Today's Headlines

By , Reuters, 10/18/2017

MarketMinder's View: Chinese President Xi Jinping kicked off the 19th Party Congress on Wednesday, announcing China will pursue market-oriented reforms while also promoting stronger state-owned enterprises. But here we counsel investors to watch what he does, not what he says—logic that applies to any pol, whether Communist or democratically elected. For those of you scoring at home, his stated goals aren’t necessarily incompatible, as market-chosen winners and losers can differ from government-selected winners and losers. However, while China analysts debate what Xi’s words and plans mean, we suggest investors refrain from extrapolating too much from the minutiae and details. While the 19th Party Congress could have meaningful implications for China’s domestic politics down the road, not a whole lot is likely to change in the near-term future—the timeframe that matters most for stocks. For now, China will likely continue its pursuit of stable, if slower, economic growth to ensure overall social stability. A slower-growing China that dabbles with some incremental market reforms has been fine for global stocks throughout this bull market, and we don’t see why that should change any time soon.   

By , The Wall Street Journal, 10/18/2017

MarketMinder's View: “For the past 13 times that a year has ended in seven, going back to 1887, the Dow Jones Industrial Average or its predecessor has suffered a sharp downturn between August and November. The average drawdown has been a little over 13% according to the research firm Leuthold Group.” These sentences are what market trivia nerds dream about. Long dataset! “Lucky” numbers (13 and 7)! Arbitrary timeframe! Random observation that makes for an eyeball-grabbing headline! For investors, though, we suggest treating the findings here as fun conversation fodder at a party rather than actual investing advice. Short-term historical timeframes with coincidental patterns tell you nothing about where forward-looking stocks are headed next. For more, see today’s commentary, “Fun With Fun Facts.”

By , A Wealth of Common Sense, 10/18/2017

MarketMinder's View: Here is an insightful look at how personal the investment process is. Investors can pore over plenty of well-reasoned research analyses that describe why you should stay invested, but if the market pulls back sharply, that logic can scamper away as emotions take over. Thus, as aptly noted here, “This is why understanding yourself is the most important part of the investment process. If you don’t understand yourself—your reactions, your personality traits, your biases, your limitations—it doesn’t matter which type of investor you’re supposed to be. It matters which type of investor you are.” Indeed: It requires a good amount of introspection to know both your strengths and weaknesses, but being honest about your faults can help you become a better investor overall. That said, many people struggle to honestly assess themselves and their own shortcomings—which is why having a trusted counsel to rely on can benefit almost any investor.    

By , RTT News, 10/18/2017

MarketMinder's View: This is a version of the “Trump Rally” narrative—the notion stocks’ rise this year hinges on the Trump administration’s passing “business friendly” measures, including deregulation and tax reform. As we have written before, this is a myth: Stocks aren’t higher solely because they are optimistic about Trump policy (Trumpolicy?). For one, tax reform isn’t inherently good or bad for stocks, contrary to what many in the media argue. Rather, tax changes simply select new winners and losers. If you’re a company on the potential losing side of that equation, we fail to see how reform would be good for your stock. Second, maybe US stocks are higher because they’re participating in a global stock market rally. US stocks are doing well this year, sure, but Dutch, Spanish and Korean stocks, to name a few other prominent markets, are doing better. Are companies in Europe and Asia doing great because of US tax policy? Seems like a stretch to us. Maybe, instead of tax reform, stocks globally are higher because of positive market drivers like a growing global economy, rampant political gridlock preventing sweeping change and increasingly optimistic investor sentiment? In our view, that’s much more likely to be the case.   

By , The Wall Street Journal, 10/18/2017

MarketMinder's View: Remember when GOP candidate for President Donald Trump promised to designate China a currency manipulator “on day one of a Trump administration” back in November 2015? Well, we are now 272 days into the Trump presidency, and the US Treasury just declined to do so—for the second time. Sure, “Treasury remains concerned by the lack of progress made in reducing bilateral trade surplus with the United States,” and its report suggests, “China should take concrete steps to level the playing field for American workers and firms.” But those high-minded recommendations aren’t the same as formally declaring China a currency manipulator—a move that could open the door to broad tariffs, which many feared would lead to a global trade war. This is a prime example of why we suggest investors refrain from putting too much stock in politicians’ promises—especially those made on the campaign trail. Hot rhetoric in the lead-up to an election tends to cool off and moderate once in office. For more, see our 4/13/2017 commentary, “Lessons From Trump’s Yuan U-Turn.”


