Daily Commentary

MarketMinder’s View: This piece delves into the latest forecasts from the Paris-based Organisation for Economic Co-operation and Development (OECD), which project UK GDP will grow just 0.4% in 2024 and 1% in 2025. This might catch some eyeballs, considering the figures are down from previous estimates and weaker than other major economies, including Canada, France, Germany, Japan and the US. However, we see limited takeaways for investors here. One, economic forecasts aren’t predictive. In our view, they say more about sentiment as the recent past tends to influence these projections—and the UK’s economic struggles are very well known. Two, even if UK GDP growth lags peers, that isn’t automatically a reason to avoid UK stocks. Stocks move on the gap between reality and expectations—as long as sentiment toward the UK remains low, even middling economic growth can be enough to boost stocks. For example, see UK stocks and GDP in 2023’s back half. Amid stubbornly high inflation and BoE rate hikes, sentiment toward the island nation was low. GDP even contracted on a quarterly basis in Q3 and Q4—yet stocks rose 5.6% in GBP over the same period (per FactSet). Two quarterly contractions aren’t great, but they were better than the deep recession pundits had predicted. Persistently low sentiment toward the UK sets up plenty of room for positive surprise.

MarketMinder’s View: Before we begin, this piece mentions several investments, so a friendly reminder that MarketMinder doesn’t make individual security recommendations. The titular “why” here is rooted in gold’s strong performance so far this year. “Gold prices hit a record $2,431.55 in April before pulling back slightly. For the year, the yellow metal has gained over 15%, outpacing the S&P 500’s 5.6% rise through Tuesday. The yield on the 10-year Treasury rose to 4.683%, registering the largest monthly gain since September 2022, as tracked by Dow Jones Market Data Group.” To us, this reeks of recency bias and, more importantly, misperceives bonds’ purpose in a blended portfolio. In our view, fixed income’s chief function isn’t to outpace inflation or yield whopping returns, but rather, to mitigate short-term volatility from stock ownership. Moreover, we are skeptical of the article’s claims that gold is a great inflation hedge. Its record is spotty at best, with little to no correlation with rising prices and long stretches of falling as prices rise. Sure, the shiny metal is up solidly this year, but history shows it is more volatile than stocks (and much more than bonds)—with lower long-term returns. In our view, gold has no special powers—it is simply a shiny metal that is prone to big booms and busts tied to sentiment.

MarketMinder’s View: This piece digs into the popular seasonal investing adage during this time of year: “Sell in May and go away and don’t come back until St. Leger Day,” a reference to Britain’s popular mid-September horserace. These days, though, the focus is on April 30 – October 31, which happens to be stocks’ weakest rolling 6-month period. Yet we quibble with the article’s argument, which slices the data to posit that investors may be better off avoiding stocks over this period than holding them. “For instance, for large-cap stocks between 1950 and the end of the century, investors who held stocks outside of the May-to-October period saw an annualized return of 19.62%. Over the time frame, large-cap stocks held during the May-to-October period delivered an annualized return of 6.72%. This is a difference of 12.90 percentage points on an annualized basis.” But there is a big issue here: That May-to-October period is still positive? And owning stocks when they are up is important to reach one’s investment goals? We would also note that grouping average returns between 1950 – 2000 and 2000 – 2023 is pretty arbitrary and glosses over market cycles—in our view, the calendar isn’t a market driver. When making portfolio decisions, ditch the catchy sayings and seasonality myths. For more on why, see our recent commentary, “Tell ‘Sell in May’ to Go Away.”