Today's Headlines

By , Bloomberg, 04/27/2017

MarketMinder's View: Yet another example of the folly of trading on politicians’ talk and rumors of action. Many investors’ fears were stirred during the campaign when Trump badmouthed the North American Free-Trade Agreement (NAFTA) and thought he would exit it fast, causing disastrous disruptions for business. Wednesday, rumors circulated that an executive order announcing his intent to exit NAFTA was at hand. But in reality, not so much. “‘Both conversations [with Canadian Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto] were pleasant and productive. President Trump agreed not to terminate Nafta at this time and the leaders agreed to proceed swiftly, according to their required internal procedures, to enable the renegotiation of the Nafta deal to the benefit of all three countries,’ the White House said in a statement late Wednesday.” While many investors have feared Trump unilaterally exiting NAFTA, the fact of the matter is he has been saying “renegotiate” basically the whole time. Political talk is cheap, but rumor is even cheaper. Watch what they do, not what they say or what unnamed sources say they are about to say.

By , The Wall Street Journal, 04/27/2017

MarketMinder's View: ... And it seems most of the impediments to a continuing resolution funding government through October’s fiscal-year end—namely, funding for Affordable Care Act subsidies and The Great Wall of Trump—have been resolved. This suggests the one-week bill is merely a prelude, so there probably will not be a government shutdown. We know you’re disappointed, but it’s worth remembering: However much you may want the entire government to shut, a “shutdown” mostly only impacts fun things like the Smithsonian and the National Parks. Shutdowns don’t shut up squabbling elected officials.

By , CNBC, 04/27/2017

MarketMinder's View: Poppycock. The idea stocks are all about the Trump Bump and might Trump Slump if he can’t follow through on his legislative ideas is common, but divorced from reality. Just consider: This rally didn’t being on November 8—it began on February 11, 2016, when the market correction ended—and even that is just the latest piece of an eight-year old bull market. US stocks are lagging this year and are behind much of Europe since the vote. Four of five S&P 500 sectors leading from the correction’s end to the vote continued to lead from the vote to now. (The one that flipped from leading to lagging is Energy, whose outperformance began faltering way before the election—and was presumed a “winning” sector from Trump’s victory.) Folks used to think markets were a binary bet on the Fed. With those fears debunked by reality, we guess they had to latch onto some other silly, simple narrative. That doesn’t mean you have to follow suit.

By , The Wall Street Journal, 04/27/2017

MarketMinder's View: “A closely watched proxy for business spending on new equipment, orders for nondefense capital goods excluding aircraft, rose 0.2% in March. Data can be volatile from month to month, but the broader trend shows gradual improvement. Total durable-goods orders were up 3.4% in the first three months of 2017 compared with the same period a year earlier. Orders for nondefense capital goods excluding aircraft rose 2.1% over the past three months compared with the first quarter of 2016.” Mmmmmmmm. Growthy.

By , Bloomberg, 04/27/2017

MarketMinder's View: In one sense, we agree sentiment is warming but far from stretched—as it was from, say, late 1996 to mid-1999. But this article mostly seems to overrate the predictive quality of valuations and market breadth (the number of stocks leading the market), and in particular overrates the “yield-chase” narrative that has been prevalent in this bull market. Valuations never predict market direction. They usually expand in maturing bull markets while market breadth usually narrows. Moreover, while we are sure some folks boosted dividend-paying equity exposure in this cycle, the claim folks abandoned bonds en masse and bid them up to nosebleed valuations isn’t supported by fund flow or return data. In this cycle, bond fund net inflows massively outweigh stocks, and dividend-paying stocks have not consistently outperformed.

By , MarketWatch, 04/27/2017

MarketMinder's View: This is a tour de force in data manipulation, all crafted in an effort to support an unsupportable argument: To what extent—in actual earnings and index level figures—have stocks priced in Trump’s tax plan. We’ll spare you the numerical gymnastics and cut to the chase: It concludes all of it is priced, raising the risk of disappointment if it doesn’t happen or is underwhelming. This. Is. Sheer. Bias. You can never calculate how much the market has or has not discounted something. You can only assess the commonality of the idea—how widely known it is—as a means to estimate whether it is likely or unlikely to have already moved markets. Consider just this one passage: “So, again a judgement call, but we’re going to assign $10 of the $11 [expected earnings per share] increase to the election.” To our eye, “judgment call” is code for wild guess.