By , The Economist, 10/17/2017

MarketMinder's View: This article draws on a global fund manager survey, which we wouldn’t put too much stock in by itself, but it provides a decent summation of where investor attitudes lay: “Almost half of all the managers now expect above-trend growth and below-trend inflation, what is dubbed the Goldilocks economy (she wanted porridge that was not too hot, or too cold, but just right). ... asset prices are generally high, thanks largely to low interest rates. At some point, rates will rise too much, or the economy will slow, or one of the geopolitical risks will bow up (literally or metaphorically). Until one of those three bears appear, investors will trust in Goldilocks.” The problem with these prevailing investment beliefs, however, is they aren’t stock drivers the way most think. Stocks don’t need above-trend growth (or below-trend inflation) to rally. Stocks can rise—and have risen—just fine with a slowish economy (or highish inflation). Low interest rates aren’t the bull’s fuel, either. Stocks rose despite low long rates, which flattened the yield curve, not because of them. As for short rates, stocks haven’t minded the four rate hikes since late 2015. Stocks care about the yield curve, not any one interest rate on its own, and the yield curve isn’t close to inverting. And while geopolitical risks are omnipresent, none are likely to derail the global economy and threaten stocks. Investment surveys generally aren’t very useful, except in combination with other sentiment gauges as a barometer on conventional thinking. Surveys like this inadvertently reveal why the bull market persists: Investors, though optimistic, remain far from euphoric.

By , Bloomberg, 10/17/2017

MarketMinder's View: We highlight this not to pile on any of the fine academic institutions or managers listed here—one year of performance isn’t all-telling about the merits of an investment style or strategy. However, we do think it is interesting evidence countering the notion complex investment strategies accessible to large investors are inherently superior to simpler ones. Don’t buy the hype: Craft a plan that puts you on the best path to reach your personal investment goals. Some investors find working with an adviser helpful while others prefer self-management, but regardless if you hire someone or not, simpler is often better (to paraphrase Occam’s razor). In order to build wealth, regular, boring stocks make sense for a lot of long-term, growth-oriented investors.

By , CNN, 10/17/2017

MarketMinder's View: No they shouldn’t. For one, we think it’s a stretch to characterize the center-right People’s Party (OVP) as “populist”—its history and centrist leanings suggest “establishment” is more apt, and it’s totally normal for parties to creep in one direction or the other in order to compete with a challenger. That’s just politics for you. While it is true the OVP may form a coalition government with the far-right Freedom Party (FPO), this is neither guaranteed nor a sign that euroskeptic populists are taking over. The OVP didn’t campaign on leaving the EU, and the FPO has cooled down some of its hotter rhetoric. Turns out politicians the world over moderate when the opportunity to grab power comes along—who would’ve thought! Also, we found it interesting how this article characterized establishment politicians’ wins in the Netherlands, France and Germany as “interim events” while Brexit, the US and now Austria are signs of a trend of growing far-right populism. We could flip that around and coherently argue the populists’ rises are temporary blips. In our view, this is all an exercise in why investors mustn’t let their political biases blind them. Rather than focus on speculative theories, we believe the Austrian election’s passage is another example of falling political uncertainty in Europe—a reason to be bullish, in our view.      

By , The Guardian, 10/17/2017

MarketMinder's View: We quite like this because it shows how calculating your return on a rental property you own isn’t as easy as dividing annual rent by the home’s price. That might be the technical yield, but it is only part of your return. Costs matter, too, and this piece explains a lot of them. In the example used, costs knock a 5% annual yield down to about 2%—not much different from a savings account or Treasury bonds. Thing is, those alternatives are at least liquid. If you have to sell a home tomorrow to cover sudden expenses, you probably have to accept a lower price. This is why we’ve long believed real estate just isn’t all it’s cracked up to be as an investment. Own a home for the roof over your head, by all means. But if you’re investing to reach a set of long-term goals, you’ll probably find some combination of stocks, bonds and other securities better fits your needs.

