Today's Headlines

By , The New York Times, 05/03/2016

MarketMinder's View: We scrutinize analogies pretty closely around here, and this one doesn’t pass muster. Narayana Kocherlakota, former head of the Minneapolis Fed, likened low interest rates to insulin injections, since despite their side effects, they’re “necessary to manage a chronic disease” of slow growth and weak inflation. But the patient is actually not so ill. Eurozone growth has been uneven during the expansion—any report on 19 economies is bound to include some laggards as well as leaders—but positive for 12 straight quarters. Nor is weak inflation/occasional deflation inherently bad or always “fixable” through monetary policy. Eurozone CPI is a victim of falling oil prices, not too-tight monetary policy or a sclerotic economy. Absent falling energy prices—a boon to many businesses and consumers—eurozone inflation is closer to ECB’s 2% target. Anywhere else, moderate growth and benign inflation would earn the name “Goldilocks.” Finally, this article overstates the risk of a Chinese hard-landing or economic fallout from Brexit or Grexit. China is slowing, not crashing. Brexit, should it happen, likely won’t be anywhere near disastrous. Markets have dealt with Greece’s chronic crisis for over six years. (Oh and please look past the political stuff at the end—bias blinds, we’re non-partisan and prefer no candidate, and that part of the commentary is but a brief detour from a more focused economic discussion.)

By , Bloomberg, 05/03/2016

MarketMinder's View: Here is yet another purported Brexit “fact” that is pulled from thin air and utterly lacking a counterfactual. From our position of studied impartiality, we’ve spilled plenty of pixels detailing how both sides of the Brexit debate like to play fast and loose with figures predicting its impact. This is another prime example. Using data showing three-fifths of UK trade is with the EU or countries the EU has trade agreements with, former Chancellor of the Exchequer Alistair Darling argues Britain’s trade with the Union is 76% higher thanks to its inclusion, as leaving would “mean introducing tariffs and barriers.” But that is true only if everyone involved botches the two-year exit negotiation process. Maybe they do! But incentives on both sides point toward much more favorable terms, and you can’t game the likelihood of failure now. Plus this is all moot if Brits vote to stay. That $367 billion price tag is what we call a statistopinion—it’s an opinion made to look fact-like by the use of conjured numbers.

By , BBC, 05/03/2016

MarketMinder's View: Hammering out trade deals is tough, especially when 29 countries are involved—each with their own pet peeves and pet industries to “protect” in order to placate voters. The US and the EU have been working on the Transatlantic Trade and Investment Partnership (TTIP) since 2013, and the negotiations are best described by phrases like “fits and starts” and “wrangling and delays.” Most recently, the leak of 248 pages of TTIP-related documents sparked charges that the EU is conceding too much on environmental regulations and opening up governments to international trade disputes. France’s Foreign Trade Minister Matthias Fekl agreed, adding that French agriculture needs protection, and French producers should have more access to US markets. Calling for more “reciprocity” from the United States, Fekl said the talks would have to halt if the EU doesn’t get a better deal. (Perhaps not coincidentally, French voters hit the polls next year.) It’s too soon to say whether they can patch up disagreements or will have to return to the drawing board, but in any case, the squabbles aren’t reason to fret. The absence of a positive isn’t a negative: Markets like freer trade, but they’re doing all right without it.

By , Calafia Beach Pundit, 05/03/2016

MarketMinder's View: Look, charts! Skipping over those without much market relevance, let’s focus on a couple of the more telling images. First, US manufacturing has rebounded from its lows of late 2015 – early 2016, sticking in a range that’s perfectly compatible with broad-based growth. Second, commercial and industrial lending is a particularly bright spot: Up 11% in the last year, this shows a positively sloped yield curve—formed when long-term interest rates exceed short-term—is encouraging lending. An expanding money supply and rising business activity accompany higher lending levels—all growthy trends, and faster growth should eventually follow accelerating money supply.