By , CNBC, 04/27/2017

MarketMinder's View: Sigh. Yes, the Cyclically Adjusted Price-to-Earnings Ratio (CAPE) is high, at 29. It is also broken at any level, considering it indicated “overvalued” stocks from 1996 through 2000 and has been above average in all but 17 months since 1990. CAPE compares a decade’s worth of inflation-adjusted earnings to nominal stock prices, and this is supposed to (according to one of its creators, Yale University prof Robert Shiller) foretell 10-year returns. Not cyclical turning points, though the media (and its creator) frequently veer, for some reason, as this exemplifies. Valuations of any kind, on their own, are not predictive. The broken CAPE is even less so. (PS: The crash of 1929, connected in this video to President Calvin Coolidge, struck when Herbert Hoover was president. Coolidge’s term ended before it struck, and for whatever it’s worth, CAPE wasn’t high for most of Silent Cal’s time in office.) For more on this nonsense indicator, see Ken Fisher’s March Interactive Investor article here.

By , The New York Times, 04/27/2017

MarketMinder's View: Well, yes, ECB head Mario Draghi did seem more optimistic at today’s press briefing discussing the ECB’s decision to do nothing new. Which raises the question: Where exactly has Mr. Draghi been the last 15 quarters? You see, that is presently the length of the eurozone’s GDP growth streak and is far beyond its pre-recession peak (which renders Draghi’s persistent use of the term “recovery” inaccurate—the eurozone is in expansion). Purchasing Managers’ Indexes tallying the breadth of growth are at six-year highs. Yield curves have steepened. Even late-lagging unemployment is improving. So while it’s nice that Mr. Draghi is feeling a wee bit more rosy, we hope folks aren’t hinging their investment decision on his views. Finally, slicing and dicing policy statements to divine anything about monetary policy direction is a fallacy of the highest order. Central bankers are people: biased, inconsistent and often inaccurate. Unless you are a party to the meetings, trying to foresee their actions is a waste of your time.


By , Bloomberg, 04/26/2017

MarketMinder's View: The best performing major Developed Market region this year is ... the eurozone! Yet many seem surprised, acting as though European stocks were damned to permanent underperformance. Folks, leadership rotates. And as this notes, this year’s ongoing elections in Europe actually favor the region. Not only are fears of a populist wave engulfing the continent overwrought because populists aren’t as popular as feared, but because whoever wins likely can’t do much. This gradually dawning on investors is a bullish factor, not the bearish one media keeps trotting out. This is why long-term investors are best served thinking—and acting—globally, as well as scrutinizing common media narratives.

By , The Wall Street Journal, 04/26/2017

MarketMinder's View: President Trump’s still-fuzzy plan would lower corporate income tax rates to 15% from 35% and small business rates to 15% from as high as 39.6%. It would reportedly offer a one-time 10% repatriation tax on earnings held abroad, now taxed at 35%, and Treasury officials imply it would end or greatly reduce tax on foreign-sourced earnings moving forward. The president would also like to cut individual tax rates, reduce the number of brackets to three, double the standard deduction and repeal estate and alternative minimum taxes. Those are the broad outlines. Perhaps the most contentious aspects: One, the proposal would disallow state and local tax deductions, which would effectively raise taxes on high-tax state residents, like New York and California. Two, some fear it will boost the deficit. It doesn’t include a border-adjustment tax, although Treasury Secretary Steven Mnuchin isn’t ruling that out categorically. Many of these ideas are going to create winners and losers, and they are likely to evoke a stronger reaction from the losers than the winners (myopic loss aversion in action). Hence, this idea isn’t categorically bullish, which is true of most tax cuts. Finally, we’d suggest not getting too caught up in this. Because there aren’t offsetting revenue increases to neuter the budgetary impact of this plan, it can’t be passed “permanently” under budget reconciliation rules with a simple Senate majority. Hence, the cuts will either be temporary or require 60 Senate votes—tough to get, considering it would require Democratic support. This debate is only beginning, so we guess stay tuned.

