Today's Headlines

By , The Wall Street Journal, 06/23/2017

MarketMinder's View: The hazards, in addition to wild volatility, include a lack of circuit breakers or mechanism to bust trades placed when things go haywire—the way US exchanges busted trades executed during 2010’s Flash Crash. Ethereum’s “‘flash crash’ happened on Wednesday, at 3:30 p.m. Eastern, when one ‘multi-million dollar market sell’ order was placed on GDAX, according to Coinbase’s Adam White. That sell order sparked a cascade of 800 automatic stop-loss orders and margin funding liquidations, Mr. White noted in a blog post. At the end of that cascading wave, the currency briefly traded at 10 cents. Before the flash crash, it had been trading around $335. There wasn’t any indication that the trades were caused by any wrongdoing or fraud, Mr. White noted, and the exchange’s matching engine worked as designed, even if the trades were extreme. In other words, the trades were legitimate. ‘It is important to note that these trades are final in accordance with our GDAX trading rules,’ Mr. White wrote. ‘Honoring properly executed orders is critical to maintaining the integrity of an exchange.’” So in other words, they aren’t going to bust trades executed near the bottom (or anywhere else), which is rotten for the sellers and amazing for the buyers who got in on the cheap—about a 3,000% return once Ethereum got back to breakeven, which is nice if you can get it (for fun, we tried annualizing it, and the result was so big it broke Excel). But the main lesson here is that a) cryptocurrencies are speculation and b) don’t use stop-losses in a Wild-West market with no fail-safes. (Like don’t use them ever, really, because they don’t help, but really really don’t use them for cryptocurrencies.)

By , Bloomberg, 06/23/2017

MarketMinder's View: Look, we don’t disagree that Italy’s (allegedly) pending decision to use taxpayer funds to prevent shareholder and junior bondholders from taking total losses in two regional banks raises serious credibility questions about the eurozone’s banking union and common procedures for failing banks. On the face of it, it is a little weird that Italian banks would get a reprieve two weeks after investors in Spain’s Banco Popular were wiped out. At the same time, everyone has long presumed Italian banks would be a special case during the first few years due to the way bank bonds were sold to pensioners and savers as high-yielding, low (or no) risk alternatives to savings accounts. Most presumed they’d be grandfathered in under old rules permitting taxpayer bailouts. So we hesitate to say these early and widely expected growing pains truly call into question the banking union’s future. We’ll need to wait a few years to see how failing banks are treated when everyone is on a level playing field.

By , The Telegraph, 06/23/2017

MarketMinder's View: Yuuuuuuuuuuuuuup. Among our favorite nuggets: “People feared that taking the UK out of the single market would make the country a less attractive place for investors. A good way of measuring this is by looking at inward foreign direct investment, a measure of the value of significant business investment into a given country. A recent OECD report found that Britain was the number one destination in Europe for foreign direct investment last year, with inflows reaching levels not seen since before the financial crisis.”

By , Bloomberg, 06/23/2017

MarketMinder's View: The bank that broke Ireland is officially back from the dead. Seven years ago, AIB went bust, and the subsequent state bailout is what tipped the country into a debt crisis. Now Ireland is one of the EU’s fastest-growing nations, and investors were eager beavers to get in on AIB’s return to public markets. It isn’t a huge deal looking forward, but it does show how far Ireland has come.

By , The Wall Street Journal, 06/23/2017

MarketMinder's View: This entire article, which argues a shrinking universe of stocks renders historical return data useless and active management nigh on impossible, rests on a flawed dataset. Yes, the number of US publicly traded stocks has shrunk as firms have merged, failed, gone private or shunned IPOs, but that does not mean the full global universe of stocks has shrunk. We just popped into FactSet and added up all the stocks in the MSCI All Country World Investible Market Index (IMI), MSCI Frontier Market IMI and all the MSCI IMIs for all “standalone” countries, and we got 9,117 total. As Emerging and Frontier Markets keep growing and improving market access for foreign investors, the universe of publicly traded stocks should only grow. As for the supposed dearth of value stocks to buy now, is it really news that no style is permanently superior and P/E ratios rise over a bull market? They’re also usually really high at the beginning of a bull market, which is when value starts really cooking—perversely, to do great with value, you generally need to buy when valuations are sky-high and then wait for rising earnings to reduce them to more “value-esque” levels.