By , The New York Times, 10/17/2017

MarketMinder's View: Are widely hyped private tech firms accidentally inflating their valuations? Maybe, and this is an interesting look at how that might happen. This probably isn’t terribly impactful for most investors right now, as most folks don’t own pre-IPO companies. But it is an example of where reality can differ from hype, and how investors could ultimately be disappointed if things don’t live up to their high expectations. No, that isn’t a veiled way of saying, “Look out for all these unicorns to tank when they IPO.” Rather, it shows how difficult it can be to discern fact from fiction when companies aren’t required to report results regularly. The market is pretty good at figuring this stuff out after IPOs, however, which is a big reason we suggest investors wait a while after an IPO before buying. Investment bankers and firm insiders often set a very different price than markets set, and buying at an IPO can leave you out in the cold if the market has a more pessimistic view than the official price-setters.

By , The Wall Street Journal, 10/17/2017

MarketMinder's View: Australian Prime Minister Malcolm Turnbull unveiled a new energy policy this week that cuts alternative energy subsidies and relaxes carbon emission reduction targets, highlighting a key risk to investing in government-subsidized businesses: Politics. Over the past few years, Australia—historically among the world’s most coal-reliant countries—has been hit hard by the unintended consequences of a big push to slash carbon emissions. Governments at the federal and state level enacted aggressive emissions targets that basically made coal-fired utilities untenable economically—most notably, in South Australia. The unintended consequences? The wind doesn’t always blow and the sun doesn’t always shine. Moreover, storage technology is in its infancy. So the mandates led to blackouts during periods of high demand in summer, and it is pretty bad politics to have voters sweating in 100+ degree heat because of political mandates. Hence, Turnbull’s turnabout. That being said, this has been coming for some time, so the degree to which markets already reflect the move remains to be seen.

By , MarketWatch, 10/17/2017

MarketMinder's View: Little direct market impact here, but we highlight this as a sensible counterpoint to the near-ubiquitous celebration of “nudge theory”—the idea that governments should set rules, policy and law that use behavioral finance’s findings to encourage behavior they think is favorable. This isn’t to downplay positive outcomes, but we are of the old-fashioned school that argues folks should be educated and then allowed to make choices for themselves. Will they sometimes do so wrongly? Yup. But so will governments and other entities. “Nudging,” to us, seems like a misuse of behavioral finance. As noted at the end: “But who’s to say what the ‘better decision’ is, says philosophy professor Mark D. White of the College of Staten Island, City University of New York. The Save More Tomorrow program boosts retirement savings, but that may not necessarily be the wisest choice for every worker. Some could have other financial goals that conflict with retirement saving, like stockpiling cash for a new baby or house, he said. ‘I just don’t like the presumptiveness of assuming that we know what’s in your best interests and we’re going to help you make decisions to get there,’ said White, author of ‘The Manipulation of Choice: Ethics and Libertarian Paternalism.’ ‘It may be completely benevolent, but they choose one decision for everyone, and it doesn’t take into account the complexity and multifaceted nature of our true interests.’”

By , The Telegraph, 10/17/2017

MarketMinder's View: To answer the titular question, the billions really haven’t gone anywhere. They weren’t there to begin with. The Office for National Statistics (ONS) revised the entire history of the UK’s foreign investment position—a measure of how much the British have invested abroad versus how much non-Brits have invested in the UK. It turns out they were off by a few hundred billion pounds. (What’s a few hundred billion between friends?) While that might seem extreme, scaling the issue helps—it turns out to be an adjustment of just a few percent, compounded over time. While the direct investment implications of this change are basically nil, this piece does nicely illustrate just how difficult economic data can be to track—even in highly developed nations with cutting-edge technology and longstanding attempts to collect data. Take government data for what it is worth.

By , Reuters, 10/17/2017

MarketMinder's View: Impossible? Probably not, but it is likely to take a bit of negotiating and should lead to further gridlock—a positive for the markets. This article puts far too much weight in the squabbles that typify coalition talks, and it overdramatizes the whole process. The Netherlands just showed you this by going seven months between election and coalition formation—seven months that were decidedly not catastrophic for stocks in the country, eurozone or globe. Of course, we have no idea how this will exactly play out. It’s possible 12-year veteran (and head of several coalition governments) Angela Merkel and her Christian Democratic Union (CDU) may partner with the Free Democrats (FDP) and the Greens, as many expect. But if the CDU can’t work a deal with the FDP and Greens, they might partner with the Social Democrats again. But the specifics matter far less than the fact coalitions foster gridlock—party differences hamper passing contentious legislation. That’s bullish, as stocks in competitive nations tend to hate radical shifting and highly active governments.