By , Bloomberg, 05/03/2016

MarketMinder's View: A double dose of stimulus, a one-two punch against supposedly flagging growth, a policy doppio espresso (or boilermaker?)—however you’d like to label it, Australia’s fiscal and monetary authorities are acting jointly to soften the impact of commodity price declines and bolster inflation.  The Reserve Bank of Australia cut interest rates on short-term lending by 25 basis points to a new low of 1.75%. Soon after, Treasurer Scott Morrison introduced a new budget that would cut corporate taxes and boost infrastructure spending, with the stated goal of helping the economy move from dependence on natural resources to services. Well-intentioned as this all may be, it isn’t reason to go hog wild for Australian stocks. With July elections looming, the proposed budget might not see the light of day. Plus, Australia doesn’t exactly need stimulus—GDP grew 2.5% last year despite the commodities downturn, a sign officials overestimate resource-reliance. Yet Aussie stocks still underperformed the world significantly.

By , Investment News, 05/03/2016

MarketMinder's View: Here’s another angle of the Puerto Rico default mess: Thanks to their tax-advantaged status as a US territory, the commonwealth’s bonds were a popular choice for many investors seeking fixed income options with attractive yields and tax perks. This article highlights one investment firm with outsized exposure to Puerto Rican debt. . This is a great reminder of diversification’s importance for all investors: No matter how appealing the yield or tax situation, concentrating in any narrow category is risky. But also, there is no “blindside” potential here. Markets signaled this long ago—some Puerto Rican bonds are trading at about 65% of their original value—and the government has warned of defaults for months. Institutional investors are also working directly with the government on a repayment plan, jockeying for position in the payment pecking order.

By , BBC, 05/03/2016

MarketMinder's View: A survey of UK manufacturing activity fell below 50 in April, its first foray into contractionary territory since March 2013—a bad sign, because the last negative reading presaged a recession that … never occurred.  UK growth continued then, its large and powerful services sector leading the way, and we probably see the same this time. April’s results aren’t great, but consider: Oil and gas’s continued decline drove the contractionary reading—old news for markets. Second, the true forward-looking component of the survey is new orders; these dipped to 50.4 in April from 51.9 last month, but remained in expansion. Third, business surveys reflect the breadth of growth (how many firms reported growth) rather than the magnitude (how much they grew). Lastly, Markit’s survey began in 2009, so its predictive power hasn’t been tested through a full economic cycle yet. As a data point, it’s worth tracking, but it needn’t cast gloom on the UK’s economic outlook.


By , The New York Times, 05/02/2016

MarketMinder's View: Who doesn’t like a good story? We here at MarketMinder enjoy the occasional yarn as much as the next person. However, stories have their time and place, and using them to explain economic phenomena can be a tempting but dangerous exercise. This piece posits that popular narratives can influence consumer psychology, and that global recessions can arise if a big story can spook folks from spending—sort of a reverse “wealth effect” effect. From a high-level, this seems to make sense. The evidence doesn’t bear it out, however. Historically speaking, consumer spending varies far less than people presume during both expansions and recessions (exports and business investment fall off much more during the latter), as the vast majority of spending is non-discretionary. And also, recessions have well-documented origins. Like when monetary conditions are contractionary (e.g., when the yield curve is inverted). Recessions don’t occur when a sensational story or two makes headlines and worries the people. Otherwise, all that chatter about irrational exuberance back in December 1996 should have halted the 1990s expansion—only it went on for more than three years.  

By , CBS Moneywatch, 05/02/2016

MarketMinder's View: Well, we reject any premise that begins with the old seasonal adage “Sell in May” having “oomph” in any year—so we don’t see how it can have any extra oomph this year. Look folks, seasonal adages of any sort, whether it’s “Sell in May and go away,” the “January effect” or the “Santa Claus Rally,” don’t work. Any year where they’ve held true is coincidence, not causality. Why? Markets are effective discounters of widely known information. If a certain time of year did somehow influence stock movements, markets would catch on quickly and price it in, thus negating that advantage. Consider how widely known “Sell in May” articles are around this time of the year—this isn’t surprising anyone. Plus, May-November returns average positive since 1926. They also average positive in election years since 1952, which is a tad more meaningful than the observation that May has averaged down a bit during election years since then. Summer is far from an automatic bummer. However, that isn’t the only misperception we must dispel here. The other one is speculating over how markets might react to Friday’s unemployment report potentially raising the likelihood of June interest rate hike. Yowza, that’s a whole bunch of variables that nobody can game. Would you like to try to guess how a single backward-looking report will impact a decision 10 different people will make via committee vote more than a month from now? We suppose you can do that, if you like speculating. But if you do choose to guess, we advise you not to do so with your portfolio—successful investing depends on making decisions based on probabilities not possibilities.    

