Daily Commentary

MarketMinder’s View: If the headline didn’t give it away, there are lots of politics here, so bear in mind MarketMinder is politically agnostic. We prefer no politician nor any party and assess developments for their potential market implications only. That mindset is critical for this article, which posits that investors are living in some new wild west where White House proposals and actions shift stocks on a dime—sometimes companies, sometimes sectors, sometimes the broad market. The article shows its work, citing numerous examples (e.g., military actions in Venezuela affecting Energy stocks, chatter about credit card interest rate caps hitting Financials), but it makes a critical error: It doesn’t look back to prior administrations to see if this is truly new. Do so, and you will find it isn’t. It is totally, completely normal for presidents from both parties to spout policy ideas in public and for markets to react quickly, pricing in the projected consequences (good or bad) if those proposals became actual rules. Presidents Obama, Biden, Bush, you name it—all posed ideas that had at least temporary affects on sentiment and returns. More broadly, “buy the rumor, sell the news” is a maxim for a reason: It refers to markets pre-pricing developments in the “talk” stage, then doing something different than everyone expects in the “action” stage. Investors’ task has always been to sift the news from the noise and discern between short-term sentiment moves and longer, actionable trends. To illustrate the importance of this, consider: Just last year, all the hype around the Trump administration spurring a boom in crypto and fossil fuels led to … crypto declining on the year and fossil fuel stocks lagging global markets while renewables led. Nothing has changed. We live in the same old normal. It is still an error to presume first-order effects form political talk are bound to manifest in market outcomes.

MarketMinder’s View: A trade deal straggler is a straggler no more, with Taiwan inking a deal to lower US tariffs in exchange for investment commitments, following the blueprint Japan and South Korea used with the Trump administration. The US tariff drops from 20% to 15% and, crucially, “wouldn’t stack on top of existing most-favored-nation duties, according to a statement from the cabinet in Taipei.” That is key, rendering the tariff rate genuinely more competitive (in contrast to the UK deal, which has a lower headline rate but stacks on top of existing duties). As for the other side of the deal, the $250 billion in Taiwanese investment commitments also echoes the deals with Japan and Korea in that it isn’t $250 billion in newly committed money. $100 billion of the total is an investment plan announced by Taiwan’s eponymous semiconductor manufacturing giant last year, which reminds us, MarketMinder doesn’t make individual security recommendations and features this for the broad themes and implications only. “In addition, Taiwanese semiconductors would receive relief from future tariffs. Companies building new US operations would be able to import 2.5 times their current capacity tariff-free during construction, with a lower rate applied to shipments above that quota. That cap would lower to 1.5 times current capacity once production facilities are complete.” As for the longer-term implications for US growth and chipmaking, they are probably far outside the window markets typically price (the next 3 – 30 months), as it can take several years for a chip fab to go from idea to built, staffed and functional. So this is significant primarily as another burst of falling uncertainty, not a big near-term economic driver.

MarketMinder’s View: White House economic adviser Kevin Hasset (one of the Kevins in the running for Fed chair, incidentally), announced in a television interview that next week, the administration will announce a plan “letting Americans tap their 401(k) retirement accounts for a down payment on a home” and put that portion of the house’s equity in your plan account as part of its push to address cost of living concerns. As always, we are politically agnostic, focused on a policy’s implications rather than the people and party pushing it—markets tune the partisan and personality sides out, and so should investors. And from that standpoint, we suggest not getting terribly excited about this. One, given 401(k) withdrawal rules are established in 1974’s Employee Retirement Income Security Act, it is highly unlikely the White House can change the rules by Executive Order. Legislation is likely a must, and Congress looks quite gridlocked. Two, even if this were to pass, we doubt it would suddenly put homes within reach. The US housing market has a severe supply shortage, especially in the highest-cost urban areas. Measures like this and others telegraphed so far focus on the demand side. If you boost demand without raising supply, prices rise. The UK learned this last decade via its “Help to Buy” plan, which gave first-time homebuyers government assistance. Homes ultimately became less affordable, not more, and politicians largely agreed it was a failure. Lastly, everything has a tradeoff, and if you are ever tempted to raid your 401(k) for real estate, remember why you are investing in the first place. Your long-term goals and time horizon should drive these decisions. Future retired you may wish you had that money in the market, reaping long-term compound returns to fund spiraling late-life costs, and not locked up in a singular, illiquid asset with risks like repairs, undiversified local economic exposure and more.