By , The Wall Street Journal, 06/23/2017

MarketMinder's View: For one, this ignores the fact the pound plunged immediately after the vote, then stabilized and eventually drifted higher. Beyond that, we just don’t get why everyone seems to believe the pound’s value depends on the UK’s relationship with Europe. The UK is a big, competitive, developed nation that trades worldwide, with partners in America and Asia as well as Europe. Moreover, currencies move on supply and demand, and all else equal, the highest-yielding assets attract the most demand. Since the Brexit vote, the BoE cut interest rates once, while the US Fed hiked rates three times. UK gilt yields are below most other comparable sovereign yields in the developed world. Against that interest rate backdrop, it’s entirely possible the pound would be weak regardless of how warm and fuzzy the UK and EU feel about each other.

By , Bloomberg, 06/23/2017

MarketMinder's View: While “austerity” measures get all the attention, Greece’s bailout benefactors (the European Commission, ECB and IMF) have long urged the country to tackle tax evasion and the corruption that enables it. Doing so wouldn’t completely erase Greece’s fiscal problems, but considering Greek citizens owe more than €94 billion in unpaid taxes, you can see how it would help. Poland had similar issues, but its government took steps to crack down last year, and the results are striking. “The government expected to run a deficit of 59 billion zlotys ($15.5 billion) this year, but in the first four months of the year, it was only 900 million zlotys short. Poland is scaling back debt issuance plans for the rest of the year. And it hasn't even started cutting back on the extensive use of reduced VAT rates, to which the EU has long pointed as a potential area of improvement. Meanwhile, economic growth is expected to reach 3.7 percent this year, according to the Bloomberg consensus forecast. The better tax collection isn't resulting in less economic activity, and the growth number is likely to be more reflective of reality than previous years' data.” Cracking down takes gumption, but it can pay off over time, and markets would likely welcome it.

By , Reuters, 06/23/2017

MarketMinder's View: This is super company-specific, which we usually avoid, and as always we aren’t in the business of recommending securities, so this is not a recommendation to buy, hold, sell, smell, gift, sell short, free deliver or do anything else with the companies mentioned herein. It is simply a friendly FYI: If, a few weeks from now, you see that US durable goods orders soared in June, make sure you strip out the transport category, as it looks like aircraft orders are set to skew the number—as they do just about every year when the Paris Air Show rolls around. One-offs like this are the epitome of why we regularly warn monthly economic data are variable and trends are more meaningful.


By , The Wall Street Journal, 06/22/2017

MarketMinder's View: “The largest US banks survived a hypothetical ‘stress test’ and could continue lending even during a deep recession, the Federal Reserve said Thursday, a strong report card that could bolster the industry’s case for cutting back regulation.” We included the last part of that sentence not because we agree, but because it is such a reach that it show just how un-newsworthy these stress tests are. We’ll concede they may have helped shore up confidence in the crisis’s immediate wake, but how very healthy banks in the middle of an expansion might handle a hypothetical crisis dreamed up by regulators using arbitrary criteria tells you nothing about what actually will happen the next time things go south. Sorry, but you can’t model this stuff. There is no way to know now how banks will actually fare in the next crisis, because there is no way to know what will cause it, where its epicenter will be, or what knock-on effects various markets will experience. Sorry to be all Debbie Downer, but that’s just the way it is.