By , The Wall Street Journal, 04/26/2017

MarketMinder's View: “Growth of 3% would stop the debt-to-GDP ratio from skyrocketing.” Sure, but that presumes debt is a problem and that debt-to-GDP is a relevant measure. There isn’t any debt problem to be solved! First, US borrowing costs are still lower than most of recorded history. And federal debt service costs are near 50-year lows. But even if servicing costs tripled to where they were in the 1980s and 1990s, debt would still be affordable (as it was then). Second, debt-to-GDP is meaningless! To properly scale US liabilities, measure them against US assets. Not only are the latter soaring—US net worth (assets minus liabilities) is at record highs—those assets are paying out more than what they cost. Ultimately, debt problems are caused when debt holders worry they won’t get paid. The world flocking to US Treasurys is the opposite of that. All that said, we do award points to this article for pointing out that long-term forecasts are often based on dubious assumptions and bad straight-line math.

By , Reuters, 04/26/2017

MarketMinder's View: Not to be lost in the shuffle, but after 2013’s 17-day government shutdown fireworks, no one really cares this time around, as they shouldn’t. Either they’ll 1) get 60 Senate votes to pass a budget, 2) sign a short-term spending resolution and discuss further, or 3) shut down! For a time, and then go back to 1 or 2. But as 2013 showed, stocks generally look through these episodes—the S&P 500 rallied through the second-longest government shutdown in modern history. During the longest one, too. Maybe it is because markets know “shutdown” has no teeth—it isn’t like the military throws up their hands and goes home. It is agencies the government deems “nonessential.” Unless you work for or are planning a trip to a National Park or the Smithsonian (or need government economic data to write MarketMinder articles), government will be open.

By , Yahoo! Finance, 04/26/2017

MarketMinder's View: “President Obama pursued numerous sanctions against trade partners his administration accused of unfair behavior, and won in many cases. But Obama barely ever talked about trade disputes and never blamed trade for the nation’s economic problems, the way Trump does. So some voters might think the US government never paid attention to trade abuses until Trump showed up, which isn’t true. In reality, Trump has simply made trade a much bigger deal, with voters almost certain to hear a lot more about it during the next four years.” In short, this doesn’t seem like Trump firing an opening shot in a US-Canada trade war.

By , Reuters, 04/26/2017

MarketMinder's View: “The European Union and South American trade bloc Mercosur should intensify talks to reach a trade agreement this year, Spanish Prime Minister Mariano Rajoy said on Tuesday, urging haste after 18 years of negotiations.” While trade pacts—or “multilateral accords”—are frequently mercantilist (boo) and entrench protectionism, they can stimulate trade among their members (yay). We’d prefer free trade, investment and migration without any pacts, but any increase is a plus. This is just one more, in a long line, of countries and regions seeking to ink trade deals (and not pull out of existing ones). And more evidence globalization isn’t in retreat.

By , Financial Times, 04/26/2017

MarketMinder's View: The misbegotten thesis here is that the right politics (and policies) need adoption for sustained global economic growth: “Policymakers must support private and public investment, further innovation, maintain open and competitive economies and reduce regulation where it is excessive, while maintaining it where it is essential. Yet policymakers must also ensure that the benefits of growth are far more widely shared than before.” But the evidence—bullishly, we’d add—overwhelmingly supports the opposite interpretation: Growth is occurring despite political meddling. Economies (and stocks) do best when government gets out of the way. Take quantitative easing in the UK and US for example, both attempts to use policy to support economies. Yet it was only when they stopped that their economies picked up. This is why gridlock—and not policy proliferation—is good for growth in developed, competitive economies.

By , Financial Times, 04/26/2017

MarketMinder's View: Assuming—we know the perils—the Tories pick up a commanding majority (like the polls say) in June 8 UK elections, what can Prime Minister Theresa May do with a reinforced mandate? She can purge her cabinet of Brexit doubters as well as overzealous “hard Brexit”-promoting loose cannons. That would better enable her to deliver a smooth Brexit with a transition deal maintaining key ties with the EU. A strong showing would also reduce political risks on her flank—namely calls for Scottish independence before Brexit—if the Tories steal Scottish seats from the Scottish National Party. Yet it would also destroy gridlock. This article presumes that is a positive, citing sociological matters, but May has trumped up utility price caps and eliminating anti-tax hike pledges, which could stir uncertainty or worse.

By , The New York Times, 04/26/2017

MarketMinder's View: This shouldn’t matter much for markets either way, and take our word for it—we are neither endorsing nor objecting to this rule or ruling. We point it out just to note that, yes, the US remains a Developed Market (not a banana republic) with checks and balances on power and many institutions that prevent the circumvention of established laws. This should go without saying, but it’s a helpful reminder that the rule of law and strong institutions are key features that make America great—and keep folks investing here.

