Daily Commentary

MarketMinder’s View: Once again, MarketMinder is politically agnostic. When political rhetoric heats up, we think it best for investors to tune it out because bias blinds—inviting investment mistakes—when considering an election’s potential market effects. This article looks at how election uncertainty is affecting corporations’ investment plans (or at least their financial officers’ moods). “In a nationwide survey conducted jointly by the Atlanta and Richmond Federal Reserve Banks and Duke University’s Fuqua School of Business, 21% of 479 responding chief financial officers said their companies had postponed investments due to ‘uncertainty related to the upcoming U.S. Presidential and Congressional elections.’ Slightly more than 15% said they had scaled down their plans. Firms were allowed to pick more than one answer, so the categories may overlap, but an overall 30% said election-related uncertainty had hit investment plans in some way. Just over 64% said there was no impact.” The survey’s takeaway isn’t shocking to us—businesses’ waiting a little bit for some political clarity makes sense—and it may hint at some further ramping up of business investment post-vote. Following widespread recession fears in 2022 and 2023, corporations idled or pared back expansion plans, conserving resources for a downturn that never came. Businesses have since started going more on offense, and falling political uncertainty may provide an additional tailwind—another sign of America’s economic resilience.

MarketMinder’s View: We agree heartily with the main thrust of this piece. Investing only in “safe” (i.e., less volatile) securities carries its own set of risks: “Being conservative with your money, perhaps by investing it mostly in bonds or certificates of deposit (CDs), will reduce the likelihood of loss compared to investing your money in the stock market. You’ll even earn a little on your savings over time, but it’s not a solid retirement strategy. While your savings are growing slowly but surely, inflation is also eating away at your money’s buying power. What you can buy with $1 today may require $1.10 or $1.25 in the future. You need to outpace inflation to grow your wealth over time.” We agree owning stocks can provide the long-term growth many investors need to reach their goals, but we have issues with some of the particular strategies discussed here. While we aren’t against low-cost, broadly diversified index funds, there are situations where diverging from benchmark indexes to overweight certain areas or sectors over others may benefit you. Also, everyone’s financial circumstances are unique—in our experience, one size doesn’t fit all, and depending on your portfolio’s size, it may be more efficient to buy individual stocks outright. Moreover, basing asset allocation on your age alone is fatally flawed. You have to consider what goals you are investing for and define the time horizon needed to achieve them. If you are a retirement investor, that may very well be your lifetime—or longer. Prematurely switching from stocks to bonds could reintroduce the very risk this article is aimed at addressing—not earning sufficient returns, which may mean outliving your cashflows or settling for lower living standards late in life. For more on longevity risk—and how to minimize it effectively—please see Fisher Investments founder and Executive Chairman Ken Fisher’s recent column, “Why ‘Capital Preservation’ Could Be Your Riskiest — and Worst — Strategy for Retirement.”

MarketMinder’s View: US stocks have cumulatively outperformed their non-US counterparts for so long that many seemingly take it as a given this will continue indefinitely. But could this be changing? “US outperformance has been underpinned by three main drivers, [a global macro strategist] says. One was the tech boom; two was the shale revolution; and the third was pro-growth policy-making. However, the US can’t repeat the same feat at this scale again. US stocks are now more expensive relative to the rest of the world than they ever have been, driven by vast flows into its market. On the energy front, the US now produces half as much oil as the entire Opec cartel does. Even if expansion continues, ‘the growth of the past 15 years is irreplicable.’” We agree America won’t lead forever, which is why we think a global benchmark makes sense for most investors—why limit your opportunity set? But we don’t think the reasons cited are why US stocks will lag. First, valuations aren’t predictive. Per FactSet, the S&P 500’s 12-month forward price-to-earnings ratio has consistently topped the MSCI World Ex. USA Index’s since 2010. That hasn’t been a good reason to underweight America. On the energy front, maybe the US’s oil-patch success won’t repeat itself, but the winners also weren’t solely American firms—reality is more complex than that, especially since American Energy stocks struggled for most of the 2010s. Three, we can find many examples of folks who would argue that US policy hasn’t been “pro growth” over the past 15 years or so, but generally speaking, policymakers’ effect on markets and the economy is very overrated. Which brings us to our larger point: What drives stocks aren’t forward-looking fundamentals alone, but whether they can exceed currently priced-in expectations. Yes, Tech has helped drive America’s (and some others’) outperformance over the years, but that was underpinned by massive profits—which few foresaw more than a decade ago. Going forward, monitoring how reality will align with expectations remains key when navigating markets.