By , CNBC, 06/22/2017

MarketMinder's View: Note, the drop in Citigroup’s Economic Surprise Index does not mean US economic indicators are falling left and right. They aren’t. Rather, it is a sign of sentiment (one slice of sentiment—pros) and relatively higher expectations for the US economy compared to other places, like Europe. Europe’s taller “wall of worry” is a key reason we expect the region to outperform over the foreseeable future (though we expect US stocks to do fine, too).

By , Bloomberg, 06/22/2017

MarketMinder's View: Real estate isn’t our forte, so we have no opinion on whether Canadian real estate is in a bubble and, if it is, when said bubble might burst. But we highlight this piece because it makes two key points: 1) Real estate is usually a levered investment, which magnifies risk—you can lose more than your initial investment. 2) Stocks beat home prices long-term. Here is Yale professor Robert Shiller: “Here is the harsh truth about homeownership: Over the long haul, it’s hard for homes to compete with the stock market in real appreciation. That’s because companies whose shares are traded on a stock exchange retain a good share of their earnings to plow back into the business. The business should grow and its real stock price should also grow through time.” Meanwhile, “real home prices should decline with time, except to the extent that households shell out some money and plow back some of their incomes into maintenance and improvements, because homes wear out and go out of style.” Own a home for the roof over your head, but in our view, real estate is not a great investment option for long-term investors.

By , New York Times , 06/22/2017

MarketMinder's View: Now this is all about one person, and we aren’t here to take pot shots, but it does highlight a key point for investors considering “smart beta” strategies: They are active, not passive. Also, it’s just a fun article.

By , RTT News, 06/22/2017

MarketMinder's View: While not all-telling, The Conference Board’s Leading Economic Indexes (LEI) are darned reliable indicators of future economic trends. No US recession since 1959 began while LEI was high and rising. So it’s good to see US LEI up 0.3% m/m in May, its ninth straight rise. LEI doesn’t predict stocks, but it does show economic fundamentals are likely to remain strong.

By , Financial Times, 06/21/2017

MarketMinder's View: Though backward-looking (and focused on the full EU, rather than the currency bloc), this piece more or less captures sentiment toward the eurozone: More people are starting to notice the expansion. “All 28 EU economies grew last year — the first time that was the case since the financial crisis. ... The eurozone’s improved performance is also leaving its mark in some of the countries that were worst hit by the financial crisis, notably in southern Europe. Some four years ago both Spain and Greece suffered extraordinary levels of unemployment, which left over one quarter of the population without a job — and youth unemployment was over 50 per cent. But the proportion of those without work in both countries has been steadily shrinking since.” As uncertainty falls and animal spirits stir even more, we think the region’s ho-hum Q2 should prove to be a blip—simply, sentiment toward Europe isn’t nearly as sunny as sentiment toward the US, creating more room for reality to beat expectations there.

By , Reuters, 06/21/2017

MarketMinder's View: For the moment, this is all just hearsay and not official. But, it appears Italy is on the verge of addressing more of its troubled banks. Intesa Sanpaolo, one of Italy’s largest and healthiest banks, agreed to buy the “good” assets of regional lenders Banca Popolare di Vicenza and Veneto Banca for a symbolic euro, while “Rome’s plans proposes shifting all the toxic debts and litigation risk from the Veneto banks into a state-owned ‘bad bank.’” Depositors and senior debt holders will go with the “good bank” to Intesa and not take losses, but shareholders and junior bondholders will likely be duct taped to the “bad bank.” Italy will likely use some state funds to help cut junior bondholders’ losses, but how much of a hit they’ll take remains to be seen. Again, none of this is set in stone yet, and it is quite possible EU regulators won’t rubber-stamp it. However, markets have long known Italy is in a pickle due to the way many banks marketed their bonds to pensioners as a stable, safe, high-yield alternative to a savings account. Forcing losses on these folks is consistent with the new EU “bail-in” rules, but politically (and socially) untenable. That Italy is taking time to deal with this issue carefully—and that other banks are willing to help out—should be positive for sentiment. For more on European bank rehabilitation, please see our recent 6/14/2017 commentary, “Europe’s Bank Bail-In Roadmap Yields Two Routes.”