By , Bloomberg, 04/25/2017

MarketMinder's View: Let’s clarify a couple things: First, this is just a proposal—no duty is yet in place, just a “preliminary determination” from the Commerce Department, subject to a couple more layers of review. Maybe it takes effect at some point, maybe not. Second, this isn’t happening at Trump’s behest, or out of the blue. Canadian and American timber companies have been battling for decades over how much lumber Canada can export and whether the Canadian government was violating NAFTA or WTO rules by handing out subsidies. After an agreement not to contest Canadian pricing practices expired last October, American lumber firms geared up to submit complaints, and now they have. They’d have done so, in all likelihood, no matter who was president. Further, many presidents have deployed similarly limited tariffs without triggering major repercussions. This brouhaha nicely illustrates something our own Michael Hanson wrote recently: Free trade agreements are mercantilist. They dole out market access to some countries but not others, and they are peppered with loopholes and exceptions for politically connected industries. Battles over these loopholes can be heated, but they don’t necessarily result in escalating protectionism.

By , CNNMoney, 04/25/2017

MarketMinder's View: It’s the first time the Nasdaq has breached 6000 and the first such round number threshold broken since (the year) 2000. Which is fine trivia, but just like Dow 20000, S&P 2000 or DAX 12467,* this is utterly backward-looking and meaningless for investors, and it tells you nothing about where markets go from here. *The DAX is a total-return gauge of German stocks. It closed at 12467.04 on Tuesday. Hence, the reference.

By , CNBC, 04/25/2017

MarketMinder's View: We must note up front that 100 days is an arbitrary marker with no investing implications, and this isn’t at all forward-looking. Cast your mind back to election season, however, and Trump’s criticisms of Silicon Valley plus H1B visa restriction chatter fed a narrative that his election would knock Tech stocks. But Tech’s Trump trepidation was fading as early as December, and post-inauguration returns have further proven he isn’t an automatic negative for the sector. As we pointed out in a 4/13/2017 article, it’s foolish to try to forecast a politician’s actions from their words, and analyzing what the media thinks will happen is often more valuable than speculating about what might happen, as that can help you gauge the market’s expectations. Relief when Trump does less than feared (or changes tune) is bullish.

By , Bloomberg, 04/25/2017

MarketMinder's View: While imperfect, this piece echoes a point we have long argued: Owning an index fund (or index-tracking ETF) doesn’t make you a passive investor, and the recent surge in ETF ownership isn’t a “passive revolution.” For many—either individual or institutional investors—ETFs make it cheaper to get exposure to narrow stock categories, and easier to hop from one to the other. This is very active! “You could buy a technology ETF to invest in the tech sector or a Latin American ETF to gain exposure to the Latin American markets. And if the sector started to swoon, you could get out as quickly as you could say ‘sell.’ The key point is that rather than use index funds to make long-term investments, many investors were using ETFs to time the market and make quick buy-and-sell decisions, just as they’d always done.” For more on faux passive investing, see Todd Bliman’s recent article, “The Passive Revolution That Quite Simply Isn’t.”


MarketMinder's View: This article, though quite partisan, is a good snapshot of falling uncertainty over the Trump administration. Wild-eyed characterizations of Trump as some sort of Putin lackey or budding authoritarian—common early—have lost credibility as his administration counters Russia on a number of fronts and suffers legal defeats on high-profile executive orders. (Most orders, by the way, direct government agencies to go study things and report back in a few months with policy suggestions—not exactly a strongman approach.) Love or loathe him, he’s one politician, and a combination of checks, balances, gridlock and moderating stances reduces the odds of radical or unilateral change. This shows just how much uncertainty in the US has fallen, another point suggesting foreign stocks likely lead this year.

By , The Wall Street Journal, 04/25/2017

MarketMinder's View: This makes the case European price-to-earnings ratios aren’t as attractive relative to the US as some think: European valuations generally lag US a bit anyway; shaky Financials drag them down, while US Energy firms’ low earnings inflate US P/Es; and hypothetical economic risks could end up justifying today’s lower levels. While the latter part is true, the former—the sector discussion—is … ummm … selective. Financials are a global drag on valuations, in the US and eurozone. US Consumer Discretionary forward P/Es are seven points higher than EMU, but that isn’t noted in this article. Industrials, Materials and Utilities trade at noticeably higher valuations in the States. But either way, valuations are only a rough gauge of sentiment. The higher (but not excessively high) US valuations simply show less skepticism toward America, which the opening of this piece unwittingly agrees with in its coverage of the market reaction to France’s election. P/Es aren’t predictive of market movements or relative returns. Cheap stocks get cheaper; pricey stocks get pricier.

