Daily Commentary

MarketMinder’s View: This piece covers some key developments surrounding Corporate America in recent years. Namely, businesses buckled down for a recession that never came. “The anticipation of a recession may be contributing to the notable outperformance. Companies are shoring up their bottom line, cutting costs and stockpiling cash to stave off the impacts of an economic slowdown. Earnings revisions also dipped heading into the first quarter, leaving room for more upside potential.” Recession calls were abundant in 2022 and 2023, as analysts and economists predicted the Fed’s historically fast hiking cycle would eventually catch up with the US economy. In preparation, American companies got lean and mean—cutting employee headcount, boosting productivity, stockpiling cash and reducing costs any way they could. That is what Fisher Investments founder and Executive Chairman Ken Fisher calls “anticipation is mitigation” in effect—and all that helped companies weather those tough economic periods. As noted herein, America’s biggest companies are already bearing fruit for their efforts, as seen in better-than-expected Q1 earnings releases. Looking forward, companies likely go on the offensive this year, utilizing their sidelined cash and strong balance sheets to ramp up investment—likely a tailwind for growth ahead.

MarketMinder’s View: The New York Fed’s April Survey of Consumer Expectations highlighted some renewed worries of higher inflation. “On a one-year basis, the expectation [for year-over-year inflation] increased to 3.3%, up 0.3 percentage point from March and the highest since November 2023. For the five-year outlook, the expectation rose to 2.8%, up 0.2 percentage points. However, at the three-year horizon, the outlook fell to 2.8%, down 0.1 percentage point.” Housing prices remain a chief concern, though medical care, food and energy costs weighed on respondents’ minds, too. As the article notes, April’s readings were all well ahead the Fed’s 2% inflation target. Ok, but the Fed targets the headline personal consumption expenditures (PCE) price index, so we think it is a stretch to argue higher prices across myriad categories mean something for Fed action. Moreover, there is no way to know how the 12 different Fed folks who vote on monetary policy will interpret and act on this (or any) bit of data. To us, the renewed fretting over higher prices implies inflation continues to weigh on folks’ minds—understandable, though the fear doesn’t pack much surprise power for markets anymore.

MarketMinder’s View: Falling birthrates continue to steal headlines of late, with stories like this one stressing over their long-term impact (e.g., labor shortages stunting economic growth to depopulation tanking property values). We don’t dismiss those potential outcomes or their impact on society at large. However, for investors worried about the potential economic impact, remember birth rates don’t have a predetermined effect (nor are they destined to keep falling). Human capital is just one economic factor, and improvements in technology, financial capital and productivity can also fuel growth alongside aging or shrinking populations. For instance, take the article’s example of the so-called “first demographic transition” that began during the 18^th century. “As lifespans lengthened and more children survived to adulthood, the impetus for bearing more children declined. As women became better educated and joined the workforce, they delayed marriage and childbirth, resulting in fewer children.” What followed? An industrial revolution that propelled economic growth and brought incredible technological breakthroughs that, in many ways, advanced society as a whole. Also, consider: the US’s total fertility rate and general fertility rate have trended downward since 1970. Still, this didn’t stop economic expansions in the 1980s, 1990s, or most recently, from 2009 – 2020. We see falling birthrate fears as a brick in stocks’ wall of worry. For more on this, check out our recent commentary, “No Need to Cry Over Falling Birthrates.”