Daily Commentary

MarketMinder’s View: This analysis mentions a few specific companies, and as a reminder, MarketMinder doesn’t make individual security recommendations. Rather, we are interested in the broader theme, which is worth keeping in mind for investors in the coming years. “Many business leaders are getting used to the idea of higher tariffs—and tariff fluctuations—as a new normal that will stick around even after Trump leaves office in January 2029.” As pointed out here, while the effective tariff rate didn’t climb under former President Joe Biden, he also didn’t overturn levies imposed during Trump’s first term. We won’t venture a guess as to what the next administration will do—the next presidential election isn’t until 2028—but remember, no party has a monopoly on negative economic policy (and we think tariffs are indeed a negative). Democratic presidential hopefuls may decry tariffs on the campaign trail, but similar to Biden, they may be loath to make any changes if they enter power. Not that businesses are waiting around for levies to fall before investing—as the article also points out, companies have been rethinking their long-term plans, assuming tariffs remain in place. “Foreign automakers are among the companies most affected by tariffs, and some have responded by announcing plans to expand their U.S. manufacturing. Jennifer Safavian, CEO of the lobby group Autos Drive America, said the focus on U.S. production will likely continue regardless of future tariff policy.” Businesses generally dislike shifting sand and will often delay risk taking if uncertainty is high. For now, it seems some are operating as if they have tariff clarity. Keep this in mind if the tariff landscape changes in the future.

MarketMinder’s View: This piece illustrates a useful but often overlooked concept for investors: A country’s economy isn’t its stock market. Take Germany and its famed Mittelstand. “The amorphous group of small and midsized enterprises, often family-owned, that are often world leaders in their niches make up the backbone of Germany’s postwar success.” As the article explains, these small businesses, from machinery companies to valve manufacturers, worry about their prospects looking ahead—especially compared with Chinese and US rivals. “The gloom was underlined by a recent survey by DZ Bank and industry bodies for co-operative banks. The investment appetite among German SMEs has fallen to its lowest level since the survey began in 1995—lower than during the financial crisis, the Covid-19 pandemic or the energy crisis following the start of the war in Ukraine.” Those findings are consistent with other surveys (e.g. purchasing managers’ indexes), and the dour takeaways frequently color perceptions of Germany—a reason many view it as the current “sick man of Europe.” As politicians mull ways to support the Mittelstand—many of which are covered here—we caution investors against using these specific domestic headwinds as reason to avoid German stocks. Germany’s main stock benchmarks (e.g., the DAX or MSCI Germany) feature much larger companies whose prospects depend more on global than local trends. For instance, Germany’s auto industry has faced several global headwinds in recent years, from falling demand in (and rising competition from) China to higher energy costs—those issues have less to do with German domestic policy than global trends. We don’t dismiss the issues facing Germany’s small businesses, but when it comes to investing, global generally swamps local.

MarketMinder’s View: The common reaction to yesterday’s Fed meeting: Fed head Kevin Warsh’s credibility took a big hit because the Fed didn’t do or predict anything. “… Investors believe the Fed won’t act immediately on inflation readings that by Warsh’s account have been above the Fed’s 2% target for at least 63 months, and that it may have to act more aggressively later as the economy heats up for the long haul.” As the commentators quoted here indicate, because Warsh didn’t communicate “clearly or explicitly,” market participants don’t know what it would take for the Fed to hike even though the data supposedly indicate the central bank should—and as a result, “the bond market puked on him [Warsh].” That vivid, overwrought language aside, all this handwringing over Warsh’s words says more about central bank pundits and market analysts and their own personal (misperceived) views than anything about the new Fed head. To start, 10-year yields jumped all of six basis points Wednesday (per FactSet), which is not huge. The S&P 500 dropped 1.5% on the day but regained it Thursday (also FactSet). Moreover, this fixation on rate hikes because of the recent pickup in inflation is misguided, too, as it assumes certain categories (e.g., semiconductors and energy) drive higher prices across the economy. Wrong—inflation is a monetary phenomenon, so broad money supply growth matters more than how a handful of volatile price categories are faring. Contrary to the conventional wisdom, Fed hikes today would risk a mistake—as Fisher Investments founder and Executive Chairman Ken Fisher wrote in the New York Post this week, if the Fed and other central banks hike too aggressively, that could flatten or even invert the global yield curve, discouraging lending and weighing on growth. Don’t follow the crowd here, folks—hikes aren’t what the US economy needs right now. As for the credibility claims, what is more credible: Saying you will do X if Y happens and then changing your mind, as past Fed heads did, or remaining nimble to adjust to evolving conditions without having to U-turn?