Today's Headlines

By , The Wall Street Journal, 12/15/2017

MarketMinder's View: A couple things about this piece: One, we think it overrates President Donald Trump’s actions on trade by fixating on rhetoric. Investors should focus on actual policy accomplishments, not rhetoric. Two, this is perhaps one of the best (albeit lengthy) articles we’ve come across documenting the history of US trade policy and obliterating the notion trade deficits—particularly bilateral trade deficits—are at all significant. A snippet: “The focus on the trade balance in trade negotiations is misguided. Trade is not like a ledger, where imports are the cost and exports are the benefit, and trade surpluses and deficits do not indicate that one country is ‘winning’ and the other ‘losing.’ The trade deficit is driven by macroeconomic factors, not by trade barriers or trade agreements. The U.S. faced a battery of high trade barriers in the 1950s, when its own market was largely open, and yet it ran trade surpluses. The trade deficit fell sharply in the wake of the financial crisis in 2008, even though neither the U.S. nor other countries significantly changed their policies regarding imports.”

By , The Wall Street Journal, 12/15/2017

MarketMinder's View: Yuuuuuup. This article is a good dissection of equity-indexed (fixed-indexed) annuities, which are often aggressively marketed as a means to get stock market-like returns without downside risk. That. Is. False. These products usually feature return caps and calculations that limit upside significantly. As one guy quoted in here puts it, “‘Fixed indexed annuities are not an alternative way of investing in stocks.’ … ‘They have completely different risk and reward components. They are an alternative to other fixed-dollar investments, such as certificates of deposit or Treasury bills.’”

By , Financial Times, 12/15/2017

MarketMinder's View: This is just an estimate of the potential impact of Brexit on London’s huge financial district, and it is built on speculation. However, it is interesting to see this analysis of actual bank job announcements and compare it to the feared “tens of thousands of jobs” some hyperbolically claimed would move to the continent the day after Brexit went final. This should be a reminder that all the estimates of Brexit impact today are really just guesses—which could be close or not. For investors, it should also be a reminder to approach such speculation skeptically.

By , MarketWatch, 12/15/2017

MarketMinder's View: The title here is disconnected from the piece, which doesn’t argue a flattening yield curve is a recession red flag. It argues an inverted yield curve is a recession red flag, which is correct. And it goes on to note that if the yield curve inverts (short rates top long) with some staying power, how it got there wouldn’t much matter, which we also think is accurate. Whether inversion happens because global bond buyers push long rates far down, inflation expectations crater or the Fed hikes short rates up massively isn’t all that relevant. Inversion significantly harms banks’ loan profits—and would likely cause credit markets to dry up, harming economic growth. But as this notes, the yield curve isn’t presently inverted, nor is it that a great timing tool. Ultimately, this is a sensible piece with a bizarre title.

By , Bloomberg, 12/15/2017

MarketMinder's View: ... Because some analysts project the total value of index-based mutual funds and ETFs will pass actively managed ones in 2019. While it is true issuance of index-based products (particularly ETFs) has boomed in recent years, it is worth considering much of this issuance is effectively stock-picking products masquerading as index funds. Factor-based investing and “smart-beta” indexes effectively create some criteria and find stocks that fit them, which isn’t really any different from outright stock picking to begin with. What’s more, even if index products grow in popularity, that doesn’t mean passive investing is taking over, as very, very few index products are used in an actually passive manner.

By , Deutsche Welle, 12/15/2017

MarketMinder's View: Following September’s German election, Martin Schulz and his Social Democratic Party (SPD) initially rejected the idea of renewing the previous German government’s “grand coalition” between the SPD and Angela Merkel’s Christian Democratic Union (CDU). That led to failed coalition talks and brief bump up in uncertainty. However, given a little more time, it seems the SPD’s initial reaction was temporary: Friday, the SPD voted to approve coalition talks with the CDU. No coalition deal is assured, of course. But this seems like a step in that direction.

