Daily Commentary

MarketMinder’s View: This is how commodity price spikes usually resolve themselves—and shows why the cure for high prices is high prices, not government meddling with price caps or rationing. Since the article mentions specific companies, please note MarketMinder doesn’t make individual security recommendations; the case-study examples provided are for illustrative purposes only. So what did chocolate purveyors do when cocoa prices soared? “After cocoa prices nearly tripled to above $12,000 a metric ton in 2024 thanks to adverse weather and disease, chocolate makers began shrinking bar sizes, adding more wafers, fruit and nuts and introducing chocolate alternatives. They also drew down cocoa stocks, raised prices and ramped up investments in products like ChoViva, a cocoa-free chocolate alternative made from sunflower seeds and oats. ... That caused a sharp drop in cocoa demand that experts say drove a 70% drop in bean prices from their late 2024 peaks. Demand could hit nine-year lows in the 12 months to end-September, said Steve Wateridge, a veteran analyst and leading world expert on cocoa. The fall in cocoa prices should, however, lead to a recovery in demand starting in the second half of the year, he said.” When prices of things you like or need skyrocket, it is frustrating to say the least. There is seldom any immediate fix or switch you can flip to quickly bring prices back to where they were (otherwise they wouldn’t have leapt to begin with). In cocoa’s case, it took more than a year before a combination of supply responses (efficiency drives to make limited stocks stretch further while innovating with “chocolate alternatives”) and demand reactions (substitution and less consumption) let prices come back down again. In the meantime, some may impatiently call for government intervention to control prices or limit transactions in some manner. But this rarely works because it doesn’t address the root supply-demand issues. Any intercession without that will backfire, likely worsening the problem and delaying the solution. High prices are the signal, and incentive, for producers to make more or find alternatives—the only lasting way to ultimately reduce prices for commodities that people continually demand. For more on puffed-up prescriptions for supply problems markets routinely solve better on their own, please see Elisabeth Dellinger’s 2024 column, “The Bittersweet Truth About Cocoa Speculation.”

MarketMinder’s View: Some positive news in global trade, as the UK struck a deal with the Gulf Cooperation Council (GCC, consisting of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) Wednesday to remove or lower tariffs on both sides. While details remain scarce, “autos, aerospace, electronics and food and drink would be among the sectors to benefit, with cereals, cheddar cheese, chocolate and butter all becoming tariff-free.” Huzzah! We think freer trade is always a net economic benefit, helping lower costs and increase opportunities for corporations and individuals alike. Yet these deals’ market implications tend to be minimal. The UK government estimates the deal will be worth around £3.7 billion ($5 billion) per year (per FactSet) for its economy—peanuts next to the UK’s roughly £2.8 trillion GDP last year. Besides, deal implementation also tends to move quite slowly, fading into the background for stocks, with this one taking effect gradually over 10 years. Oh, and tariff news—positive or not—just doesn’t influence markets like it used to, so we wouldn’t expect this to be a massive tailwind for UK stocks. Overall, this is just more evidence of global trade outside the US loosening more than a year after Liberation Day.

MarketMinder’s View: This article clearly dives into politics and politicians, so please keep in mind MarketMinder favors no party nor any politician, assessing matters solely for their potential market effects—or lack thereof. And in a sense, that is what we like about this piece. It illustrates, using the Biotechnology industry, that personality politics’ influence over markets has waned—and is unlikely to sway stocks going forward. Biotech is particularly ripe for this kind of analysis, given the heavy influence the US Food and Drug Administration has over approvals, which are central to the industry’s ongoing innovation—critical to its survival as some drugs eventually fall off patent. So it is no surprise that, when the Trump administration took office, the installation of officials skeptical toward the industry teed up fear, leading to the lag illustrated early in the included chart. Since then? “A year ago, the departure of industry skeptics from senior regulatory posts would have sent biotech stocks surging. Instead, [Biotech] has declined with the broader market to start the week. Part of that reflects renewed inflation concerns and the fact that biotech stocks had already staged a massive rebound. But it also shows that investors have tuned out the FDA after relentless churn. [Outgoing FDA drug tsar Tracy Beth] Høeg was the fifth person to hold the drug-division role since President [Donald] Trump took office, making this one of the most chaotic stretches in the FDA’s recent history. The bigger point is that investors have moved past the chaos and now perceive MAHA’s threat as diminished.” Instead, consciously or unconsciously, they now look beyond this to other drivers, like profitability—which seems sensible to us. We don’t make individual security recommendations, so tune that part of this down. Instead, focus on the pattern: Initial expectations and fears proved excessive, which flipped early industry lag to outperformance. It is a lasting tale at the crossroads of politics and markets too few embrace and learn.