By , RTT News, 05/02/2016

MarketMinder's View: Before you cue up the worries about US manufacturing, let’s take a look at the actual numbers here. The Institute for Supply Management’s April Purchasing Managers’ Index (PMI) for manufacturing was 50.8. Yes, that’s slower than March’s 51.8, but it’s also above 50, indicating more survey respondents reported growth than contraction. PMIs are an imperfect gauge since they only capture breadth, not magnitude, of growth, but they get a lot of attention since they are released at the beginning of the month and make for easy headlines. Now, we aren’t bashing PMIs—some of us find them pretty interesting—but don’t forget their (or any data’s) limitations. Anyway, here are some fun tidbits that you might not have gotten just by reading the headline: This is the second straight month above 50 for the ISM’s manufacturing PMI, after a streak of contractions that started last October. So that’s good! And also, the New Orders subindex hit 55.8, slower than March’s robust 58.3, but indicative of general growth all the same—today’s orders are tomorrow’s production.    

By , The Washington Post, 05/02/2016

MarketMinder's View: We present this piece to highlight one central theme: Puerto Rico and its inability to pay its debt obligations is a pretty heated political issue. And when it comes to political issues, remember, dear reader, that bias is a danger that blinds—a no-no in investing. After talking about their inability to meet a payment due May 1, Puerto Rico announced it will not make the $422 million payment, and Congress remains far from agreement on how to assist the commonwealth. That isn’t good for those particular bondholders, but from a macro-level, this isn’t a big negative. For one, Puerto Rico’s struggles aren’t new—the island has been struggling for more than a decade. Second, Puerto Rico’s debt in general (about $70 billion) is approximately 2% of the entire US muni bond market—its ability to roil the fixed income universe is limited. For more, see our 7/8/2015 commentary, “Puerto Rico Can’t Afford Its Debt.”  

By , Bloomberg, 04/29/2016

MarketMinder's View: This bull market is now history’s second longest, and this is a fun collection of factoids about its seven-plus (and counting) year run. They’re all backward-looking, but still, it’s pretty powerful to see exactly how history’s least-loved bull market has rewarded disciplined investors. Interestingly, its best week thus far was also its first week, underscoring the importance of being invested when bull markets begin—and avoiding the temptation to sell after big bear market declines. As for that titular $1,000 to $102,408, that refers to the gain if you’d invested in the S&P 500’s highest-returning stock on the bull’s first day and hung on till now. Not a realistic thing to pin one’s hopes, dreams and financial future on.

By , The Wall Street Journal, 04/29/2016

MarketMinder's View: The headline is a little overstated, as firms have long reported earnings with and without accounting tweaks that differ from Generally Accepted Accounting Principles, better known as GAAP. Securities laws require firms to report GAAP earnings, but many firms will also publish pro-forma earnings, which treat depreciation, ad hoc costs and subscription revenues differently—believing pro-forma methods better reflect the underlying business. Whether these are more or less accurate is a matter of opinion, but in our view, pro-forma earnings aren’t hoodwinking anyone. Again, firms publish GAAP earnings front and center, the distinction is widely discussed, and it’s up to the investor to decide which is more meaningful. Should the SEC change some rules to limit acceptable non-GAAP earnings, that’s up to them, but it doesn’t necessarily make reporting more transparent or accurate. It will, however, skew earnings growth rates whenever the changes take effect, which will be something to watch out for.