By , Nerd’s Eye View, 06/21/2017

MarketMinder's View: This is another in a long line of articles illustrating the shift to “passive” investment vehicles is anything but. What makes this one distinctive despite its vast length is its look at the underlying industry incentives behind why supposedly passive exchange-traded funds (ETFs) are taking so much market share from active mutual funds: “... the reality is that, with the rise of the internet, the fundamental role of the financial advisor themselves is changing. In a world where consumers can purchase virtually any publicly traded investment online themselves, financial advisors are compelled to add value above and beyond ‘just’ bringing third-party mutual fund managers to the table. In fact, an increasing number of financial advisors appear to be ‘coping’ by eliminating third-party managers, and instead becoming the investment portfolio managers themselves. In this context, the rise of ETFs is not so much about a shift from active to passive, but simply a recognition that when financial advisors build investment portfolios, we prefer to do it using ETFs as our ‘building blocks’, rather than individual stocks and bonds.” This use of ETFs isn’t passive investing! Picking and choosing ETFs is about as active as with stocks. Ultimately, all the rise of ETFs means is that the old concept of “wrap management,” where brokers picked a stable of active fund managers for each client, is dying on the vine. It’s a win for investors in terms of reducing costs and bloat, but it isn’t passive. (Note, also, we aren’t anti-mutual fund or anything. They can be quite nice for smaller investors. We’re just commenting on a general trend.)

By , CNBC, 06/21/2017

MarketMinder's View: Oil prices entering bear territory (down more than -20%) underscores the challenges for Saudi Arabia’s next king. King Salman bin Abdulaziz Al Saud replaced his 57-year-old cousin Mohammad bin Nayef as crown prince today with his 31-year-old favored son Mohammed bin Salman. But the presumptive heir to the throne is unlikely to change oil’s trajectory. The article focuses on how the decision bears on OPEC-led cuts among oil exporters to bolster prices, but since supply is outside their control—with the world’s top producer (the US) taking market share—their efforts are for naught. Indeed, the new crown prince appears to recognize as much and is attempting to steer the Saudi economy away from its oil dependence. Good luck!

By , The Washington Post, 06/21/2017

MarketMinder's View: “The Trump administration is taking its first concrete steps to address the high cost of prescription medications, narrowly focusing on a measure it could take to increase the competition for old, off-patent drugs.” Narrowly is the operative word here as many feared more radical measures that President Trump might have taken and seemed to hint at early on, like drug re-importation, Medicare price negotiations or even price caps. Instead, he seems set to use an executive order to ask the FDA to rethink a rule or two in order to improve competition—particularly for “older drugs whose patents and exclusivity have expired and lack competitors.” That is way more moderate than what folks feared when President Trump entered the White House.

By , The Telegraph, 06/21/2017

MarketMinder's View: “The Prime Minister has been forced to abandon flagship pledges including overhauling social care, an energy price cap, a new generation of grammar schools and a vote on fox hunting. She has instead presented a manifesto heavily focused on securing a hard Brexit, including repealing EU laws, leaving the Customs Union and controlling immigration.” Yay, gridlock. The fear before the snap UK election was that UK Prime Minister Theresa May might pass some laws markets wouldn’t like. After losing their majority, May’s Conservatives are now abandoning key parts of their social and education policy platform to preserve their Brexit aims—which now pretty clearly involve leaving the EU’s customs union, but also becoming a global free-trade juggernaut. Whether that is a “hard” or “soft” Brexit is beyond the point, as markets look past such labels and care more about the meat of the final deal. Anyway, beyond Brexit, this provides a concise rundown about what’s in and out of the government’s agenda (the Queen’s Speech). Next week, parliament votes on whether to adopt and, if it doesn’t pass, May might be out of a job. Although political uncertainty has heightened the past few weeks, the status quo—gridlock reducing legislative risk—persists.

