Daily Commentary

MarketMinder’s View: This piece centers on one of the biggest false boogeymen we have seen in financial news lately: aging demographics. “The 693,000 babies born in Germany last year marked the lowest level since 2013, and was a decline of 6.2 per cent from the previous year, according to figures published on Thursday by Destatis, the federal statistical office. Falling birth rates, ageing societies and shrinking workforces are one of the biggest problems for policymakers across Europe, as they add to the strain on stretched public finances and weaken already tepid growth rates.” It isn’t just Germany: the US, UK and China have all seen falling birthrates for years (outside of a pandemic-era baby boomlet). We understand the concern—logically, fewer people in the future seems like it would hinder growth—but reality is a tad more complex. One, human capital is just one factor impacting economic development—gains in financial capital, technological advancement and productivity can boost economic growth even if the population gets older or shrinks. Two, today’s trends aren’t concrete. Rising living standards improve life expectancy, and political factors like immigration can impact a society’s population. Three, and most important for investors, such trends take years—even decades—to materialize (if they do at all). Demographic trends’ slow-moving nature decreases their ability to materially affect the economic and political variables impacting corporate profits over the next 3 – 30 months—the timeframe stocks care about most. From an investment standpoint, we wouldn’t sweat aging populations—in Germany or elsewhere. For more, see yesterday’s commentary, “No Need to Cry Over Falling Birthrates.”

MarketMinder’s View: Yesterday, the US Bureau of Labor Statistics released March’s Job Openings and Labor Turnover Survey (JOLTS), which showed available positions fell from 8.81 million to 8.49 million—below most estimates. Also, “[t]he so-called quits rate, which measures people who voluntarily leave their job, fell to 2.1%, the lowest since August 2020. A decline in the metric recently suggests that people are holding onto their current roles as they feel less confident in their ability to find new jobs that may pay better.” Meanwhile, the hiring rate fell to 3.5%—the lowest since 2020—while layoffs cooled to their slowest rate since 2022’s end. These numbers suggest a slight cooling in the US labor market, which is a data point worth considering in tandem with other US jobs data. But of course, this piece implies these numbers could impact future Fed policy—a step too far, in our view, as nobody knows exactly which data the Fed weighs in its decision-making process. Nor is it necessary, since monetary policy has no preset economic impact. We would simply add that like all other labor data, JOLTS is pretty backward-looking—very old news for forward-looking stocks.

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.