By , Barron's, 12/15/2017

MarketMinder's View: So we are still awaiting full details on Congress’s compromise tax plan, but small details are beginning to emerge. In this case, a lesser-known provision that would have eliminated investors’ ability to select which tax lot they sold—and thereby manage capital gains tax exposure—would have gone away in favor of FIFO (first in, first out). But after lots of lobbying, FIFO fell out of the bill. We will have more on this bill when it is available—this is just one minor detail we haven’t seen reported on broadly in the news flow since the Senate and House reached their deal.

By , The Wall Street Journal, 12/15/2017

MarketMinder's View: Anytime we see headlines like this, the first thing we do is calculate how big a gain this actually would be. And, from this moment (11:23 AM Pacific Standard Time on 12/15/2017), when FactSet quotes the S&P 500 at 2,678.64, hitting 3,000 would require a 12% gain next year. Folks, the S&P 500 has averaged an annualized 21% in bull markets since 1926. Which makes the average forecaster’s 7.5% gain in 2018 look tame—and even the high end forecast (3,100 or 17%) look modest. That’s all mostly trivia, but we see it as a reminder to scale—and that big returns happen much more often than folks commonly appreciate.

By , RTT News, 12/15/2017

MarketMinder's View: “The Fed said industrial production edged up by 0.2 percent in November after jumping by an upwardly revised 1.2 percent in October. Economists had expected production to climb by 0.3 percent compared to the 0.9 percent increase originally reported for the previous month.” Stripping out utilities (-1.9% m/m) and mining (+2.0%), US manufacturing—the largest share of industrial production—rose 0.2% m/m, the third straight rise. The most important aspect of that statement to us is “third straight rise.” These monthly data are very volatile. For example, last month was inflated by a post-hurricane rebound in auto production and such. This month, utilities (driven by a relatively warm November) detracted. Focus on trends, not monthly bumps or dips.


By , The Wall Street Journal, 12/14/2017

MarketMinder's View: This piece presumes faster economic growth will encourage banks to lend and, given the fact US banks are awash in excess reserves (funds that legally can be lent but don’t have to be), this could easily get out of control and spur hot inflation. But that theory gets the relationship between lending and growth backwards, ignores the yield curve and overlooks other tools in the Fed’s arsenal. Lending and money supply move before the economy—not after. GDP growth doesn’t tell you where loan growth is going, which is tied more to the yield spread—the gap between short-term and long-term interest rates (as banks typically borrow short term to fund longer-term loans). The stuff in here about interest on excess reserves (IOER) is also off, as this presumes slow loan growth during and after 2008 was tied to banks’ being paid 0.25% on excess reserves. In our view, it is more likely banks held onto them because the Fed’s long-term bond purchases reduced the yield spread while regulatory shifts stoked uncertainty. That, and fear of a crisis redux. This article also oddly claims that, “If the Fed could find just the right mix of selling more assets and lowering the rate it pays on excess reserves, it could theoretically end up reducing its balance sheet and reducing bank reserves without either slowing economic growth or igniting inflation.” But if they lower the IOER rate, that would encourage banks to lend excess reserves. Moreover, the rate exists to act as a floor under the fed-funds target rate. Having it diverge far from fed funds defeats its purpose. Anyway, could the Fed err and doom us to higher inflation or another crisis? You betcha. But presuming that will happen now is quite premature.

By , Reuters, 12/14/2017

MarketMinder's View: Huzzah! “IHS Markit’s composite flash Purchasing Managers’ Index for the euro zone climbed to 58.0 this month, its highest since February 2011 and confounding the median forecast in a Reuters poll for a fall to 57.2 from a final November reading of 57.5.” The manufacturing index reading was the strongest in the index’s 20 years history. Forward-looking new orders hit 57.9, a 10-plus year high. Most readings beat expectations. Though it is just one month, December is the latest in a strong PMI run—one sentiment seemingly doesn’t appreciate, given the continued fascination with ECB quantitative easing tapering. As investors better fathom eurozone strength, they should gain confidence and bid up stocks.

By , Calculated Risk, 12/14/2017

MarketMinder's View: “On a monthly basis, retail sales increased 0.8 percent from October to November (seasonally adjusted), and sales were up 5.8 percent from November 2016. … The increase in November was well above expectations, and sales in September and October were revised up. A solid report.” While retail sales accounts for less than half of overall consumer spending (services is 57%), healthy growth here suggests US domestic demand remains on solid footing.