By , Bloomberg, 06/21/2017

MarketMinder's View: This article depicts a steel factory in Austria’s iron-and-steel capital, a plant that used to employ 1,000 people. Today, however, it’s an automated, computerized, high-tech mecca that produces more steel with only—wait for it—14 employees. You can apply this same logic and lessons to auto production, US steel and many heavy industrial activities around the world. For all the blame folks pin on trade for lost jobs, especially these days, technology is far more responsible for the reduction in industrial employment. That technology can “disrupt” jobs in modern parlance, but the reality is that disruption is a critical feature of capitalism, freeing labor for more productive use, allowing firms and individuals to do more with less. For more, see Elisabeth Dellinger’s June 20 column, “Technology: Coming for Your Job Since John Kay.”

By , US News & World Report, 06/21/2017

MarketMinder's View: There is a lot wrong with this article, including blaming subprime for the financial crisis and fearing subprime auto loans will rekindle bank issues today. But the biggest fallacy here, in our view, is at the end—the notion that even if you expect auto stocks to suffer from these issues, you should hold through the cycle and pocket the dividend. That is not wise. For one, dividends themselves are not a profit for you. They are deducted from the share price when they trade “ex-dividend”—hence the name!—and what really matters from an investment result perspective is what you do with the dividends (i.e., reinvest). Moreover, as the article admits, dividends aren’t assured—“For instance, Ford Motor Co. survived the financial crisis without a government bailout or having to declare bankruptcy. Although Ford eliminated its dividend for a time, the company reintroduced it in 2012. ... By comparison, General Motors Co., which went through bankruptcy and only started paying a dividend again in 2014, yields more than 4 percent.” If the industry—a small slice of the market—were under a cyclical threat, the argument to continue owning it and not something else is extraordinarily weak.

By , Bloomberg, 06/21/2017

MarketMinder's View: A really fun run-down of some analysts coining acronyms to follow on Jim Cramer’s successful coining of FANG from four years ago, which seems to be catching fire lately. Anyway, for our contribution, we’re going to be contrarian and choose a selection of struggling retail stocks: American Eagle, Michael’s, Abercrombie and Fitch, Zumiez, O’Reilly and Nordstrom. You figure out the acronym on your own. (DISCLOSURE: This list is presented for humorous purposes only and doesn’t constitute an analysis of or recommendation to take any action involving the companies named. It is meant as a joke. Investing based exclusively on a joke is a very shaky strategy.)

By , Bloomberg, 06/21/2017

MarketMinder's View: A really fun run-down of some analysts coining acronyms to follow on Jim Cramer’s successful coining of FANG from four years ago, which seems to be catching fire lately. Anyway, for our contribution, we’re going to be contrarian and choose a selection of struggling retail stocks: American Eagle, Michael’s, Abercrombie and Fitch, Zumiez, O’Reilly and Nordstrom. You figure out the acronym on your own. (DISCLOSURE: This list is presented for humorous purposes only and doesn’t constitute an analysis of or recommendation to take any action involving the companies named. It is meant as a joke. Investing based exclusively on a joke is a very shaky strategy.)

By , Taiwan News, 06/20/2017

MarketMinder's View: Taiwanese exports rose 9.1% y/y in May, up from 7.4% in April. The two biggest export categories—electronics components and information & communication products—rose 4.5% and 8.2%, respectively. This isn’t just nice news for Taiwan—because of the country’s integral role in the global electronics supply chain, these figures signal healthy demand for tech products, plus continued (and underappreciated) strength in world trade.

By , Bloomberg, 06/20/2017

MarketMinder's View: “Argentina has defaulted on its debt seven times in the past 200 years and three times in the past 23 years. During negotiations that lasted more than a decade over defaulted bonds from the 2001 financial crisis, the government of then-President Cristina Fernandez de Kirchner exasperated U.S. Judge Thomas Griesa so much that he described Argentina as a ‘uniquely recalcitrant debtor.’” And yet, less than five quarters after reentering global bond markets for the first time since 2001, Argentina found buyers for $2.75 billion in 100-year bonds yielding 7.917%. We draw a couple lessons from this: First, it underscores investors’ confidence in the turnaround and economic reform under new(ish) president Mauricio Macri. Second, it shows even countries with long-running, deep-rooted problems can slowly work their way back from crisis.