By , Bloomberg, 10/16/2017

MarketMinder's View: After Sunday’s Austrian election yielded a victory for the center-right People’s Party (OVP), its 31-year-old leader, Sebastian Kurz, looks poised to be the world’s youngest head of government. Meanwhile, with the final count pending, the far-right Freedom Party (FPO) placed third behind the center-left Social Democratic Party (SPO). With no party receiving more than a third of the vote, Kurz’s OVP must now craft a coalition with one of the other two. Though the FPO seemed the more likely partner, its leader, Norbert Hofer, said any coalition with the OVP would have to be “a partnership of equals”—nothing here is settled quite yet. As the Austrians try to figure out their next government, some experts are painting this result as a sign of euroskepticism’s enduring heft. However, we have some qualms about that thesis: The OVP has no plans to leave the EU, and even the FPO’s leadership has “sought to ease the way to power by backing off strident rhetoric against the EU.” More importantly, the resulting coalition government will likely mean gridlock—an underappreciated positive that decreases the likelihood big, sweeping legislative change becomes reality. The passing of the election should also help investors move on—the latest addition to Europe’s Year of Falling Uncertainty™.


By , Reuters, 10/16/2017

MarketMinder's View: Events are moving quickly: “Spain moved closer on Monday to imposing central rule over Catalonia to thwart its push for independence after Catalan leader Carles Puigdemont missed an initial deadline to make his intentions clear. He now has until Thursday to back down.” With Puigdemont pleading for time and talks and Madrid threatening a takeover, the drama from this Spanish political saga abounds. However, while this episode could spook stocks in the short term, it isn’t likely to derail broader eurozone markets—this is a domestic legal issue for Spain (and a recurring one at that). Given the low odds of a viable independence push plus the nonstop publicity sapping surprise power, we aren’t surprised at stocks’ calm. The Catalan controversy, though dramatic, should have next to nothing to do with European stock returns. For more, see our own Christo Barker’s Friday column, “Making Sense of Catalonia.”

By , The Wall Street Journal, 10/16/2017

MarketMinder's View: “Exports of goods from the eurozone jumped in August, suggesting the euro’s appreciation against other major currencies has yet to crimp economic growth. Adjusted for seasonal patterns, eurozone exports rose by 2.5% in August from July, while imports were up by just 0.4%, the European Union’s statistics agency said Monday. As a result, exports of goods exceeded imports by 21.6 billion euros ($25.5 billion), up from the €17.9 billion surplus recorded in July.” While the article frames export figures as part of a “will the ECB reduce asset purchases or won’t they?” discussion, we see this as mere speculation. No one knows how European central bankers will respond to this (or any other) data point—especially one as late-lagging as August trade numbers. The more instructive takeaway, in our view, is the evidence currency values alone don’t drive trade flows: “[Manufacturers] have distributed their production processes across a large number of countries. That means that a stronger currency can lower the price of the goods that are imported to make an export, thus weakening its impact on the cost of the finished product to a foreign buyer.” True enough, especially considering the global nature of many businesses today—currency fluctuations tend to offset each other in the long run.


By , The New York Times, 10/16/2017

MarketMinder's View: A lot of the talk about the shale revolution’s impact centers around oil, but natural gas markets have changed, too. This article is a great look at how rising US natural gas exports are reshaping global Energy markets. Bountiful US supply has had numerous effects beyond lower gas prices. Regional markets are turning global; coal’s decline accelerates; commodity-dependent nations like Russia potentially stand to lose market share; consumers (especially businesses) enjoy lower energy prices, a key input cost. While many of the potential implications explored here are unknowable now, cheaper energy is an overall boon for the world economy. A note of caution for those looking for investment opportunities: None of this means natural gas exporters (or other Energy firms) are screaming buys today. In our view, the continuing supply glut suppresses prices and profit margins, meaning better opportunities likely lie elsewhere.

