The Dividend Cafe

Today's Post - https://bahnsen.co/4abzegh The market opened up a handful of points this morning and slowly built on gains for most of the day. After a big move lower across the curve in yields this week we took a bit of a breather today with a flat 10YR up two basis points at 4.14%. Stay tuned for a three handle on 10’s. We are starting to see this market rally broaden out with the equal weight version of the SP500 breaking away from the market cap weighted index. This is showing the average stock starting to participate more in this rally outside of technology names, which I find constructive. Both large cap and regional banks by the way are back to where they were pre SVB failure earlier in the year. Part as a normalization of stress in the financials and part for a 2024 line up that could favor the banks if we get better net interest margins as the yield curve potentially normalizes with the short end moving down. This is something we have seen before; late cycle rally in financials as the Fed pauses and ultimately cuts the following year (95’/96′ comes to mind). Monthly financial obligations for consumers like auto payments and home payments, as a percentage of household cash, are on the rise and now at 16%. Interesting however that even with such a rise in rates these are still actually below pre-pandemic levels which was closer to 18%. Higher rates just haven’t bit as hard as years past with such a prolonged low rate refinancing period the years preceding it. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/486oKwS If you’re surprised by how much expectations have turned down for U.S. interest rates and Fed policy in 2024, you should see what those crazy cats in Europe have going. Markets are now fully pricing in SIX rate cuts next year – 1.5% reduction in their lending rate. Bank CEOs testified before the Senate finance committee today, making the case that the planned increase in capital requirements would be detrimental. They specifically pointed to where the cost of such increased capital would come from – customers. A not-unexpected talk. Former House Speaker Kevin McCarthy (Bakersfield, CA) announced his resignation from Congress today. I hereby predict he will make more money in 2024 than he did in 2023. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/4a8TMWG As we get ready for a busy week of jobs data a few things stick out: (1) The weekly jobless claims remain very low which seems to indicate a continued healthy employment market (2) The “quits” rate (people voluntarily leaving their job) has been very high, and even as it has come down from early 2022 highs, it remains very elevated historically (3) The number of job openings remains very high (though it fell to 8.7 million this month, still 1.5-2 million higher than pre-COVID average, but well off 2021 highs) (4) The average work week has steadily declined on the margin (from 35 hours, which was above the 15-year average, to 34.25 hours, which is below the average). (5) Several data points have softened in recent months, but not softened to what can be called “weak” conditions – just “less strong” than had been the case previously A few other market tidbits and things that caught my eye today … It is interesting to me that small cap value has outperformed growth since the turn in the middle of the year, but large cap growth has modestly outperformed large cap value. The two are normally correlated. Some of the “big seven” names that have driven a lot of the market this year have not moved at all in six months (well, they have moved up and down, but I mean they currently sit flat from where they were this summer). The broader market has begun playing a little catch-up. 2024 earnings expectations are now up to $246/share in the S&P 500. We are likely going to end at $221 for 2023 so this would mean earnings growth of +11.3% in 2024, rather amazing if it happened. Of course, at that earnings level, the S&P is still trading at an 18.6x multiple (forward projected), and is trading currently at 20.7x. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3uFMLMZ Ask David “If you are an investor in a passive index fund, exactly what happens to your equity when that fund/index removes a poor performer, and replaces it with a stock that has recently performed much better? While I suspect that your equity may stay the same upon replacement, it seems intuitively like an example of buying high while selling low. Is there any documented study of index fund performance over time due to the survival bias? Do you have any thoughts on the topic?” ~ Dom I think I understand what you are saying but actually in this case the survival bias of the index methodology helps its performance over time, not hurts. What you are suggesting makes sense prima facie – that they are adding companies at high prices and removing others at low prices – but the fact of the matter is that the companies removed from the index is very rare, and almost always only happens after the company is broken. A significant amount of companies that have been removed from market indices over the years no longer exist at all, meaning that path from “a low price” to “zero” was never experienced by the index investor. Of course, there are cases when a company is removed from an index and subsequently rallies from a low valuation, but that is much less frequent than the opposite. And all of it is very rare and inconsequential … Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

The podcast discusses the impact of artificial intelligence on investment and the importance of investing in AI companies. It explores the significance of executing investment decisions in AI-related companies, the importance of rational valuation and risks of overpaying, and the potential for bubbles in the AI industry. The podcast emphasizes the need for caution and careful consideration in AI investments, and acknowledges the value of human interaction and emotion that cannot be replaced by AI.

Today's Post - https://bahnsen.co/4115jTU A BIG divergence today between the more value oriented DOW which jumped 520 points today, and the more technology heavy Nasdaq down .23% as interest rates broke the trend and rose today. Coincidently, I wrote yesterday about the sensitivity in the part to the market that has had the most multiple expansion tethered to falling rates as having potential for disappointment. Both PCE inflation data coming out in-line with expectations and a stronger growth print in the Chicago PMI’s moved rates up today as much as yesterdays decline in continued bond market volatility. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3N5Ec4C A mixed but ultimately flat day of trading in stocks following another decent move up in bonds as the 10 Yr came down another 8bps to 4.26%. Hard to believe we were north of 5% just last month. I was actually expecting yields on 10’s to pick back up after a better than expected upward revision to Q3 GDP mid morning, but this bond market is dead set on lower rates in 2024. All eyes will be on the inflation read tomorrow with PCE to see if that changes the narrative. If the seven largest US technology companies were its own sector it would make up 18.2% of the market cap of the MSCI World Index and account for only 10% of the earnings. In comparison, the entire Financials sector in the MSCI World index equates to three precent less at 15.1% by market cap, but makes up over twice the earnings at 21.9%. Valuations may be a poor timing tool short term, but they do matter longer term and the multiple expansion in tech we have just seen can be easily disappointed if lower rates don’t keep pace next year. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Today's Post - https://bahnsen.co/3Gl2T9d The market is up over 10% in just twenty trading days, a 99th percentile move if there ever was one. The rally has brought along lower-quality equities and higher-quality ones, and financials, in particular, are surprisingly strong. Defensives are not as strong (consumer staples, utilities) as more cyclical or high beta sectors, but they are hanging in there. The dollar has dropped, and the Yen has rallied in the last few weeks, causing many currency traders to say, “Wait, it wasn’t supposed to do that?” Markets were pretty boring again today (though to the upside), and bond yields continued their decline. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Market synopsis, slow activity, slight decline in Dow and S&P, low put call ratio, VIX at $12.69. Balanced investment philosophy, lack of small money flows, sector performance. US public policy, economic indicators, fluctuating oil prices. Living conditions progress, disapproval of doomsdayism, Argentinian election impact. Beliefs and execution for national improvement, uncertainty in Argentina.

In this Thanksgiving edition, the podcast discusses historical events on November 22nd, expresses gratitude for team growth and managing $5 billion in assets, and emphasizes thankfulness for leadership, talent, clients, and trust. The episode also includes a disclaimer about investment risks and suitability.