By , The Telegraph, 06/20/2017

MarketMinder's View: Humans are naturally inclined to highlight their good decisions and ignore the bad—it just makes us feel good. Bragging to your buddies about your awesome trade over a pint and a bite can also feel good. “But it may also be bad for your future success as an investor. It was a conversation with a prominent fund manager that got me thinking this way. He said he disliked talking about his holdings because the fact that other people knew that he had bought a particular stock could make it harder for him to sell it in future, even if the fundamentals suggested that he should. I didn’t immediately see his point, but he explained human nature dictated that people who changed their minds were seen by their peers and society at large as having failed, even when there was a good reason for their change of heart. Simply by buying a share, you are seen as a cheerleader for it.”

By , Reuters, 06/20/2017

MarketMinder's View: Since Italy’s populist Five Star Movement (M5S) added a nonbinding referendum on euro membership to its platform in 2014, many presumed M5S in government = referendum = bye bye euro. Never mind that, as we’ve noted, Italy’s constitution forbids treaty change by referendum. Now “Italexit” looks even less likely. “Carla Ruocco, a prominent 5-Star deputy, told Reuters the referendum was ‘a negotiating tool’ and said: ‘Big investors and markets should be able to distinguish it from the real intentions of a 5-Star government on the subject of the euro.’” In other words, it’s a bargaining chip to win looser EU restrictions on public spending and more relief for ailing banks. Now, maybe it was always their Plan B, but based on all their prior statements, it seems more likely M5S is moderating after recent setbacks for populist parties in France (Front National), the Netherlands (Party for Freedom) and Italy (M5S, in local elections). Much can change between now and the next general election (whether it falls later this year or next), but this is more evidence of waning euroskepticism—an overhyped fear that likely fades further in the year’s second half as uncertainty keeps falling.

By , Bloomberg, 06/20/2017

MarketMinder's View: A few quibbles aside, this makes a compelling case that Fed guidance doesn’t predict Fed policy and thus isn’t useful for investors. Why not? Simply, because the Fed bases its guidance on its own data forecasts, which have a pretty shoddy record. If they can’t forecast data right, how can they know what they’ll do?  Now, we have some issues with the purported implications of ill guidance on markets, as it gives Fed rumblings way too much credit for stoking stock and market volatility. But it is entirely true that markets functioned fine and freely before forward guidance became a thing—heck, they were fine when the Fed didn’t even publish its fed-funds rate target. More communication is a solution in search of a problem, in our view.

By , The Wall Street Journal, 06/20/2017

MarketMinder's View: Sure, go ahead. The debt ceiling serves no real purpose other than providing politicians a platform to accuse each other of risking a US default. But this article (perhaps inadvertently) plays into the gamesmanship by drastically misinterpreting the consequences of not raising the ceiling: “But what if lawmakers approve spending, and then later refuse to borrow the money needed to satisfy the obligation? The result would be a default: Washington either would stop paying bondholders or would fall short on its other commitments—for example, to disabled veterans or defense contractors or even taxpayers who are owed refunds.”  Not true! Only missing bond payments constitutes default. The rest doesn’t qualify. Argue about the impact of delaying payments and putting IOUs in government pension plans all you want (we’d argue, and data suggest, it is minimal), but that isn’t a default. We mostly wish they’d kill the debt ceiling so we can stop correcting this tired fallacy every time. But pols don’t like giving up tools to bludgeon the opposition with, so a repeal probably isn’t in the cards either.

