Daily Commentary

MarketMinder’s View: Long rates’ rise globally (to average levels historically) looks to us like a tempest in a teapot. The fretting remains persistent, though, which is why we highlight this article that debunks the notion growing AI debt is crowding out government issues and pressuring rates worldwide. Now, “The scale of the corporate debt surge this year is eye-popping. From January through mid-August, U.S. corporate issuance totaled $1.68 trillion, according to the Securities Industry and Financial Markets Association (SIFMA). That’s up nearly 27% from the same period last year. Issuance so far in August has already hit $153.2 billion, more than July’s $147.7 billion.” Naysayers argue increased long-term bond supply will push all rates up (rates rise as bond prices fall), with markets seeing only duration and not caring much who is issuing. While we appreciate the focus on supply and demand, calling the recent rise in rates proof of the thesis seems like correlation without causation. “Strategists at Goldman Sachs argue that any spillover from the AI issuance flood across debt ‌markets has ⁠been limited, even with AI-related financing now representing almost a quarter of gross investment-grade issuance. They point to the fact that average credit spreads for non-AI companies haven’t moved much in recent months and remain historically tight. It’s also important to remember that the recent sovereign debt ructions have been global. While the Fed’s actions do reverberate around the world, other country-specific factors are at play too.” Those tight credit spreads show demand is strong, likely quite capable of absorbing the supply increase for now. So we agree: You can’t pin global debt volatility on America’s AI financing. We think it is best to remember that bonds aren’t immune to short-term volatility and reading into it is often as fruitless as trying to divine meaning in stocks’ wiggles.

MarketMinder’s View: The titular “outlook” here refers to Europe’s Q2 corporate earnings, and while backward-looking, the better-than-expected results point to the wide gap between sentiment and reality right now. “Companies in the STOXX 600 [European blue-chips] index are now expected to report aggregate earnings growth of 24.1%, up from last week’s 23.4% estimate, LSEG I/B/E/S data showed on Wednesday, with 59.9% of the 282 firms that ⁠have already reported topping the estimates. While energy companies are still forecast to lead the index with a 138.6% profit jump, as the Iran war continues to disrupt the international crude market, corporate recovery has expanded into cyclical sectors like basic materials and industrials. Those two segments have become the market’s secondary growth engines, with industrial earnings expected to climb 18.1% following forecast-beating results ... Excluding energy, STOXX 600 profits are expected to grow 13.1%.” (As the article gives specific examples, please note MarketMinder doesn’t make individual security recommendations.) The piece also highlights how false fears abound, from geopolitics to rising bond yields and inflation worries. While those may weigh on sentiment, businesses have shown those issues don’t impede profits—the bottom line for investors. To us, the persistence of false fears suggests a bullish wall of worry in Europe—an opportunity for stocks there to run.

MarketMinder’s View: As alleged global trade disruption from war and tariffs continue to litter the news, the reality on the ground—and at sea—keeps outshining gloomy takes. That doesn’t mean everything is rosy, as businesses grapple “with elevated freight costs related to the Iran war and the effective closure of the Strait of Hormuz. At the same time, congestion is building at the Panama Canal and wait times for crossing from a couple of days to as long as three weeks. The El Niño weather phenomenon promises to make it worse.” But as the data here show, those challenges aren’t insurmountable. “The Port of Los Angeles had its second-busiest July on record, as importers navigated global supply chain disruptions and volatile tariff policy. ‘Businesses continue to move cargo when they see windows of opportunity amid an evolving trade environment,’ Port of LA Executive Director Gene Seroka told reporters Tuesday. The US’s busiest container gateway processed 499,552 containers loaded with imports in July, according to LA port data tracking volumes in 20-foot container equivalent units, or TEUs. That’s 8% lower than the record set for July last year, but 6% higher than the port’s five-year average for the month.” Considering the Port of LA is America’s busiest container port, the bustling activity here suggests commerce is chugging along despite a fearful backdrop.