By , Bloomberg, 04/29/2016

MarketMinder's View: Congratulations and sorry to China, Japan, Germany, South Korea and Taiwan: Thanks to a new law, you have officially been designated by the Treasury as currency manipulators! Thankfully the penalties here are utterly feckless, because the methodology is senseless—as we suspect you figured out based on the inclusion of Germany, which—of course—doesn’t control its own exchange rate, seeing as how it uses a shared currency, with monetary policy set by reps from each eurozone member state. Germany can no more manipulate its currency than we can turn the sky green. But the law says any country meeting two of these three criteria is a currency manipulator: a 3%-of-GDP or higher current account surplus, US trade surplus north of $20 billion annually and foreign asset purchases equal to or greater than 2% of GDP annually. And Germany meets the first two. China got nailed, too, even though its officials are intervening to strengthen the yuan. This is the height of pointless political grandstanding.

By , The Telegraph, 04/29/2016

MarketMinder's View: Here is a fantastic ode to the wonders of a 21st century service-based economy, as well as a dynamite argument against the many, many, many articles claiming UK growth is unbalanced and unsustainable. We’d offer a quote as a teaser, but it’s hard to choose, and you’re best off just reading the whole thing, because it’s that good. And then, if you like, you can see our commentary on the exact same topic.

By , The New York Times, 04/29/2016

MarketMinder's View: How? By beefing up the so-called “automatic stabilizers”—unemployment insurance, food stamps, Medicaid, etc.—so spending can increase without the need for new legislation. This, we are told, will help make up for the Fed being hamstrung by its inability to cut rates, presuming we enter recession when rates are near zero. Two fallacies in one! First, with no recession likely in the foreseeable future, interest rates could be anywhere when recession eventually strikes. Second, it isn’t the magnitude of rate cuts that matters so much as the yield curve and where fed-funds is relative to the discount rate. If the discount rate is lower, letting banks borrow cheap from the Fed and lend profitably to each other, that boosts liquidity. As for the fiscal stuff, this just dramatically overstates social programs’ ability to act as stimulus. Yes, they help people. But fiscal stimulus must be much, much bigger and broader based. 2009’s American Recovery and Reinvestment Act was $778 billion of new public investment, including so-called shovel-ready projects that put folks to work. For comparison, total annual welfare spending rose only $250 billion from 2008 to 2010. So, if federal and state lawmakers don’t boost welfare between now and the next recession, fear not, because it won’t impact how quickly the recovery comes. Also, in our experience, politicians are darned good at overcoming gridlock when confronted with stimulus bills during recessions, as it is very easy to use stimulus to win votes.

By , The New York Times, 04/29/2016

MarketMinder's View: We like this one because it highlights some key points all investors should understand about what it means for investment advisers to put clients first. The Department of Labor and many others in the industry and regulatory world often imply costs are the most important aspect, but as this discussion reveals, there is so much more—namely, the quality of service and advice. Robo advisers, for example, don’t account for any of a client’s outside assets when determining asset allocation. Naturally, what’s best for you to own in one bucket of money will vary wildly depending on your total liquid net worth and how it’s invested. If robos can’t account for this, they could unwittingly add to concentrated positions or otherwise create a portfolio that doesn’t match your needs. Then, there is this: “‘They are not able to provide the kind of personalized advice that a customer can get from a human on the phone or sitting across the desk, where the customer can say: “Oh, I have a new wrinkle. I might be inheriting assets in the next 12 months,”’ he said. ‘Or: “I may need to care for a sick parent. How will that impact the cash I need?”’” Firms that truly put clients first take the time to get to know them and are dedicated to helping them reach their goals over time, whatever twists and turns life and markets throw at them.

By , The New York Times, 04/29/2016

MarketMinder's View: Here is a very long, very overwrought snapshot of current sentiment toward the eurozone, with next to no enthusiasm for the fact that the bloc is now out of recovery and officially into expansion, with output passing its Q1 2008 high. It overemphasizes weak CPI, which stems from low oil prices and isn’t an economic driver anyway, and backward-looking metrics like unemployment. It highlights weakness in well-known trouble spots like Italy and Greece, while ignoring swift recoveries in Ireland and Spain as well as France’s Q1 acceleration. It describes bank lending qualitatively, saying banks are “reluctant” to lend, while ignoring accelerating loan growth and swift money supply growth throughout the bloc. No, the eurozone isn’t enjoying rip-roaring growth, but it is in far better shape, with far better prospects, than most appreciate. The big gap between sentiment and reality should be a tailwind for eurozone stocks.