By , The Wall Street Journal, 06/20/2017

MarketMinder's View: The MSCI’s addition of domestic Chinese shares to its Emerging Markets index is exciting for China, but it’s also a good opportunity to consider the complexities of constructing index funds (or ETFs). You might think such funds are objective reflections of a broad market segment—but in reality, index providers must make tough decisions about how to define “the market” and which shares to include, based on criteria like accessibility to foreign investors and government trading restrictions. Different indexing outfits tackle these issues in different ways, making active choices that filter through into allegedly “passive” investors’ portfolios—one more reason the ETFs-as-passive meme is more theory than reality. (Also, don’t presume domestic Chinese stocks are set to zoom now—index inclusion usually follows, not leads returns. More buyers and sellers may add liquidity, but liquidity doesn’t equal higher prices.)

By , Bloomberg, 06/19/2017

MarketMinder's View: Here is an interesting take on the challenges of gauging market sentiment and the broader media environment these days. Namely, it’s a whole heck of a lot noisier, especially with the Internet doing away with the prominence of traditional gatekeepers. Just a couple of decades ago, a handful of pundits employed by a handful of media outlets could dictate the market narrative. Today, that model is fractured, and anyone with an Internet connection and marketing savvy can build a sizable audience. We aren’t saying one model is inherently better than the other since both have pros and cons. However, we’d agree news consumers are being bombarded with more lower-quality content than ever before since the barriers to entry are so low. Your friendly MarketMinder Editorial Staff scans through and analyzes the news on a daily basis, and while entertaining, it is often a slog as we have to manually fact-check and logic-test every article we read. For people who don’t analyze the news for a living, the task may seem outright daunting. When considering financial analysis, this piece shares a good pointer: Does the writer have any skin in the game (i.e., do they manage money for clients)? Without that accountability, there is incentive to make outlandish, bombastic claims that will grab attention—and little repercussion should those claims be wrong. For more on how to sift through media, see Elisabeth Dellinger’s column, “How to Analyze Alternative Facts and Ferret Out Fake News.”

By , Reuters , 06/19/2017

MarketMinder's View: As expected, French President Emmanuel Macron’s centrist party, La République en Marche, and its ally MoDem have emerged with a strong majority after the second round of parliamentary elections concluded yesterday. En Marche and MoDem are expected to win 355 – 365 seats in the 577-seat lower house, lower than last week’s projections of 415 – 455 seats, but still a wide margin. The second-place Les Républicains’ took a projected 125 – 131 seats. The incumbent Socialists may take only 41 – 49 seats, their weakest showing since the Fifth Republic began in 1958. While some pundits believe Macron’s resounding win means “France is back” and will be a boon to the economy, we suggest moderating those expectations a bit. For one, turnout was a record-low 42%, so Macron’s opponents can argue the president’s mandate is not as broad as he claims. Also, Macron’s promised reforms—e.g., overhauling the labor and pension systems—would have more of a long-term, rather than immediate, impact. Plus, Macron isn’t the first French pol to attempt economic reforms, and his ideas aren’t exactly radically new (or especially radical, considering he has no apparent plans to erase France’s 35-hour workweek). In our view, the passing of this election is just another domino falling in Europe’s Year of Falling Political Uncertainty™—a big reason for our bullishness toward the eurozone this year.  

By , BBC, 06/19/2017

MarketMinder's View: Let’s get ready to ruuuuuuuuuuuumbllllllllllllllllllle! Almost a year after UK voters decided to leave the European Union, exit negotiations between the UK and EU have formally begun. We would be remiss if we didn’t point out that for all the fear-mongering about immediate Brexit doom, this process is apparently going to be slow, deliberate and very public—look at how long it took for everyone to come to the table! Over the upcoming days, weeks and months, we’ll probably see plenty of twists and turns, not to mention loud posturing from both sides. Right now everyone is playing nice—UK Secretary of State for Exiting the EU David Davis and Chief EU negotiator Michel Barnier said positive things and even exchanged gifts with each other—but it likely won’t be long before pols on both sides start taking shots at each other in an effort to gain the upper hand and score points with voters at home. The UK and EU have a lot to discuss, and we won’t forecast whether a “hard” or “soft” Brexit is more likely at this point. Unless you enjoy following the day-to-day political wrangling—and all the more power to you if you do—we suggest taking the wait-and-see approach. All we have is speculation at this point, and speculation shouldn’t be the basis of any investment changes.