By , The Telegraph, 12/14/2017

MarketMinder's View: As most expected, last night 11 of PM Theresa May’s Conservative Members of Parliament backed an amendment to the EU Withdrawal Bill “that guarantees Parliament a ‘meaningful vote’ on Brexit”—May’s first parliamentary defeat. Now the rebels are warning they’ll block the government’s own proposed amendment, which would enshrine March 29, 2019 in UK law as the official Brexit effective date. May was planning to introduce that amendment next week, but now it appears to be on ice. This is all just standard political bickering, normal in a gridlocked minority government. But it does show how slow-moving Brexit is likely to be, and if the date isn’t etched in law, that raises the likelihood of the Brexit process stretching well beyond the proposed timeline. The prospect of a Parliamentary vote on the final deal adds another wrinkle. Add this to the pile of reasons we believe Brexit is a slow-moving structural issue—likely too glacial and public to wallop markets with a nasty surprise. The uncertainty might weigh on sentiment, but other than that, nearer-term economic factors should matter more to UK stocks.

By , The New York Times, 12/14/2017

MarketMinder's View: This delves deep into the titular question—not by arguing the stock market is a car or train, but by going so far as to construct indexes with “Trump Bull” stocks and “Trump Bear” stocks. But in our view, it is all unnecessary and vastly overrates the impact of POTUS 45. The rally didn’t begin on November 8, 2016—it started nine months earlier, when a correction ended and there was still about a baker’s dozen GOP candidates in the field. Moreover, sector performance didn’t shift with the vote. And non-US stocks have led in 2017. Hard to see how Austrian firms would win big from US tax reform, isn’t it?

By , Reuters, 12/14/2017

MarketMinder's View: Another month in the books, and another round of evidence China isn’t on the verge of a hard landing. Fixed investment growth slowed to 7.2% ytd y/y in November, matching expectations. Retail sales growth accelerated to 10.2%, also matching forecasts, and industrial production growth slowed a tad to 6.1% y/y but beat estimates. While this piece hints at a potential slowdown in factory activity tied to “a crackdown on financial risks,” this is old news and widely known, likely sapping surprise power.

By , Bloomberg, 12/14/2017

MarketMinder's View: Record US oil production is in sight according to OPEC’s near-term forecast: “US crude oil production in 2018 is expected to grow by 0.72 mb/d [million barrels per day] to average 9.96 mb/d.” Meanwhile, OPEC projections conform with the US Energy Information Administration Short-Term Energy Outlook’s 10.0 mb/d forecast, which would exceed 1970’s 9.6 mb/d average annual record. As this article points out, non-OPEC production led by American shale drillers blunts OPEC’s effort to clear the global oil glut: “American shale explorers, who grew more efficient during the industry’s three-year downturn, are locking in future revenues as U.S. prices near $60 a barrel, potentially readying for a new surge in drilling.” Not only is a new surge in the offing, drilled but uncompleted wells are already waiting in the wings. Take any forecast with a grain of salt, but this falls within the 3 – 30 month range stocks typically look to, which is why we think Energy stocks' time to shine isn’t upon us. Sustained oil price increases are unlikely with supply rising and more wells easily tapped to meet demand.

By , The Wall Street Journal, 12/14/2017

MarketMinder's View: Most of this is sociology, but buried about halfway down is an argument that the 4.6 million Americans presently in student loan default will have a hard time financing home and auto purchases, which “could restrain the economy’s growth.” Thing is, there are 205.6 million working-age Americans. If 2.2% of the US workforce is having student debt problems, is that really going to move the needle? Plus, how many of these people are married to someone without delinquent student debt and who is perfectly capable of financing big purchases that aren’t even a huge share of the economy? And how many of them would have kept renting and Ubering anyway? Context and scale matter.