By , Bloomberg, 04/25/2017

MarketMinder's View: Hey, remember the UK Independence Party? It was a driving force behind the Leave campaign in last year’s Brexit referendum, and Leave’s win sparked lots of chatter that UKIP would assume a much greater role in British politics, perhaps encroaching on Labour’s traditional strongholds. A year later, however, UKIP is effectively leaderless ahead of June’s snap election and is hemorrhaging supporters. This is perhaps most interesting as a sign of what happens when a single-issue party gets what it wants.

By , Foundation for Economic Education, 04/24/2017

MarketMinder's View: If you’re having a bad case of the Mondays—and we sympathize—this piece offers a good reminder of how far living standards have risen over the past 100 years. Indeed, even simple things we take for granted today (e.g., air conditioning and heating, quick cross-continental travel and even dental care) were fantasies for many people living a century ago. We have no doubt that free people and free markets will continue innovating and building upon the advances of today, and we’re excited to see how much better life will be in next 10, 20 and 50 years. For investors, owning stocks is the best way for your portfolio to benefit from all these advances!    

By , Washington Post, 04/24/2017

MarketMinder's View: To answer the titular question, “real” but with a caveat: We would remove “Trump” and replace it with “Global.” But there is a lot more wrong with this article than its assertion that stocks’ rally is a product of Trump cheer. For one, it ignores that in the MSCI World All Country World Index (ACWI), US returns trail 18 other countries since November 8, 2016, including Poland, Australia and even Greece(!) (FactSet, as of 4/21/2017. Returns in local currencies)—stocks in Poland, Australia and Greece aren’t rallying on Trump excitement. There is also a big framing issue in this passage: “On Election Day, Nov. 8, the Dow Jones Industrial Average closed at 18,332.74, not much different from a year earlier. By March 1, the Dow hit 21,115.55, a gain of 15 percent.” See, that implies markets were flat for a year, then soared after Trump on. In reality, they V-ed. November 2015 was the middle of a correction that began the prior May. Stocks fell until February 11, 2016, then rallied. By November 8, world stocks were already up 17.1% off that low (Also FactSet, as of 4/24/2017, MSCI World Index returns with net dividends from 2/11/2016 – 11/8/2016). What people call the Trump Rally is just an extension of that global rally—itself an extension of the global bull market that began on 3/9/2009. Finally, the wealth effect discussed at the article’s end is a myth. Consumer spending depends on disposable income, not stocks. If the wealth effect were real, US consumer spending would have fallen from Q3 2015 through Q1 2016—in reality, it rose all three quarters. For more, see our 3/23/2017 commentary, “Are Stocks Headed Into Foreign Territory?     

By , Bloomberg, 04/24/2017

MarketMinder's View: Pollsters have taken a lot of grief recently, especially after some big misses like the 2015 UK General Election, last year’s Brexit referendum and the US presidential election. So we would be remiss if we didn’t acknowledge they were pretty spot-on here (and with the Dutch parliamentary elections in March). Independent centrist Emmanuel Macron—technically an outsider candidate, though he served as outgoing President François Hollande’s economy minister—and far-right, anti-euro Front National candidate Marine Le Pen were the clear poll leaders over the past couple weeks, and they won the most votes: Macron took 23.9% of the vote while Le Pen won 21.4%. Republican François Fillon won third, far-left Jean-Luc Mélenchon’s late surge still left him in fourth, and the Socialist Party’s Benoît Hamon was fifth at just 6.4%. Now Macron and Le Pen will contest a runoff on May 7, and early projections put Macron as a heavy favorite (though things can move a lot in politics over two weeks). As “experts” debate what this all means for the global order, markets likely see this as yet another bit of falling uncertainty taking place in Europe this year—a good reason to be bullish, in our view.

By , Bloomberg, 04/24/2017

MarketMinder's View: This is a long-winded way of saying that the first round of the French presidential election resulted in further falling political uncertainty in Europe, with more to come soon. However, though the most extreme, uncertain outcome (Le Pen vs. Mélenchon) has been avoided, this piece raises two more questions: uncertainty surrounding a potential Macron presidency, as his lack of an established party infrastructure means June’s parliamentary elections favor the traditional Republican and Socialist parties, as well as the possibility of potential unknowns arising. However, the former simply means gridlock persists—fine for French and European markets in general, as it reduces legislative uncertainty—while the latter is always true. Sure, it’s possible some unknown arises and changes things, but that’s kind of how life works. Successful investors act on what’s probable, not possible.   