By , Bloomberg, 10/16/2017

MarketMinder's View: Whether you want to characterize them as “reeling” or “fabulous,” this is just how trade negotiations generally go—one side demands one thing, the other side despises it, negotiators complain and media bemoan it all: “U.S. negotiators in recent days put forth a string of bold proposals -- on auto rules of origin, a sunset clause, government procurement, and gutting dispute panels seen by the other nations as core to the pact. The moves were long-signaled, as was Canadian and Mexican opposition to them. … While the parties had wanted to reach a deal by December, officials familiar with the negotiations say the talks are likely to drag on for months.” Whatever the timeframe may be—whether it’s a couple months or longer—the public nature of these talks means no big surprises are likely to sneak up on markets. Plus, negotiations were always going to be tough—don’t extrapolate harsh rhetoric to a NAFTA-free future. Today’s worries strike us as overwrought—perhaps setting up a nice surprise later if NAFTA sticks around more or less unchanged.

By , The Wall Street Journal, 10/16/2017

MarketMinder's View: Economic growth breeds inflation, and inflation accompanies economic growth—or so goes conventional thinking, which explains why so many pundits and economists (even Fed members) are expecting/hoping for higher inflation as global growth becomes more broad-based. For most of this global expansion, low inflation has left many policymakers and economists scratching their heads. Are stagnant wages to blame? Globalization? Low inflation expectations? And is the economy on shaky ground until prices rise? In our view, the answers (in order) are: No, labor markets don’t dictate inflation (and wages aren’t stagnant); nor do feelings; not at all; and no, the economy (and markets) have shown this whole expansion they don’t mind lowflation. Folks, inflation isn’t a barometer (or driver) of economic health. Moreover, all this talk misses what really drives inflation—too much money chasing too few goods and services. Simple! For more, see Elisabeth Dellinger’s recent column, “Fun With Uncle Milty.”

By , Inc., 10/16/2017

MarketMinder's View: No immediate market takeaway here—including for the companies mentioned, which we do not recommend you buy, sell, free deliver or funnel venture capital dollars towards. Rather, we highlight this as a great example of questioning superficial analysis and conventional wisdom. By digging into popular narratives and putting them to the logic test, you may end up doing what Fisher Investments Founder and Executive Chairman Ken Fisher describes as fathoming what others find unfathomable—one of only three questions that count in investing. As an investor (and media consumer), it always pays to ask questions and be skeptical.


By , The Washington Post, 10/13/2017

MarketMinder's View: Well, not so much a problem for Wall Street as for trading bots, which lack the skills to discern fact from fiction, even when the fakeness is thunderingly obvious to most humans. As Temple University professor Tom Lin explains: “‘The bots cannot discern humor or nuance. They have no real context. They are just going to execute it on whatever they see.’” They are also programmed by humans who probably didn’t think to add lines of code along the lines of, “Do not buy an alleged acquisition target if it is the world’s biggest company by a mile and the deal was supposedly consummated by a CEO who passed on six years ago.” While bots’ overreactions can cause some very short-term volatility—up and down—it usually evens out in a few minutes, making this all rather trivial for long-term investors.

By , The New York Times, 10/13/2017

MarketMinder's View: There are a few things wrong with this analysis, which argues America is still deep in crisis because GDP per working-age adult has grown at a fraction of the rate following the start of the Great Depression. For one, we couldn’t replicate the finding that the post-crisis growth rate in GDP per working-age adult is up less than 11% since the crisis began. Using data from the St. Louis Fed, we got about 28%. (We tried to track down the study referenced in the article so we could check their sources, but we came up empty.) To the extent that might trail growth during the 10 years after the Great Depression, this comparison ignores the effects of compounding. GDP and population were a heck of a lot smaller back then. In terms of dollars, even an 11% increase (never mind a 30% rise) would dwarf a 50% rise from 1929 on. None of this really means anything to stocks, which reflect the value of public firms’ future earnings and are forward-looking, but we think it’s important for investors to have an accurate economic frame of reference.

By , Bloomberg, 10/13/2017

MarketMinder's View: “U.S. retail sales jumped last month by the most in more than two years as motor vehicles lost to hurricanes were quickly replaced and higher prices lifted receipts at gasoline stations, Commerce Department figures showed Friday. … Excluding motor vehicles and gasoline, September sales increased a more moderate 0.5 percent.” In other words, even stripping out Harvey’s temporary impact, the trend remains positive. For more on hurricane-related data blips, see our 10/10/2017 commentary, “Help Wanted: Hurricanes Hit US Jobs.”