By , The Wall Street Journal, 12/14/2017

MarketMinder's View: We jinxed it! One day after we poked fun at the lack of actual deregulation thus far under the Trump administration, 60 Senators co-sponsored a bipartisan bill to roll back 2014’s money market fund regulations, which forced institutional prime money market funds to float their share price instead of fixing it at $1 (and took effect in October 2016). “Legislation backed by Federated Investors Inc., a midsize, Pittsburgh-based company with nearly 70% of its assets in money funds, has racked up an unusual amount of bipartisan support, fueled by lobbying from municipal officers and treasurers who say the rule has increased short-term borrowing costs and crimped investment options.” We might stop there, highlighting this as a simple story of lawmakers happily addressing a rule’s unintended consequences, but there is a small wrinkle: Giant money fund managers are lobbying against it, arguing they don’t want to waste all the money they spent on compliance and don’t feel like enduring another round of regulatory uncertainty. State and local government officials, however, are pushing for repeal, as many municipalities, in turn, are barred from owning cash-like investments that can lose value. Ultimately, though, we aren’t sure this is really a huge deal either way. Short-term funding markets haven’t dried up, most investors flipped over to government money market funds (which own T-bills), and while short-term interest rates are up, it seems hard to pin all the blame on the rules when the Fed has been hiking overnight rates. Particularly when the TED spread—which tracks the gap between 3-month LIBOR and 3-month T-bills (a gauge of how expensive short-term funding really is)—has tumbled since the rules took effect and is near 2014 levels. Mostly, we just find it interesting to highlight that the supposed beneficiaries of this deregulation—big fund managers that would theoretically like to run institutional prime money market funds—don’t want it.

By , Jiji Press, 12/14/2017

MarketMinder's View: Look out, Japan is raising income taxes! Or, rather, they are raising them on salaried workers making more than ¥8.5 million (~$75,000) annually unless those workers have children age 22 or younger or family members under nursing care. Meanwhile, self-employed workers and freelancers get a tax cut, and businesses get a bunch of incentives, including a tax break for raising wages. None of these measures are huge, and tax changes aren’t big market drivers. Especially these, considering they take effect in 2020, giving everyone (and markets) a couple years to adapt. But tax changes can influence sentiment, and this income tax hike takes effect on the heels of 2019’s planned sales tax hike. This one-two punch could further dent sentiment toward Japan, raising the risk of upside surprise even if reality is just ok. We don’t consider this a reason to go hog wild for Japan, but don’t ignore the country, either.

By , The Guardian, 12/13/2017

MarketMinder's View: Seems like a stretch to us. Job losses are never good news, especially for those impacted. But it seems hard to argue the UK is in for a series of dismal labor market reports when its economic expansion continues. Employment is a late-lagging indicator. Small job losses are perhaps not terribly surprising when you consider the UK economy slowed at the start of 2017. It has picked up quite a bit of steam since then, so it wouldn’t surprise us to see hiring reaccelerate in the coming months. Even if it doesn’t, however, employment isn’t a leading indicator for stocks.

By , The Wall Street Journal, 12/13/2017

MarketMinder's View: Markets yawned today as the Fed carried out one of the most widely expected rate hikes in recent memory. The Fed increased the fed-funds target range by 0.25 percentage point to 1.25% – 1.50% and forecasted three rate hikes for next year. Though, as always, future Fed decisions are “data dependent,” which is Fedspeak for “we have no idea what we’ll do.” Or, in this case, it is Fedspeak for “We have no idea what the five to nine new voting FOMC members next year will do.” We used a range there because who knows when President Trump will fill the three empty seats or the New York Fed will choose a replacement for retiring President Bill Dudley. Fed musical chairs are just one reason we think monetary policy is unpredictable. Mostly, we just find it interesting how little folks care about Fed rate hikes these days—a far cry from the fear accompanying the first rate hike two years ago.

By , Forbes, 12/13/2017

MarketMinder's View: ‘Tis the season for gifting! In that spirit, here are a few tips that may help you get more bang for your buck. Consider doing your own research on charities you want to support. In doing so you can improve the likelihood more of your donation is supporting the cause you aim to help. There are several online tools that can help you vet charities before you commit. And don’t forget about the tax benefits. If you consider those in advance, you might be able to be a little more generous than you initially planned. And if you don’t have time or would prefer to just have someone do it for you, there is a link here that you might find useful. Happy gifting!