By , Financial Times, 04/24/2017

MarketMinder's View: Remember how Republican candidate for President Donald Trump promised to basically rip up all the bad trade deals and negotiate new, better ones once he was in office? Folks fretted trade wars galore. Yet here is the US commerce secretary saying free-trade negotiations with Europe don’t have to die, just that any deal will likely take time—since trade talks with Mexico and Canada (via NAFTA) and China require time and attention, too. Despite all the hot rhetoric, there are many moving parts here, and thus far, little actual meaningful action. For stocks, action, not chatter, matters most. For more, see our 3/22/2017 commentary, “Checking In on Trump and Trade.”

By , Taiwan News, 04/24/2017

MarketMinder's View: Taiwanese industrial production has been quietly chugging along, driven higher in March by its manufacturing industry and healthy global demand for electronic products. Even seemingly “bad” news isn’t actually bad. The computer, electronic and optical product industry reported a slight decline because of a raw material shortage—that is, demand has been so robust, one supplier couldn’t keep up. Healthy industrial growth in Taiwan is more evidence of the underappreciated global expansion and recovery in trade, given the country’s integral role in the global electronics supply chain.  

By , The Wall Street Journal, 04/24/2017

MarketMinder's View: Remember how a wave of anti-establishment political forces was sweeping across the world, replacing the status quo with radical nationalists who would upend the global order? Seems like that fear was a teensy bit overwrought, and that those antiestablishment groups are subject to the same human dynamics as the establishment. In Germany, the far-right Alternative for Germany (AfD) party just voted for two relative unknowns to lead its ticket in September’s federal elections rather than support party leader Frauke Petry—the AfD’s most well-known figure. Leadership infighting doesn’t bode well for a party that hasn’t enjoyed much success electorally. While things can shift quickly in politics, this is further evidence the “antiestablishment” may not be as successful as previously projected.      

By , The New York Times, 04/21/2017

MarketMinder's View: The pen giveth, the pen (maybe) taketh away. In his presidency’s twilight, Barack Obama had his Treasury reinterpret the tax code to discourage corporate inversions (where a US firm buys a smaller foreign firm and takes its address for tax purposes), which are a big bugaboo but not really harmful for the economy. It isn’t a good look when companies don’t want to call America home, but all it did was enable companies to continue refraining from paying taxes they weren’t paying anyway, while investing more in the US thanks to more favorable tax treatment. The measures to limit them, by contrast, reached far and wide, making it harder for non-inverting firms to shuffle money among subsidiaries and invest here. So a Trump executive order directing his Treasury to think about undoing them strikes us as an incremental positive for US firms, though also, wait and see what actually happens here. For more on inversions, see our commentary, “The Treasury Creeps on Corporate Inversions.”

By , The Telegraph, 04/21/2017

MarketMinder's View: As astute viewers of The Americans can attest, robots have been “stealing” service jobs for over three decades now—yet job opportunities haven’t dwindled. Funny thing about robots: They help companies streamline production and services, save money, and thus free them to invest in new products and services, which requires—you guessed it—hiring more people. Who knows what opportunities this could bring over the next several decades. The straight-line math used in the studies cited herein certainly can’t capture it. The robots/jobs debate is all mostly sociology, but for investors there is a happy upshot: With robots come more sources of long-term earnings growth.

By , Bloomberg, 04/21/2017

MarketMinder's View: Hip hip! “Euro-area economic momentum accelerated to its fastest pace in six years, with France unexpectedly outperforming Germany in a strong start to the second quarter that suggests the recovery is broadening. France’s composite Purchasing Managers’ Index unexpectedly advanced to a six-year high of 57.4 in April, putting it above Germany’s for the first time since 2012, according IHS Markit flash readings on Friday. The manufacturing and services index for the region as a whole also increased, exceeding economists’ forecast …” All smashing, though let’s be clear: Eurozone GDP surpassed its prior peak in 2015. This is a full-on expansion, not a recovery, and it is already pretty darned broad.