By , The Wall Street Journal, 10/13/2017

MarketMinder's View: This is pretty stark evidence of the need for financial education, and it squares with some of Fisher Investments’ own findings about how little folks know about 401(k) plans, how much they should save and how compound growth works—something our founder and Executive Chairman, Ken Fisher, discussed a while back at USA Today. We hope investment firms, plan administrators and business leaders alike will focus more on educating workers, improving their financial knowledge and empowering them to save and invest more. Investing doesn’t have to be nearly as intimidating as industry jargon makes it. Oh, and if you’re working, save more! 

By , Bloomberg, 10/13/2017

MarketMinder's View: We just aren’t sure why tame “core” inflation (excluding food and energy) is all that confusing to central bankers. As the US yield curve has flattened, loan growth has slowed, leading to slower broad money supply growth. Inflation is always and everywhere a monetary phenomenon of too much money chasing too few goods and services. So slower-growing money supply generally means slower inflation.

By , The Wall Street Journal, 10/13/2017

MarketMinder's View: Apparently, the head of China’s securities regulator is telling his comrades to read Marx and Mao so they can “fully understand and implement the ‘special strength’ of Marxist philosophy” ahead of next week’s Communist Party Congress. Some interpret this as a sign regulators plan to exert much more control over markets, putting reform squarely in the back seat. That’s an interesting hypothesis and one worth watching, though it’s speculative and may not represent a major change from the status quo under President Xi Jinping. He, like his predecessors, has had a give-and-take relationship with reform, trying to balance the dual aims of modernizing China’s financial system and maintaining stability, and reforms have received short shrift lately. Investors’ reform expectations don’t appear too high these days, so the risk that a continued focus on stability disappoints markets seems low.

By , Bloomberg, 10/12/2017

MarketMinder's View: The titular proposal: repealing the state and local tax deduction (also known as SALT), which benefits many taxpayers. However, it also tends to favor folks in states with the highest combination of property taxes and individual and corporate income taxes. This includes California, New York, New Jersey and Texas, and naturally, congresspeople from those states are up in arms about the deduction potentially going away. While one congressman from New Jersey said, “… we can’t do tax reform on the backs of six or seven states. It’s just not fair,” House Speaker Paul Ryan argued SALT was, “propping up profligate big government states.” The battle over the deduction is heating up, especially after the always-mysterious “sources” indicated President Trump was “angry” when learning the change would hurt middle-income taxpayers. We aren’t here to speculate on White House intrigue. Rather, in our view, this is a prime example of why tax reform in general is so hard to pass. Pols will fight tooth and nail to protect their constituents’ interests, which usually leads to significant watering down or no change at all. Not that stocks require tax change to rise higher—that was always a misperception. What matters more for stocks: the continuation of gridlock, which prevents wide-sweeping legislation from passing. Gridlock has persisted for most of this bull market, and stocks have liked that just fine. For more, see our 8/31/2017 commentary, “Time to Talk About Tax Reform.”

By , CNBC, 10/12/2017

MarketMinder's View: Bitcoin is grabbing headlines after it surpassed $5,000 in intraday trading—a new all-time high—on Thursday. With all the attention cryptocurrencies are generating, investors may be tempted to check out opportunities here—especially since “everyone” seems to be investing in the space. This article raises several sensible points explaining why investors should tread cautiously. For one, the cryptocurrency world isn’t very transparent, so it is difficult to know where exactly your money is going—and if you would be able to get it back easily, as there is no recourse for bit-theft. Also, as this piece points out, cryptocurrencies are a tiny slice of the entire investable universe at about $155 billion—less than 1% of the S&P 500’s $22.6 trillion total market cap. There is also a lot of regulatory uncertainty facing cryptocurrencies, too. As we’ve noted several times before, we aren’t innately anti-cryptocurrency, but considering it is a speculative security, we aren’t convinced it has a place in the portfolio of a long-term, growth-oriented investor. For more, check out Elisabeth Dellinger’s column, “Even in Virtual Currencies, ‘Too Good to Be True’ Is Reality.”    

By , The Washington Post, 10/12/2017

MarketMinder's View: Puerto Rico is in dire straits right now following the devastation from Hurricane Maria. A years-long recovery process is only the latest bad news to an island saddled with a struggling economy, high unemployment and further questions about how to pay its debt. Given these headwinds, investors with exposure to Puerto Rican debt—formerly a popular investment given its triple tax-exempt status—may be in trouble, right? Not necessarily. As one professor here notes, “‘The average investor on the street will be unaffected,’ said David Kass, a professor of finance at the University of Maryland. ‘If a small investor did invest in a municipal bond mutual fund, Puerto Rico would represent no more than 1 or 2 percent. This will have an infinitesimal impact on an investor investing in municipal bond funds.’” If the bond fund or fund manager is appropriately diversified, Puerto Rican debt shouldn’t decimate the portfolio. This is why it is vital to know what exactly you’re invested in. If it turns out you have outsized exposure to Puerto Rican debt, it probably makes sense to reevaluate why you have that holding. For some more historical context about Puerto Rico, see our 7/8/2015 commentary, “Puerto Rico Can’t Afford Its Debt.”