By , The Washington Post, 12/13/2017

MarketMinder's View: If you want a better understanding of bitcoin—and what all the fuss is about—check out this piece. “On the one hand, it is a truly revolutionary technology, but, on the other, it is a truly useless one so far. Which is to say it is a virtual currency nobody buys [things] with. That's not the end of the story, though. It's also a way to send things online without needing a trusted intermediary, like a bank, to verify you have not already sent it to somebody else. If bitcoin ends up having any utility, this will be why. That is because, in theory, this could let you set up an alternative financial system with a lot fewer fees built into it. Emphasis on the ‘in theory’ part.” Yeah, so far, theory hasn’t matched reality. Logging bitcoin transactions is part of the mining process, and future supply of bitcoins is capped at 21 million, so transactions are slow and expensive. Ratcheting up supply would fix the problem, but current bitcoin owners reject that idea because it would likely hurt the value. We aren’t inherently anti-cryptocurrency here or trying to call the top of the bitcoin bubble, but issues like this are a big reason why we view bitcoin and its ilk as pure speculation and not a long term investment.

By , The New York Times, 12/13/2017

MarketMinder's View: Texas Senator John Cornyn has confirmed what the always reliable “people briefed on the deal” said this morning, telling reporters the House and Senate have a deal and aim to pass it next week. While key details like the number of individual income tax bands remain unknown for now, it looks like they have agreed on a 21% corporate tax rate and a partial preservation of state and local income tax deductions—a change from both the House and Senate bills. Stay tuned for details in the coming days. For now, the takeaway is that we are perhaps one step closer to noise surrounding tax reform dying down—a potential tailwind for stocks. No, not because tax cuts are bullish—tax changes have historically had little to no material market impact either way. We suspect it will be the same this time. Rather, as Fisher Investments’ founder and Executive Chairman Ken Fisher wrote in USA Today on October 8, “When the tax talk and whack-or-jack adjustments are finished, the real drivers of this bull market come into clearer focus. Then stocks will likely keep charging higher, as they usually have after tax ‘reform.’ Be bullish about increased clarity, not possible tax cuts.”

By , Bloomberg, 12/12/2017

MarketMinder's View: This article is interesting but quite long, so let us save you some time. Most of it is providing detailed evidence that the Administration’s deregulatory push isn’t as sweeping as advertised (or feared). A slice: “Hundreds of the pending regulations had been effectively shelved before Trump took office. Others listed as withdrawn are actually still being developed by federal agencies. Still more were moot because the actions sought in a pending rule were already in effect. … ‘The claims about deregulatory accomplishments serve a political purpose that makes it appear as if more has happened than has actually happened,’ [Rutgers professor Stuart] Shapiro said. ‘In real policy terms, the types of accomplishments the Trump administration is touting will take years and years.’” We highlight this not to single out the current president—all politicians overstate their accomplishments—but as a reminder to separate rhetoric from action and counter expectations Trump’s moves will have immediate effects. Whether you like or loathe the prospect of a less regulated economy years down the road, it likely isn’t a market or economic driver today.

By , RTT News, 12/12/2017

MarketMinder's View: The highest since 2012 and more than one percentage point from the BoE’s 2% target, so BoE chief Mark Carney will have to write a letter to UK Chancellor of the Exchequer Philip Hammond explaining the miss. The letter is one of those arbitrary things we occasionally like to joke about, but setting that aside, we see little evidence the ongoing inflation rise spells doom for the UK economy or markets. UK consumers weathered even higher inflation in 2011 and 2012, without the economy tipping into recession. Yes, higher inflation then came mostly from the VAT hike, which is a different animal than the fast money supply growth and (to a lesser extent) weaker sterling that boosted prices this time around. But we see plenty of evidence this bout with higher inflation should be similarly temporary. One, the pound has strengthened this year, and soon the y/y calculation will reference a higher base. Two, broad money supply growth has decelerated from last year’s lofty levels. Inflation is always and everywhere a monetary phenomenon, and in time, slower money growth should filter through to slower inflation—particularly with the UK yield curve flatter these days.