By , The Wall Street Journal, 04/21/2017

MarketMinder's View: While this does make the salient point that tax reform creates losers as well as winners, it also makes quite a lot of mere speculation about potential changes to 401(K) contributions’ tax treatment. Might some in Congress be rumbling about ending tax-deferred contributions and switching to a Roth-style model, where contributions are after-tax but then grow tax-free? Sure. But all we have here, in this article, is one Washington, DC lawyer speculating about what he thinks might happen. From our research, there is nary a bill in Congress right now. Keep an eye on tax reform plans, but this is all just way too out-there for now.

By , Bloomberg, 04/21/2017

MarketMinder's View: Our thoughts and prayers are with those affected by Thursday’s attack, the latest tragedy to befall France. As for the election, with two days until the first round of voting on Sunday, the race is impossible to handicap. However, for markets, that’s ok, as whatever happens, uncertainty will fall. When markets open Monday, there will be just two candidates left, and stocks can more easily assess the likelihood of France’s next president being pro- or anti-euro. Two weeks from now, that last bit of uncertainty will fade, and stocks can get on with life. This force was bullish for UK stocks after the Brexit vote and US stocks after Donald Trump’s win last November, and it should power French stocks as well, regardless of who wins in the end.

By , The Telegraph, 04/21/2017

MarketMinder's View: Huzzah! So much for innovation and productivity gains being played out. (But can they add a wee parachute, please?)

By , The Telegraph, 04/21/2017

MarketMinder's View: Pop quiz, hot shot: What happened the last time UK retail sales fell this much in a quarter? They bounced the next! That was in early 2010, and a double-dip recession did not ensue. As for inflation, the current 2.3% annual inflation rate is a) tied mostly to oil’s rebound from early-2016 lows and b) therefore probably temporary. Weaker sterling does impact prices of imported goods, but about 60% of UK consumer spending goes to services, which are insulated from currency moves. Also, sterling is strengthening these days, and in a few months its prior drop will be out of the year-over-year calculation. On the bright side, these fears show skepticism lingers around UK stocks, giving them more wall of worry to climb.

By , The Wall Street Journal, 04/21/2017

MarketMinder's View: Speaking of tax reforms not automatically being bullish! “We began working on this issue in 1977 and have observed the long-term consequences of changes in the capital-gains tax. This particular levy is unique in that most of the time the taxpayer decides when to ‘realize’ his capital gain and, consequently, when the government gets its revenue. If the capital-gains tax is too high, investors tend to hold on to assets to avoid being taxed. As a result, no revenue flows to the Treasury. If the tax is low enough, investors have an incentive to sell assets and realize capital gains. Both the investors and the government benefit.” Yep. It isn’t the only factor driving stocks, and markets don’t always respond negatively to capital gains tax cuts, but incentives matter. If you make selling stocks cheaper, you get more of it, and if more buyers aren’t willing to step in and pay higher prices, the net demand for stocks can fall. Food for thought.

By , Bloomberg , 04/21/2017

MarketMinder's View: There is a point to be made here about expectations relating to reality, and how that drives returns in bond markets too. But this point is not that dictatorship is preferable (none of these data prove that), and calling these nations Emerging Markets is incorrect. Turkey aside, they are Frontier Markets or standalones.

By , Reuters, 04/21/2017

MarketMinder's View: Progress! Now if the IMF and eurozone governments can just agree on that whole debt relief thing, maybe we can all move on. Though, if this drags on, Greece has long since proved it isn’t disastrous for markets.

By , The Wall Street Journal, 04/21/2017

MarketMinder's View: Here’s the thing about the administration’s latest trade rumblings: “Buy American” and “let’s get tough on steel” were the prior administration’s policies, too—and many more presidents before that pushed similar. It didn’t lead to some monstrous trade war before, or prove disastrous for stocks, and we are highly skeptical that this time is different. This stuff is generally all talk, with precious little action—and precious little blowback from trade partners.


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Global Market Update

Market Wrap-Up, Wednesday, April 26, 2017

Below is a market summary as of market close Wednesday, April 26, 2017:

  • Global Equities: MSCI World (+0.0%)
  • US Equities: S&P 500 (-0.0%)
  • UK Equities: MSCI UK (+0.4%)
  • Best Country: Hong Kong (+1.0%)
  • Worst Country: Norway (-0.9%)
  • Best Sector: Australia (+0.6%)
  • Worst Sector: Real Estate (-0.5%)

Bond Yields: 10-year US Treasury yields fell 0.03 percentage point to 2.30%.


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.