By , The Telegraph, 04/29/2016

MarketMinder's View: While we appreciate the effort to inform UK savers of some forthcoming changes they might not be aware of, this take is overly alarmist and frankly misunderstands the concept of time horizon. The issue at hand is this: Thanks to recent rules lifting some restrictions on pension investments, insurance firms are now able to invest more of their clients’ funds in stocks as retirement nears. Some warn this is a disaster waiting to happen, presuming if a bear market strikes just before you retire, you’ll never be able to make your money back and support your retirement. This is a fallacy. Time horizon doesn’t end at retirement, and enduring a bear market in your final working years needn’t jeopardize your goals. Bull markets always follow bear markets, and if you remain invested, you can regain all your bear market declines and then some. Asset allocation should depend on your goals and needs over your entire investment time horizon, which probably includes the rest of your life (and perhaps beyond, if you’re also investing for a spouse or heirs). Owning equities is often vital for retirees, many of whom need some degree of growth to support their cash flow needs. Maybe not a 100% stock portfolio, but likely a significant chunk. Ditching stocks entirely while you’re still working, believing your time horizon ends when you retire, ignores the time value of money and raises the risk you run out of money late in life.

By , The New York Times, 04/28/2016

MarketMinder's View: All right partisan people—time to set those views (pro or con) aside to size up this lengthy piece on President Obama’s “economic legacy.” Whatever your view of his policies, many of the facts offered here are skewed. Contrary to the assertion here, the federal deficit is not down 75% under Obama’s watch. The deficit initially rose to over $1 trillion in his first two years and is now down 75% from there. Which is different. But overall, our major critique of this piece is that it ascribes much too much influence to government policy—good and bad—over the economy. Folks, 87% of output and 85% of jobs are in the private sector. Growth would likely have resumed, and markets would likely have recovered, no matter who won in 2008. Presuming his policies massively moved the needle on hiring or even forestalled a much worse outcome is opinion, not fact, and one with no counterfactual. Moreover, this shares a whole lot of fallacies about what drove the panic to begin with. All in all, we categorize this broadly as overstated mythology. That being said, however, those who presume his presidency would doom stocks and the economy—as many did and still do—should note they are making the same error as those overstating his role in the present expansion.

By , MarketWatch, 04/28/2016

MarketMinder's View: At the beginning, this article seems like another in the seemingly never-ending string of article arguing that low-fee index funds are the key to investment success. But! But! But! Then it takes a sensible turn (after the tables), pointing out that the really damaging things to folks’ portfolios are usually self-induced behavioral errors at the asset allocation level. And this, folks, is one reason why passive is so darn rare and hard to do. “Even being invested in a mediocre fund would have given you pretty great annual returns over the past three and five years. It was far more destructive to sit in cash the entire time because you were still nervous about the financial crisis. A poorly timed asset-allocation decision can be far more harmful to your returns than the decision between active and passive funds. Costs matter, but not nearly as much as discipline.”

By , Bloomberg, 04/28/2016

MarketMinder's View: This argues that the 30-year period we just saw was an outrageously good one for equity market returns, and that this is unlikely to repeat, because the world economy is in some kind of newfangled secular growth funk. Balderdash. For one, there are significant reasons to doubt GDP is accurately measuring the service- and technology-based economy today (see Diane Coyle’s book, GDP: A Brief but Affectionate History for more). Two, economic drivers are one input for stocks, but they are not the only one. Heck, the big bull market in this cycle should pretty much kill the notion you need hot GDP to buoy stocks. It’s how sentiment relates to fundamentals that matters most, and if we all become convinced the future is so darn bleak as this presumes, that would be pretty bullish indeed. That said, it would not be bullish about the long run future, as you cannot forecast long term returns, which are heavily influenced by equity supply. This, like all other long-term forecasts we have ever seen, doesn’t even attempt to do that. The next time someone foists a long-term market outlook (beyond, say, 30 months) on you, we suggest you nod slowly and back away from them. Then, run.