By , Investment News, 12/12/2017

MarketMinder's View: This is why it is critical to ask anyone selling you a financial product or service how they are compensated—it may reveal why they are so enthusiastic about it. New rules on fee transparency combined with the Department of Labor’s (currently delayed) fiduciary rule put the kibosh on ~7% commissions for non-traded REIT sales. That, plus vast publicity about the drawbacks of nontraded REITs and the prominent failure of one of their major purveyors has resulted in steep sales declines to “the lowest levels since 2002.” Sales brokers who marketed these products often pitched them as low volatility, high-yielding assets uncorrelated to stocks—attractive a couple years ago, due to the low interest rate environment and skeptical investor sentiment. Though rates remain low, sentiment has warmed—which may also play a role in nontraded REITs’ declining sales. It will be interesting to see if sales stay low in the years to come, as market conditions evolve further. Or if this article’s assertion—that the decline is all about transparent fees—holds water. We hope it does and that nontraded REITs are toast. But we have our doubts.

By , Quartz, 12/12/2017

MarketMinder's View: Here, as best we can tell, is what this article is trying to argue: Because most trading algorithms incorporate patterns discovered in the last few years’ worth of financial data, and these data are abnormal because quantitative easing (QE) distorted markets, algorithmic trading could go haywire in the next crisis when the programs become “unable to reconcile what [they see] in new data” from the QE-driven low-volatility markets they were weaned on. And hey, maybe! But if the world survived the weird combination of portfolio insurance and program trading that contributed to Black Monday in 1987, we reckon it can survive whatever havoc bots may or may not wreak during the next downturn. Market forces always win out in the end. Oh, and as you might glean from the analogy included in the article, this is all just speculation. Trading bots could easily be the self-driving car that gets it right.

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

MarketMinder's View: While there aren’t really any big takeaways for investors here, it is an overall interesting discussion of how the rise of e-commerce might be contributing to slower inflation. In the old days, comparing prices required either driving all over town or leafing through piles of catalogues and circulars. These days? Just google whatever you want to buy, and you can see what 20-plus vendors from all over America are charging. This has helped drive many goods prices downward, hence the headline. At the same time, it seems a stretch to argue this is the swing factor for prices. As the article goes on to discuss, the impact is difficult to isolate. Goldman Sachs estimates it shaves about 0.1 percentage point off headline y/y CPI growth, which isn’t huge. We’d add that around 60% of the CPI basket is services, not goods, making nearly two-thirds of the index not subject to the so-called Amazon effect. Like, Amazon can’t lower our rent, much as we wish it could. Also, one could argue much of the decline in prices for high-tech goods comes from the technology itself getting cheaper and better, not an online price war. So, again, interesting, but always keep perspective.

By , Financial Times, 12/12/2017

MarketMinder's View: Sad but true: Fraudsters’ most frequent targets are often those who know and trust them. In this case, the perpetrator “met some of his roughly 60 victims through his associations with the NFL and the University of Virginia, where he also played football, federal prosecutors said. From 2010 to 2016, Robertson and Vaughn [an accomplice] misrepresented investments to their clients, promising clients in some instances that their funds would be put in purportedly safe investments and that they would receive returns of 10% to 20%.” Three takeaways here: A) There is no good reason to forgo due diligence, including (even especially) if you know the person. B) Safe, high returns don’t exist in investing. If someone promises both, run. C) Don’t let anyone take custody of your assets—these dudes didn’t have a relationship with a third-party brokerage firm. For more on how to protect yourself from Ponzi and other schemes, check out our 8/14/2014 article, “Crooks’ Common Threads: Three Red Flags to Watch Out For.”

By , The New York Times, 12/11/2017

MarketMinder's View: This article starts from the fallacious point that deregulation drives bubbles and the Trump administration is tearing down financial-crisis era regulations presently, so doom looms. Hence, the author notes, our “shampoo economy” cycles from bubble to bust and then repeats it, and we are nearing another turn. But this makes some pretty sweeping assumptions: One, that the economy would not be cyclical if regulation were constantly strict. There is zero evidence supporting this assertion, though, and much more evidence suggests ill-advised regulations (like 2007’s mark-to-market accounting rule) are more frequently to blame for downturns. Furthermore, even if you have constantly strict regulation, the regulators are still fallible humans who use relatively poor information about the massively complex US economy to try to make measured policy decisions. Consider: The Fed has, on several occasions, been a major contributor to—if not the proximate cause of—economic downturns, all while trying to “help.” Finally, the fear of deregulation at the end of this vastly overstates the Trump administration’s actions on this front to date—and the legislation mentioned is in an embryonic state and may never pass. That happens a lot.

