Daily Commentary

MarketMinder’s View: While this article focuses on target-date funds (TDFs), the principle is universal: It is vital to know what you own. Traditionally, TDFs blended stocks and bonds, gradually shifting more of their weight from stocks to bonds as the “target” year neared. They became many 401(k)s’ default option for their simplicity and alleged built-in risk management. We always had some philosophical disagreements with this, as people would use their retirement date as the target date, ignoring that time horizon doesn’t end at retirement—it should encompass the entire time your assets must be invested to reach your goals, which is most often your lifespan for retirement investors. But TDFs have drifted from tradition, and not in a beneficial way. “Crack open an all-in-one portfolio, and you’re likely to find both a growth and a value fund for large stocks, another pair for midsize companies and still another for small stocks. Then there might be stocks screened on other criteria, such as high profitability or minimal price fluctuation, or a couple of ‘strategic,’ ‘discovery’ or ‘dynamic’ funds to make the mix sound more enticing.” The industry has also shifted from traditional mutual funds to collective investment trusts (CITs), which have fewer disclosure requirements. “A CIT, though, can invest in funds that don’t disclose every layer of fees in their own expense ratios, making it much harder for investors to figure out their true cost. That’s music to the ears of the firms that manage assets that don’t regularly trade in public markets, such as venture capital, private equity or nontraded real estate—where annual fees can hit 2% to 8% or more.” CITs also don’t have limits on illiquid investments. The upshot is that you may own a TDF thinking it is a stodgy fund that slowly shifts from stocks to bonds, while you actually own something loaded with expensive, illiquid securities that don’t match your goals and needs. A fund’s name won’t tell you whether it is right for you. You must take the time to dig in and learn its contents.

MarketMinder’s View: This piece couches a sensible, timeless point as a near-term negative, putting it in the general category of right for the wrong reasons. The sensible point: Another Fed rate cut likely has little economic effect. Yet the article describes it as a now-specific thing, a unique exception to the rule. But it is always the case, for some of the reasons the article touches on amid its handwringing about consumer sentiment. One, no long-term investment project will suddenly turn viable because overnight rates fall a quarter-point. A viable project would still be plenty profitable, and something iffier would still stay on the shelf for other reasons. Tariff uncertainty just happens to be the reason companies cite now. Two, markets pre-price widely-expected events, including rate cuts. And three, mortgage rates, prime lending rates and the like don’t move one-to-one with Fed policy rates. “Rates on auto loans, mortgages, student loans and credit cards were among the first to jump when the Fed started raising rates in 2022. But they haven’t fallen as much on the way down.” Now, we aren’t anti-rate cut. All else equal, rate cuts steepen the yield curve. The US’s yield curve is flatter than its peers, so a rate cut could help that. But lending and money supply are already growing at fine rates, so we doubt help is needed.

MarketMinder’s View: No, the Fed’s inflation target is not the core personal consumption expenditures (PCE) price index, which excludes food and energy. It targets headline PCE. And that rate inched slightly higher in September, from 2.7% y/y to 2.8%, while inflation-adjusted consumer spending flatlined. This piece, as you might gather from the headline, spends most of its pixels discussing what this means for the Fed, which convenes next week. We reckon its significance on that front rounds to diddly-squat. Again, these are September readings, delayed by the government shutdown. We are now in December. And our data-dependent Fed purportedly looks forward (purportedly!). While more recent official inflation data might not be available, policymakers have plenty of market-based indicators at their disposal, and market-based indicators are generally more forward-looking. Not that you can predict the Fed—you can’t—but we have a strong hunch this reading is just too stale to matter.