By , Bloomberg, 04/28/2016

MarketMinder's View: US GDP growth slowed in Q1 to an 0.5% seasonally adjusted annual rate, which is admittedly quite slow. And, what with business investment falling -5.9% in the quarter—the steepest decline since the recession ended in 2009—handwringing over the slowdown abounds. However, we feel compelled to point out a few things. One, this is the preliminary report of US GDP, which will be revised. And it is actually very similar to last year’s Q1 GDP, which grew 0.6% and better than 2014’s -0.9% Q1 drop. Throughout this expansion—and actually predating it—economists have noted a tendency for growth to lag in Q1 and reaccelerate later, likely tied to seasonal adjustment issues in the data. Last year, the US Bureau of Economic Analysis claimed they’d fixed it, and maybe so. But it is worth noting reacceleration followed the slow Q1s the last two years and most folks expect that this time, too. Further, the business investment drop was driven by an -86.0% decline in mining and oil well investment. That the economy took a whack like that from oil and kept growing shows that oil is unlikely to sink growth.

By , Bloomberg, 04/28/2016

MarketMinder's View: Ordinarily that headline wouldn’t be news, but in this case, it is—this bull market will become history’s second-longest on Saturday. Hip hip! This article is a fairly balanced snapshot of sentiment during these last seven years, one month and nineteen days, capturing how this is indeed history’s least-loved bull. But the discussion of fundamentals swings and misses in a couple places. For one, in our view, it over-credits the Fed for keeping things going. Everyone still loves quantitative easing (QE), but by reducing long-term interest rates, QE was a sedative, not stimulus. It flattened the yield curve, which age-old economic theory and over a century of evidence tells us is a negative. Flat yield curves hamper money supply growth, giving the economy less fuel. Stocks rose despite it, not because of it. We guess ultra-low interest rates have helped somewhat by steepening the short end of the yield curve, but if long rates were allowed to move freely, it would be a moot point. We also think stocks’ outlook is far brighter than the ending suggests. It’s true uncertainty over negative interest rates, Brexit, the Fed, earnings and the US election has weighed on sentiment (and therefore stocks) lately, but many of these issues should fade soon. Some (Brexit, election), have fixed end dates that will bring investors clarity. Steadily falling uncertainty should lift stocks. Earnings should improve, too, as the Energy sector’s impact becomes less pronounced, letting strength in other sectors shine through. (Though, stocks have already proven they can rise without earnings growth—the two aren’t joined at the hip.)

By , Reuters, 04/28/2016

MarketMinder's View: More bad economic news from Japan, where in addition to the return to deflation, household spending plunged -5.3% y/y. Industrial production rose, but that’s the lone bright spot. Now, oil bears a lot of the blame for weak CPI—“core-core” CPI, which excludes energy and fresh food, rose 0.7% y/y. But that is still awfully sluggish, and it is yet more evidence monetary stimulus alone can’t get Japan zipping along again.

By , The New York Times, 04/28/2016

MarketMinder's View: Upon receiving the 1974 Nobel Prize, legendary economist Friedrich Hayek delivered a speech titled, “The Pretence of Knowledge.” In it, he argued that most of the economics world was essentially blinding itself with econometrics that could never, and would never, accurately measure the economy, and he warned of using them as the sole measure of guide for economic forecasting and policymaking. In the course of discussing weak productivity growth (a measure derived from employment and GDP statistics), this article’s second theory—which we more or less agree with—is similar to Hayek’s salient point. The economy is dynamic—ever changing. The National Income Product Accounts that generate GDP data, and hence, productivity, were designed in a manufacturing and heavy industry-dominated era. They have never accurately captured services output, a well-known issue in economics. They also have many other statistical quirks. GDP figures are useful, but one has to be wary of placing too much confidence on what these data actually show. The first and third theories seem like mostly speculation, subject to opinion and bias. We mean, it is hard to argue the modern economy is less innovative than it was in 1920, what with smartphones and such.