By , Bloomberg, 10/12/2017

MarketMinder's View: The notion of a “Trump Rally” in stocks has garnered attention ever since the election last year. Since then, we have had plenty of evidence suggesting the president has little to do with stocks’ rise. Like, as of yesterday, the S&P 500 Total Return index was up almost 16% year-to-date (per FactSet). Grand! But eurozone stocks (via the MSCI EMU net returns) are up nearly 28% year-to-date while Emerging Markets (via MSCI Emerging Markets net returns) have climbed 32%. Sorry, but we don’t see how Trump’s much-ballyhooed domestic reforms (none of which have passed yet) will do much for Spain, the Netherlands, South Korea and other countries currently leading US stocks. Moreover, the “Trump Rally” trails FDR (twice), Clinton, Hoover, Bush I and JFK. In our view, this shows stocks can enjoy some great gains whether it’s a Republican or Democrat in the White House. Presidents simply don’t have the market influence many in the media argue. For more, check out our Market Insights video, “What Trump Rally?” 

By , The Wall Street Journal, 10/12/2017

MarketMinder's View: We are less than two weeks from Japan’s parliamentary elections, and five polls show Prime Minister Shinzo Abe’s Liberal Democratic Party (LDP) and its Komeito coalition partner are poised to win a majority of the 465 seats of the Diet’s lower house—and could even win two-thirds of the seats, which would be the level necessary to pass constitutional revisions (which they haven’t passed yet despite already having said supermajority). The upstart opposition Party of Hope, led by popular Tokyo governor Yuriko Koike, has lost some of its initial momentum. Polls suggest it will be the second-largest group in the Diet but project it to win fewer than 100 seats. Though Abe looks like he’s in the driver’s seat now, don’t write in a super-majority win for the LDP just yet—many voters are undecided. That said, whether Abe increases his majority, maintains it or unexpectedly cedes some of it, we don’t believe radical political change is forthcoming in Japan’s near-term future. Abe hasn’t suggested any radical new changes on the campaign trail, and Koike herself has indicated she wouldn’t deviate much from Abe’s current policy. As much as Japan would benefit from structural reform in the longer term, stocks are well aware of how Abe operates: Japan’s do-little status quo hasn’t upset broader markets, and we don’t expect that to change after the election, either.

By , RTT News, 10/12/2017

MarketMinder's View: August eurozone industrial production (IP) rose 1.4% m/m, the fastest rate since November 2016 and an acceleration from July’s 0.3%. Some fun stats: Of the reporting nations, Malta led the way with 5.4% m/m growth, followed by Portugal’s 4.7%. Germany and Greece also matched each other with 3.0% m/m growth. We don’t want to make too big a deal about this report, especially since it’s pretty backward-looking—we are in October, and these are August data, after all. Plus, we have other recent reports confirming eurozone industry is doing fine (e.g., IHS Markit’s September Manufacturing PMI rose at its quickest pace since April 2011). Eurostat’s strong IP figure is just more evidence the 19-member currency bloc’s economic expansion is broad-based and chugging along: a positive economic driver and another reason to be bullish toward the Continent.     


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Global Market Update

Market Wrap-Up, Wednesday, October 18, 2017

Below is a market summary as of market close on Wednesday, October 18, 2017:

  • Global Equities: MSCI World (+0.2%)
  • US Equities: S&P 500 (+0.1%)
  • UK Equities: MSCI UK (+0.4%)
  • Best Country: Denmark (+1.3%)
  • Worst Country: Japan (-0.4%)
  • Best Sector: Financials (+0.5%)
  • Worst Sector: Energy (-0.4%)

Bond Yields: 10-year US Treasury yields rose 0.04 percentage point to 2.34%.


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. S&P 500 returns are presented including gross dividends. Sector returns are the MSCI World constituent sectors in USD including net dividends.