Daily Commentary

MarketMinder’s View: Like the headline here says, the Social Security Administration announced today that its cost-of-living adjustment (COLA) will raise Social Security benefits 3.6% in 2027, which works out to $75 more per month on average. Of course, your mileage may vary. We think this highlights two key points for beneficiaries. First, as the article explains, CPI-W determines the COLA, but that probably doesn’t match your cost of living, which is ultimately what matters most for your personal finances. If your expenses rose less than 3.6% y/y, great! But if not, some budgeting may be in order, particularly for the items your benefits fund. Second, while COLAs help “millions of Americans cover rising everyday costs, including groceries, routine bills and health care,” which we agree is critically important, we also think relying on COLAs alone in retirement isn’t the optimal path. Investing throughout your retirement, in a portfolio whose asset allocation matches your goals, cash flow needs, time horizon and comfort with volatility, can also deliver returns to help you outpace inflation. With foresight, planning and discipline comes greater financial flexibility—and freedom.

MarketMinder’s View: Are sentiment surveys anything to go by? Sensibly, this article dismisses consumer sentiment readings’ hovering near record lows, as “the results have shown a strict red-blue divide as the economic mood of Republicans or Democrats flipped with the occupant of The White House. That makes the headline number all but useless to investors.” We could name a few more reasons these surveys are all but useless to investors, but we tip our hat all the same. But it then pivots to professional investor sentiment: “Luckily, asking professional investors how they feel and what they own still seems to work. Bank of America’s Global Fund Manager Survey, released this week, offers a treasure trove of detail. Like the Michigan survey used to, BofA’s most reliable signals flash when too many respondents seem to be in agreement. ... The percentage of respondents expecting ‘boom’ conditions—above trend growth and inflation—was the highest since Feb. 2022, the starting point for the last bear market.” Meanwhile, “Respondents were the most net overweight tech stocks since the summer of 2020, the height of the feverish post-Covid market rebound.” So does that spell doom for the Tech-led bull market? Not necessarily. For one, 2022’s reading was miles higher than today’s. Two, the gauge actually hit its high in 2021, reminding us it isn’t a timing tool. Three, it also spiked three times during the 2009 – 2020 bull market without signaling a peak. Seems to us there is more noise than signal here. Consider, too, that rote contrarianism—doing the opposite of everyone else—is just as naïve as herd following. Not all optimism is unwarranted. What really matters is the gap between sentiment and reality: What have markets pre-priced 3 to 30 months ahead—and how will earnings likely turn out. Yes, Tech exuberance presents a higher hurdle to clear for upside surprise, though pulled IPOs and funding tremors help reset sentiment lately. But excluding Tech—and outside America—the bar is considerably lower, as false fears like a “disorderly rise in bond yields” reign.

MarketMinder’s View: As noted upfront here: “Japan’s largest banks and insurance companies have been buying domestic government bonds and selling foreign debt in recent months, in moves that investors say could be early signs of a wider repatriation of capital by the country’s institutions. According to FT calculations based on data from the Japan Securities Dealers Association, large banks and insurers have together bought a net ¥5.4tn ($34bn) of Japanese government bonds with a maturity of two years or more in the five months to August. The moves, which together represent the largest value of JGBs bought over a five-month period since the start of 2023, come as yields have surged to multi-decade highs and the central bank’s policy rate is at its highest in 31 years.” We think this highlights several critical market principles for global investors. One, money tends to chase higher-yielding assets. With yields rising in Japan, Japanese government bonds (JGBs) are becoming more attractive. Two, this undercuts widespread fears rerunning that rising yields are auto-bearish and sending fiscal warning signs. Three, yield differentials swamp currency intervention. More attractive JGBs do more to stem yen weakness than government efforts to prop up the currency. Lastly, this shows the benefits of Japan normalizing monetary policy. By not interfering, stepping back and letting markets do their thing, capital becomes more productive—and bullish for Japan. Now, the rest of the article meanders through claims all this is bad for international stocks because it shrinks Japanese demand for overseas assets and disrupts the yen carry trade (where investors borrow in yen and invest in other, higher-yielding currencies). To us, it is a tour through old, widely discussed false fears. But the rising JGB demand is interesting indeed.