By , The Telegraph, 04/27/2016

MarketMinder's View: Sorry to pick on one supranational organization, but this analysis of the OECD’s report on the economic consequences of “Brexit” is dynamite. (We’ll stop short of a full endorsement, however, as we’re 100% neutral on the Brexit debate, and this piece does veer into bias at the end.) It is also a striking lesson in how to unpack big long-term forecasts—and how many are based on utterly bizarre assumptions. In this case, they based the projections on the assumption a Brexited UK will sign no free-trade deals whatsoever—and will only restore free trade with the EU many years from now. In the interim, they presume full tariffs will apply. “There is an argument you could include this in a legitimate case for what might happen, as an absolute worst case scenario of which we should be aware. But for that to actually come to pass, it would require utter incompetence in Brussels and London (hardly the best argument for remaining in the EU). To use it as your only scenario, to assume it is what will happen next, is scaremongering.” Any projection, on any topic, is only as good as its inputs.

By , Financial Advisor Magazine , 04/27/2016

MarketMinder's View: As the end of April is just days away, many financial media pundits will likely consider if investors should “Sell in May and go away”. The adage is rooted in the 19th century practice of brokers taking the summer off, leading to markets having the summertime blues. But it is not a good strategy. It’s true market returns are higher, on average, from November 1 through April 30 than from May 1 through October 31, and the frequency of positive returns is higher. But returns from May through October are also positive, despite what the incredibly bogus chart suggests. It says $10,000 invested in the S&P 500 from April 30 through October 31 during every year from 1950 would have shrunk to $8,071. Not true, folks. S&P 500 total returns, which include dividends, were positive in 47 of these 66 years. String the 66 years’ worth of April 30 – October 31 growth rates together, and it compounds to a 439% return. Why on earth would anyone want to miss 439%? Seasonal myths are simply not sound investing advice.

By , The Telegraph, 04/27/2016

MarketMinder's View: The first estimate of UK Q1 GDP shows growth slowed to +0.4% q/q, down from Q4’s +0.6% q/q pace. The UK’s services sector, which accounts for almost 80% of overall output, led the charge with +0.6% growth. Meanwhile, industrial production—which includes manufacturing—shrank -0.4% q/q while construction sagged -0.9% q/q. Some attribute slower growth to fears over a possible “Brexit”, but as documented elsewhere, the Office for National Statistics said they saw “no evidence” to support this. We can see why. Prime Minister David Cameron didn’t finalize the UK’s renegotiated EU membership until February 22, over halfway through the quarter. While Brexit fears swirled throughout the remainder of the quarter, slumping mining activity and steel plant closures—well-known, isolated issues—bear much of the blame for falling industrial production, and construction accounts for a small slice of the UK’s economy. Services growth slowed in Q1, but we wouldn’t read too much into this as growth rates routinely wobble during economic expansions. While this piece’s title is accurate, it could have alternately read, “UK Growth Continued in Q1 Despite Falling Manufacturing, Construction and Worries Over a Possible Brexit.”

By , MarketWatch, 04/27/2016

MarketMinder's View: It’s a common axiom that markets abhor uncertainty. But uncertainty is a constant, as the future is always unwritten. Its actual economic impact is also frequently overstated. Businesses talk about delaying investment due to “uncertainty,” but then they go off and invest anyway. Consumers tell sentiment surveyors they’re “uncertain,” then they go to the mall. Widespread uncertainty—in the form of utter cluelessness on how some major event will swing—can weigh on investor sentiment and stocks in the short run, and that’s where the axiom comes from. And while uncertainty never vanishes, it can fade on a case by case basis, and that relief is generally bullish. The slumping energy industry, the path of further Fed rate hikes, a looming vote on whether Britain stays in the EU and who will be the next US president are current sources of uncertainty. But as the year continues to progress, these factors should fade or disappear altogether. “Brexit” uncertainty vanishes June 23, when the referendum results are in. US election uncertainty should vanish November 8, once the votes are counted. Stocks should move in advance, as they regularly do. As the clouds of uncertainty burn off, it will likely reveal a world that’s in much better shape than many presume. Unless some big negative or other sources of uncertainty develop over the near term, this will likely be a tailwind for stocks throughout the remainder of the year.

