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.”

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.”