Daily Commentary

MarketMinder’s View: This piece, which we find overall a bit mixed, explores the question of how US GDP has not only continued growing, but even accelerated at times despite Fed rate hikes. The framing veers into sociology, which we are always wary of in this context and encourage investors to tune out—as markets do. But the observations about housing in particular are keen, even if they tacitly buy into the concept of the wealth effect (where people allegedly spend more when they feel wealthier). Housing is one of the main places Fed rate hikes have had a direct economic impact by affecting both supply and demand. The demand side is probably obvious: Higher mortgage rates curbed buying power. The supply side is probably less so: “About 60 percent of homeowners with mortgages have rates below 4 percent, based on a Redfin analysis of government data. That’s because many locked in low borrowing costs when the Fed cut rates to rock bottom during the 2008 recession or at the onset of the 2020 pandemic. Many of those homeowners are avoiding moving.” With supply of existing homes for sale low and lower demand curbing construction for a spell, overall home supply tightened, elevating prices. But now this is turning, thanks to a pickup in residential investment, turning a modest economic headwind into a tailwind. As for the rest of the argument here, yes, household finances are in good shape, and that helps. But we think the economic benefits are less about total wealth and more about disposable incomes rising as wages catch up with consumer prices, helping restore purchasing power. Meanwhile, businesses remain able to invest thanks to their having broad financing avenues beyond bank loans. They can access capital at costs below where the Fed is trying to peg them, which is helping them take a more offensive posture. So in short, we think the main lesson here is that Fed rates just aren’t all that important on their own—not that things are somehow different this time.

MarketMinder’s View: This piece does juuuuuust a little bit of overthinking China’s recent gold buying, which data from the World Gold Council imply brings its physical gold reserves to about $170 billion. The article argues this is China’s way of protecting itself from US sanctions if and when it invades Taiwan, and numerous analysts quoted herein seem to agree. While war and geopolitics aren’t market functions, we think this is all entirely too speculative. We don’t doubt Russia’s losing access to its foreign exchange reserves was an object lesson to countries worldwide and an incentive to diversify. But $170 billion is a pittance for China. The World Bank estimates its GDP at $10.5 trillion in current US dollars. Meanwhile, Bloomberg reports China’s foreign exchange reserves at just over $3.2 trillion, which is in line with the norm in recent years. While we have seen all the same rumblings and jawboning cited in the article, there are numerous reasons China could be buying more gold, many of them economic and related to officials’ concerns about the currency’s stability in the here and now. Ignoring these and focusing on geopolitical speculation seems mostly about sentiment and the heightened attention on war in general right now. Hammer looking for a nail and all that, in our view.

MarketMinder’s View: Today, we saw a handful of pieces purporting to tell investors how to prepare for a stock market pullback by locking in recent gains. We could have featured any of them here and picked them apart to show why their advice was likely to prove counterproductive. But then we found this, which does a bang-up job of making our point from a more positive angle. As it demonstrates, the best way to prepare for short-term wiggles isn’t to take money off the table, but rather to accept wiggles as the toll we all pay for stocks’ long-term returns and to therefore prepare emotionally to endure them. One good way to do so? Remembering your long-term goals and that if you are investing for retirement, you are probably looking at a multi-decade time horizon. Over such long spans, even seemingly big wiggles fade into obscurity. And, as this piece reminds us, stocks usually rise (a lot), the economy usually grows (a lot), and inflation is usually an annoying constant that necessitates participating in markets’ long-term gains. Remember this, and the jitters that drive short-term volatility seem quite small.