By , CNNMoney, 04/27/2016

MarketMinder's View: Many investors need a decent return on their nest egg to meet their needs throughout retirement, and it would be nice to achieve these returns without any risk of losing principal. But that doesn’t exist, and not just because interest rates are low right now. US Treasury yields have the world’s lowest default risk, but if they’re yielding 7%, then a 7% return is probably not sufficient to deliver inflation-beating growth. There is no such thing as a free lunch, people, and no such thing as a truly “safe” investment. Anyway. The good news is these folks can likely invest a meaningful chunk of their assets in growth-oriented securities and still achieve their long-term goals. You only need to keep a small portion of your overall portfolio in cash or cash equivalents—to cover any basic expenses over the near term. The remainder, which you won’t need to touch for years, likely has a sufficient investment time horizon to weather stock markets’ ups and downs to ultimately capture their long-term returns. How much should you put in stocks versus bonds will depend on your time horizon, long-term goals, cash flow needs and other financial circumstances. Risk tolerance—your ability to withstand short-term volatility—is also an important consideration, but it shouldn’t be the sole determinant.

By , The Wall Street Journal , 04/27/2016

MarketMinder's View: This is a mostly sensible take on why falling industrial production (IP) likely won’t drag the US economy into recession. IP—a measure of manufacturing, mining and utility output—fell -1.8% y/y in Q1, and IP has never fallen that much without coinciding with recession. But at the risk of using the four most dangerous words in the English language, there are some plausible reasons why it might not signal economic doom this time. Instead of reflecting a broad-based decline in economic output, IP is a victim of the global commodities downturn. Mining, which includes oil, natural gas and coal production, fell -12.9% y/y in March as oil and gas well drilling fell a whopping -55.4% y/y. Meanwhile, manufacturing—the biggest component of IP—grew 0.4% y/y in March. But overall IP is just ~15% of GDP and the remaining ~85%, mostly services, don’t depend on strength in heavy industry. For more, see our 1/29/2016 commentary, “Industry Isn’t Producing a Recession.”

By , The Wall Street Journal , 04/27/2016

MarketMinder's View: This is a mostly sensible take on why falling industrial production (IP) likely won’t drag the US economy into recession. IP—a measure of manufacturing, mining and utility output—fell -1.8% y/y in Q1, and IP has never fallen that much without coinciding with recession. But at the risk of using the four most dangerous words in the English language, there are some plausible reasons why it might not signal economic doom this time. Instead of reflecting a broad-based decline in economic output, IP is a victim of he global commodities downturn. Mining, which includes oil, natural gas and coal production, fell -12.9% y/y in March as oil and gas well drilling fell a whopping -55.4% y/y. Meanwhile, manufacturing—the biggest component of IP—grew 0.4% y/y in March. But overall IP is just ~15% of GDP and the remaining ~85%, mostly services, don’t depend on strength in heavy industry. For more, see our 1/29/2016 commentary, “Industry Isn’t Producing a Recession.”


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Global Market Update

Market Wrap-Up, Monday, May 2, 2016

Below is a market summary as of market close Monday, May 2, 2016:

  • Global Equities: MSCI World (+0.3%)
  • US Equities: S&P 500 (+0.8%)
  • UK Equities: MSCI UK (+0.2%)
  • Best Country: Portugal (+1.6%)
  • Worst Country: Japan (-2.7%)
  • Best Sector: Consumer Staples (+0.7%)
  • Worst Sector: Energy (-0.2%)

Bond Yields: 10-year US Treasury yields rose 0.04 percentage point to 1.83%.


Editors' Note: Tracking Stock and Bond Indexes


Source: Factset. Unless otherwise specified, all country returns are based on the MSCI index in US dollars for the country or region and include net dividends. Sector returns are the MSCI World constituent sectors in USD including net dividends.