🎙️ Blind Chance

🎉 🥂 The Nasdaq and S&P 500 closed at fresh record highs on Wednesday, thanks to a light inflation report. The S&P 500 crossed 5,300 for the first time ever.

Overall, consumer prices rose just 3.4% in April. Prices excluding food and energy costs rose 3.6% annually, the lowest increase since April 2021 — back when meme stocks were hot, and interest rates were ultra-low.

By the way, on this day in 1997, Amazon—then just an online bookstore—went public. In a press release, the company said it was an "online retailer of books, offering more than 2.5 million titles through a consistent search and retrieval interface."

Last quarter, Amazon's net income was $10.4 billion on revenue of $143.3 billion. In the past year, shares in the tech giant are near all-time highs after a 67% run.

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the biggest stories in markets:

• China’s $138 billion bond sale

• The random path to stock market riches

This, and more, in just 5 minutes to read.

Chart(s) of the Day

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In The News

💰 China’s $138 Billion Bond Sale to Boost Economy

Bond sale!

China is initiating a bond sale worth 1 trillion yuan ($138 billion) to bolster its economy. 

The bonds, which feature ultra-long tenors such as 20, 30, and 50 years, are intended to provide fiscal support amid economic challenges. President Xi Jinping's government wants to counter pressures from a housing crisis and weakening consumer confidence through increased infrastructure spending, potentially boosting GDP growth.

• As one analyst remarked, “That ended months of speculation over when the bonds — only the fourth of their kind in 26 years — would be rolled out after a broad plan was announced in March.”

Tariff offset: Analysts underscored the bond sale's importance, specifically in offsetting impacts from external factors, such as protectionist tariffs threatened by the U.S. and uncertainties surrounding upcoming Communist Party reforms in July. 

• One banking analyst noted: "The timing of the bond issuance is likely intended at offsetting the impact" of such tariffs.
  

• The bond sale announcement has elicited (mostly) positive responses from investors, which is evident in the upward movement of Chinese equities. The anticipation of further monetary easing by the People's Bank of China to complement the fiscal stimulus indicates a multi-faceted approach to economic revitalization.

Liquidity injection: Now, analysts caution that while the bond sales aim to inject liquidity into the economy, realizing economic benefits may take some time. A senior China economist at Mizuho Securities notes, "While we are not sure about the issuance size of the first batch of ultra-long bonds, we doubt that it will deliver a significant squeeze to the onshore rates market."

Why it matters:

The bond sale follows a period of sluggish credit growth and decreased bond issuance in the first quarter, attributed to local government borrowing restrictions. 

• Despite recent efforts to accelerate bond issuance, it remains to be seen how quickly the effects of these bonds will manifest in the real economy.
  

• Added one banker, “Exports remain the bright spot in the economy this year, but face uncertainty as tensions between China and some of its biggest trading partners are escalating amid complaints over its excess manufacturing capacity.”

Read more

More Headlines

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🚔 Feds charge brothers in $25 million crypto heist

✈️ DOJ: Boeing breached deal that shielded it from charges over crashes

😬 Why the U.S. should deal with its deficit sooner rather than later

🤖 Google rolls out its most powerful AI models as competition heats up

💸 The Random Path to Stock-Market Riches

Can random dart throws outperform professional investors? 

The answer is, once again, yes. 

The Wall Street Journal conducted another experiment inspired by Burton Malkiel's "A Random Walk Down Wall Street.” They threw darts at stock listings, mirroring the blind chance concept Malkiel suggested. 

The exercise pitted them against seasoned hedge fund managers presenting at the Sohn Investment Conference in New York City. The results were astonishing: the random dart throws outperformed the professionals, echoing a similar outcome from previous attempts. 

• “Once again, the pros got schooled by randomness,” The WSJ concluded. 

Shoot the lights out: Sheer luck? No doubt. But there are also valuable lessons here: Despite the randomness of their picks, the journalists achieved a sensational 80% return last year. They had big winners and big losers, like Semantix (-97%!), emphasizing the market’s unpredictable and wide range of outcomes. 

• The standout performer in the portfolio was insurer Root Inc., which accounted for their net gains alone. That result echoes a broader trend in the stock market: A small number of companies drive most of the excess returns.
  

• As the WSJ pointed out, a long-term study of U.S. stock returns by Hendrik Bessembinder showed that half of all excess returns came from just 83 companies.
  

• “Most stocks underperform risk-free investments, which is why diversified portfolios not designed to shoot the lights out are more prudent,” the WSJ concluded. 

The WSJ columnists stressed the importance of diversified portfolios designed for long-term stability over risky bets.

Why it matters:

With stocks at all-time highs again, investors tend to feel more confident about picking winning stocks. 

But the professional money managers’ expert picks didn’t fare as well as the journalists’ random picks, which is a powerful reminder in itself. 

It also brings the columnists to another conclusion: They caution against the allure of fund management, highlighting the tendency for investors to flock to star managers during peaks only to withdraw when performance dips. Warren Buffett and Charlie Munger cautioned investors about flocking to hot money managers for years. 

Stay disciplined: The message is clear: Luck plays a role in investment success, but for many investors, disciplined strategies, such as equal-weighted index funds, offer a more reliable path to long-term gains.

Trusting fund managers to outperform the market consistently is often a recipe for disappointment, as luck has a way of running out. Consider:

•  In 2020, only 43% of U.S. stock mutual funds beat their index.
  

• Of that group, only 2.5% kept beating the index in 2021 and 2022.

Read more

Quick Poll

On Monday, we asked: Are you experiencing or expecting to experience changes in housing costs in your local area?

— More than half of respondents said they’re experiencing changes in housing costs in their area, mostly price increases. “Inflation for groceries in Austin, Texas is up 35% since 2021.” Said another: “Prices go up, rentals go up.”

— A reader who hasn’t noticed price increases said, “I’m a homeowner who locked in my rate back in 2021, so I’m not anticipating any significant housing cost changes.”

See you next time!

That's it for today on We Study Markets!

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