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Market Pulse
Friday, November 17, 2023

Macro Narratives, Green vs Blue Bubbles and Global Indexes are Becoming Less…Global

Welcome to this week’s Market Pulse, your 5 minute update on key market news and events, with takeaways and insights from the Sidekick Investment Team. 

Our stories this week:

  1. Narratives about the macro
  2. Green vs blue bubbles
  3. Global Indexes are becoming less…global

Read the full Market Pulse below, or if you want to access it on the go, download the Sidekick app.

Adrian (Portfolio Manager), and the rest of the Sidekick team.

It’s important to note that the content of this Market Pulse is based on current public information which we consider to be reliable and accurate. It represents Sidekick’s view only and does not represent investment advice - investors should not take decisions to trade based on this information.

1) Narratives about the macro

Tuesday's CPI report was a huge relief for the Federal Reserve and its fight against inflation. Headline CPI came in at 3.2%, and core inflation was 4% [1]. Expectations were for modestly higher inflation. The details showed a broad slowdown in the positive rate of change in prices, which is another sign that the Fed's rate hikes are working to slow the economy.

However, it's premature to claim victory. Core inflation is still twice the Fed's target of 2% and needs to be brought down to that sustainable level. The central bank is mainly focused on keeping inflation expectations anchored around that long-term inflation target, fearing that if inflation expectations increase, consumers will demand higher wages and ignite a wage-price spiral.

But while inflation expectations can be derived and measured from the price of financial assets[2], there is not much empirical evidence that inflation expectations have any meaningful relation to future inflation [3].

One possible explanation is that inflation is driven by the actual behaviour of consumers and businesses in the real world. The way consumers form their views about inflation differs from various theories based on rational expectations and discounting future cash flows.

In a recent study [4], researchers from Germany and Denmark surveyed over 10,000 US households and 100 experts to understand the recent rise in inflation. According to experts, the main reasons for the surge in inflation from 2021 to 2023 were excessive government spending, supply chain issues, and monetary policy—topics frequently discussed within our Sidekick Investment team.

However, households see the spike in inflation differently. They attribute it to the pandemic, government mismanagement, supply chain disruptions, and labour shortages. In simpler terms, people form their views on inflation based on their everyday experiences, like seeing empty shelves at the supermarket or struggling to find qualified workers for a business.

The problem is that central bankers might need to do a better job of getting regular people and businesses to expect the right level of inflation. They could be too focused on what experts think and not paying enough attention to what people in the real world actually expect.

2) Green vs Blue bubbles

As any young iPhone user who switched to an Android smartphone knows, being green matters [5]. The reference to the colour of group text messages—Android users turn Apple Inc.'s iMessage into green bubbles instead of blue—highlights one of the challenges of the two largest mobile operating systems working together for the sake of a better consumer experience.

Technology challenges include group chats not working seamlessly between Android and other iPhone users, FaceTime calls becoming more complicated, and numbers failing to show up in apps used to find friends. And then there's the peer pressure to be part of the blue text group that cemented Apple's position as the favourite amongst young smartphone users in the US.

But in a significant reversal announced yesterday [6], Apple said it plans to adopt a technological standard next year that will allow text messaging to operate more smoothly between iPhones and Android devices.

The standard - RCS, or rich communication services - is an upgrade over standard SMS and MMS texting. It allows more texting features to be shared over phones on different platforms. For instance, Apple users can text Android users over Wi-Fi, not just via cellular networks. They'll also be able to send large video and photo files, more easily operate group chats, and determine if messages are received and read.

While the integration sounds promising, it's unclear if the new format will change the colour of the green bubbles for Android users. We suspect it won't.

3) Global Indexes are becoming less global

Indexes are meant to be measuring sticks. They give us a sense of where markets have been and where they stand today. In 2018, the Index Industry Association reported over 3.7 million indexes[7], a staggering figure that raised concerns about the proliferation of indexing.

But indexes relate to their components in the same way millions of colours are connected to the three primary colours from which they originate. The outcome is achieved in both cases by combining a finite set of elements. For global indexes, more and more of those elements are made in the USA.

For example, MSCI's World Index measures the performance of stocks in developed markets. However, its exposure to the US market is around 70% as of 31st of October[8]. In other words, anyone using this index to monitor the market sees a picture heavily influenced by Wall Street. In effect, anyone buying a fund tracking MSCI World Index is making a big bet on the American market.

For an investor, this is neither good nor bad. The market where stocks are listed says very little about where they do business. Like their European counterparts, US stocks do business worldwide. The high tilt to the US ultimately reflects how America dominates global markets through some of the most innovative tech companies in the world, strong earnings growth and a strong dollar, amongst others.

That said, investors should keep the above in mind when allocating their assets globally as it does result in greater geographic concentration, which could reduce diversification and potentially increase currency risk.


Please remember, investing should be viewed as longer term. Your capital is at risk — the value of investments can go up and down, and you may get back less than you put in.


[1] https://www.bls.gov/news.release/cpi.nr0.htm

[2] https://www.elsevier.es/en-revista-the-spanish-review-financial-economics-332-articulo-a-market-based-approach-inflation-S2173126812000034

[3] https://www.federalreserve.gov/econres/feds/files/2021062pap.pdf

[4] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4506321

[5] https://www.wsj.com/articles/why-apples-imessage-is-winning-teens-dread-the-green-text-bubble-11641618009

[6] https://www.bloomberg.com/news/articles/2023-11-16/apple-plans-to-adopt-rcs-texting-standard-in-truce-with-android?srnd=technology-vp

[7] https://www.businesswire.com/news/home/20181114005124/en/Index-Industry-Association-Survey-Reveals-3.7-Million

[8] https://www.msci.com/documents/10199/178e6643-6ae6-47b9-82be-e1fc565ededb

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