By , Bloomberg, 12/11/2017

MarketMinder's View: Here is yet another reason investors shouldn’t read too much into the multi-year public Brexit negotiations. While reported as a “major breakthrough,” the deal between the EU and UK last week has already met challenges. Brexit Secretary David Davis suggested the EU won’t see a single penny of the infamous £39 billion divorce bill if they don’t give the UK a free trade deal. Various cabinet members have admitted the Irish border issue remains unresolved. Ten members of the Conservative party signed an amendment to the EU Withdrawal Bill saying Brexit can’t happen until/unless Parliament approves the final withdrawal terms. In other words, we are a long way off from Brexit. For investors, however, this is largely noise. Brexit talks’ public nature and glacial pace likely sap market surprise power. The uncertainty might weigh on sentiment, but over the foreseeable future, economic fundamentals and (bullish) political gridlock probably have more influence on UK stocks. For more, see our 12/08/2017 commentary, “Seeing Through Politicians Spin on Brexit Phase One.”    

By , Bloomberg, 12/11/2017

MarketMinder's View: While this highlights the yield curve as a forward-looking economic indicator, the explanation is incomplete. The yield curve is forward-looking not because it measures expectations that become a self-fulfilling prophecy. Rather, it influences loan growth because it is a proxy for banks’ net interest margins (banks borrow at short rates, lend at long rates and profit off the spread). As a result, the most meaningful yield spreads aren’t the ones discussed here (30-yr/5-yr or 10-yr/2-yr), but the spread between overnight and 10-year rates. While this spread has flattened, flatter curves aren’t bearish. Inverted curves are, but even they aren’t a timing tool—just a sign that credit will probably tighten, eventually bringing a recession. We’re a ways off from that at present. For more, see our 11/27/2017 commentary, “Hiking the (Still) Upward-Sloping Yield Curve.”

By , FiveThirtyEight, 12/11/2017

MarketMinder's View: While we sort of like the deep dive into why the official monthly nonfarm payrolls report is mostly just a survey-based guesstimate, it starts from a flawed premise: that if the data were more accurate, investors would have more actionable information. Nope. Labor markets aren’t forward-looking. They don’t even tell you how the economy is faring right now. They follow the economy at a late lag. The recent jobs report simply shows things were going well early in 2017. Growth begets hiring, not the other way around.

By , USA Today, 12/11/2017

MarketMinder's View: To all readers with IRAs and/or a general desire to get all your tax deductions in order, here are a few things to consider as 2017 draws to a close. If you aim to convert your traditional IRA to a Roth IRA in 2017, the process must be complete December 31. If you’re thinking of undoing a past Roth conversion, depending on what Congress’s final tax bill looks like, it might be now or never. While you can still make IRA contributions for tax year 2017 through Tax Day, those required to take distributions (over 70 ½ for most) must do so by year-end or face a penalty. And there are other good tidbits here, like a reminder to take qualified charitable deductions if you choose.

By , Bloomberg, 12/11/2017

MarketMinder's View: While we’ve never really subscribed to the notion that there is such a thing as “normal” in the world of markets, this is a good look at how common double-digit up years are. Many see 2017’s returns as gangbusters, but with 13 trading days to go, global stocks’ year-to-date returns are roughly even with the long-term average annualized bull market return of about 21%. Keep this in mind as you assess all the guru forecasts that are sure to come out in the coming weeks.


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Global Market Update

Market Wrap-Up, Thursday, December 14, 2017

Below is a market summary as of market close on Thursday, December 14, 2017:

  • Global Equities: MSCI World (-0.3%)
  • US Equities: S&P 500 (-0.4%)
  • UK Equities: MSCI UK (-0.2%)
  • Best Country: Israel (+1.6%)
  • Worst Country: Portugal (-0.9%)
  • Best Sector: Consumer Discretionary (+0.2%)
  • Worst Sector: Health Care (-0.8%)

Bond Yields: 10-year US Treasury yields were unchanged at 2.35%.


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.