Daily Commentary

MarketMinder’s View: As this article argues, many investors seem to have a newfound interest in cutting US exposure in favor of non-US stocks, as the former look “riskier” due to President Donald Trump’s trade policy. (This piece also mentions some specific funds, and as a reminder, MarketMinder doesn’t make individual security recommendations.) Moreover, US political uncertainty signals, in some experts’ opinions, the end of “US market exceptionalism.” This all reads like a mixed bag to us. From a high level, we agree with some of the points raised here. One, global diversification is a sensible way to mitigate country-specific risk, and we advocate that approach regardless of the market environment. Two, we are also more bullish on non-US markets—not because we think US stocks will do poorly for the year, but rather, equities outside America have had a bigger wall of worry to climb. However, we would answer the titular question with a question of our own: Why are you doing the dumping? If it is a fearful reaction to recent market volatility, we suggest taking a deep breath and stepping back first: While there are plenty of valid reasons to sell, an emotional response to past market movement isn’t one of them. Exiting what has lagged recently and chasing what is doing better equates to trying to buy past returns—a poor investment approach, in our view. And, another question: What is your benchmark? If it is the S&P 500 or a US-based index, you would be scrapping your benchmark entirely here. That isn’t a decision to make lightly. If you change, and we can get behind that, make sure you don’t get prone to flipping benchmarks from global back to US-only when volatility cuts the other way—as it inevitably will. For more, see our recent commentary, “Investing Isn’t Collecting, Private Equity Edition.”

MarketMinder’s View: Japan’s March exports rose 3.9% y/y on a value basis (but contracted -0.8% y/y on a volume basis), as autos and chip-making machinery contributed most. However, March’s value-based numbers fell short of estimates of a 4.4% gain, which this coverage interprets as evidence President Donald Trump’s tariffs are starting to bite. “Trump’s tariff campaign is hitting Washington’s allies and foes and risks causing major disruptions in the flow of goods across the world. Japan’s shipments to the US rose 3.1% by value in March, slowing from February’s 10.5% growth. Those to China, which has retaliated against the US measures, declined 4.8%, while exports to Europe, which has also struck back at Washington, fell 1.1%.” But that isn’t a surprise—when folks front run potential rule changes, a subsequent slowdown is to be expected as demand is pulled forward, not raised. To us, the conclusion’s concerns about Japan’s slowing exports shed some light on sentiment: “Japan’s economy posted modest growth in the final quarter of 2024, though consumer spending remained stagnant. With mounting fragility in overseas markets, economists largely expect growth decelerated significantly in the three months ending in March.” Expectations for Japan appear pretty low, suggesting it won’t take much for reality to positively surprise. Oh, and ditch all the hype here about a trade surplus “boosting” Japan. The difference between imports and exports does no such thing, as Japan’s history proves. The country ran a trade surplus every year from 1989 to 2010 (data per FactSet). Its economy was famously stagnant over that period, including Japanese stocks’ “lost decades.”

MarketMinder’s View: Much of this piece discusses popular gauges that seek to measure volatility (e.g., the VIX, Wall Street’s so-called “fear gauge,” and the rise in prices for certain options contracts). As one research outfit quipped here, it refrained from including a chart of the S&P 500 in its market commentary because the graphic could be out of date by publication time—illustrating the significant short-term market movements this month. That said, we take issue with an underlying premise of this piece: that markets have been “ultra calm” for the past couple years. Folks, take a quick jaunt down memory lane with us to last summer: Remember when pundits pinned a market selloff on several factors, including a Bank of Japan rate hike, the supposed unwinding of the yen carry trade and the prospect of a US recession due to a hiring slowdown? The negative reaction was sharp, but the rebound was just as swift and didn’t prevent stocks from delivering a great 2024. The S&P 500 had a correction in 2023, which isn’t that long ago, really. Now, we aren’t equating these situations’ specifics to today’s, but investors should recall that volatility can arise for any or no reason. Sometimes it results in a quick pullback, other times it may turn into a correction (a sharp, sentiment-driven decline of -10% to -20%). Furthermore, volatility (good and bad) often comes in clumps or clusters, with calm periods between. Thinking “this time is different” can cause investors to lose perspective—and become more vulnerable to making a mistake, like trying to evade the bad volatility … only to miss the good.