By , Financial Post, 06/19/2017

MarketMinder's View: We don’t think the bull is running out of steam, and articles like this (this particular one from our friends in Canada) are part of the reason why: Investor sentiment globally is far from giddy, a tidbit alluded to here in reference to the 1990s bull market. Overall, we think this line decently describes the overall attitude towards today’s bull market: “For the record, and on balance, I think there is room for the bull market to run, even if it’s taking a bit of a pause this month. But, you know, I’ve been wrong about that before.” To us, that’s better than pessimistic but a ways off from euphoria, which is how the 1990s bull market died. Now, we’d quibble with some of the article’s reasoning, which amounts to being bullish for the wrong reasons, in our view, when it segues into Fed rate hikes causing a rotation from bonds to stocks. But overall, with a growing global economy and gridlocked politics in developed countries preventing radical legislation from becoming reality, we think the bull still has plenty of fuel to romp on—even if happens in fits and starts. Also, the picture at the top of this article is amazing. We’re thinking of having it framed.      

By , The New York Times, 06/19/2017

MarketMinder's View: This piece is heavy on sociology and sort of attacks a straw man, but when you set that aside—and set aside political bias and whatnot—it demonstrates how reality has dispelled fears of an unchecked Executive Branch. It shows both the limits of power as well as the overall lack of success President Trump has had in making his campaign promises reality. After Trump was elected last November, many in the media feared he would act like a strongman in the style of Latin American dictators, haphazardly flouting the rule of law and doing as he pleased. Others hoped he would usher in a huge wave of tax cuts and deregulation, setting off some megaboom. We are about five months into his presidency, and despite deafening noise and lots of promises, he hasn’t rammed through radical changes roughshod or cut every last piece of red tape in America’s economy. Both the legislative and judicial branches have been doing that whole “checks and balances” thing, as they were designed to do, and Trump himself has moderated on some issues too (also what pols in democratically elected, free countries do). In short, he has done far less than people feared or hoped. Folks, however you feel about President Trump, we kindly remind you to check those biases at the door when it comes to your portfolio. Beltway bluster can stir emotion, but words aren’t action, and allowing rhetoric to alter your investment plan is a mistake. We expect intraparty gridlock to continue limiting Trump from making his most radical promises a reality, extending the status quo and giving businesses more latitude to take risk. 

By , Bloomberg, 06/19/2017

MarketMinder's View: We found a quote from a securities analyst cited here interesting: “’The market’s just dying for a reason to buy this thing, but you can’t really do that before’ Wednesday’s data on stockpiles.” In our view, that suggests sentiment toward the Energy sector hasn’t cratered yet since some folks are still super eager to bottom fish. We also still see analysts arguing an Energy rebound is close. However, in our view, the persistence of overly optimistic sentiment and continued price pressure on oil due to steady supply (thanks to US shale producers) suggest the time for Energy stocks probably isn’t quite here yet. For more, see our 3/8/2017 commentary, “Oil Well Supplied.”


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Global Market Update

Market Wrap-Up, Thursday, June 22, 2017

Below is a market summary as of market close Thursday, June 22, 2017:

  • Global Equities: MSCI World (+0.1%)
  • US Equities: S&P 500 (-0.0%)
  • UK Equities: MSCI UK (-0.1%)
  • Best Country: New Zealand (+1.4%)
  • Worst Country: Austria (-1.5%)
  • Best Sector: Health Care (+1.3%)
  • Worst Sector: Consumer Staples (-0.5%)

Bond Yields: 10-year US Treasury yields were unchanged at 2.15%.


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.