Daily Commentary

MarketMinder’s View: Please note, MarketMinder doesn’t make individual security recommendations. The companies highlighted here are coincident to a timeless investing lesson: The stock market isn’t the economy. “Frankfurt’s Dax, an index of 40 blue-chips, has risen 18.7 percent this year, beating the benchmarks in France and the UK, and far outstripping the region-wide Stoxx Europe 600 index’s 4.8 per cent gain. The performance comes in spite of weak domestic growth and political turmoil, with Germany’s unpopular coalition government collapsing in November after the parties were unable to reach an agreement over reforms to a fiscal ‘debt brake’, and the country now heading for a snap election in February.” Why haven’t political instability and tepid economic growth knocked German markets? For one, “Dax constituents derive less than a quarter of their earnings from within Germany,” which touches on another useful lesson: Global trends tend to swamp local ones. But even more importantly, stocks aren’t the economy in the sense they pre-price widely known factors like economic weakness (backward looking) and political chaos. Then they move on. So while the DAX overall may be light on German revenue, the banks mentioned here are very German—both in revenue terms and ownership of Bunds and more. They are outperforming. Furthermore, we checked. Fully 15 of 40 DAX constituents are outperforming and 24 are up. Like Mag 7 fears in the US, the notion that just a few stocks create a fragile mirage bull market is a fallacy, in our view. For more, see our October commentary, “Digging Into the German Economy – Market Disconnect.”

MarketMinder’s View: Pundits cite many reasons why a central bank may choose to act, including labor data, inflation reports and election results. Here is another, from the Land Down Under: Christmastime shopping. “Consumers are predicted to splash $3.7bn in the last week of 2024 on top of an expected $70bn in the lead-up to Christmas, according to projections from the Australian Retailers Association and Roy Morgan. The splurge, 2.7% more than households spent over the last week of 2023, would continue a resurgence in consumer spending, which the RBA has singled out as a key factor in deciding if a rate cut below the current 4.35% is warranted.” Look, maybe RBA Governor Michele Bullock and friends decide an uptick in holiday shopping is reason to hold off on cutting rates soon. But what if the next spate of jobs data is soft? Or if inflation cools? Those developments (and others) could influence Australian central bankers’ thinking too. We have made this point many times this year and we will likely have to keep making it next year, too: Central bankers’ decisions aren’t predictable. Save yourself the trouble. It likely isn’t make-or-break for stocks anyway.

MarketMinder’s View: The Conference Board’s US consumer confidence gauge dipped in December, its first decline in three months, ostensibly due to politics. “In write-in responses to the survey, consumers increasingly cited politics and tariffs. A special question showed that 46% of respondents expected tariffs to raise the cost of living, while 21% expected tariffs to create more US jobs. The results mirror similar concerns about tariffs in surveys, including a University of Michigan poll that showed a surge in the share of people who believe that they should buy durable goods now to avoid higher prices in the future.” As always, we don’t recommend drawing definitive conclusions from any one monthly reading, especially for a metric tracking something as fickle as human emotion. But as we head into 2025, monitoring sentiment’s evolution—and how that aligns with economic reality—is worth focusing on for investors. Will the initial rush of post-election pro-business optimism hold? Does it fade? Those factors are worth watching as the new year dawns.