The Dividend Cafe

Welcome to Fed day Wednesday on DC Today. Following positive sessions on both Monday and Tuesday leading up to today’s Fed announcement, we gave 142 points back on the Dow but remain up on the week in both stocks and bonds. I fully unpack today’s Fed announcement, the market reactions and implications and several takeaways in my Fed-heavy video podcast that you will not want to miss. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

The CPI report came in well below expectations, and futures were up as much as +830 points pre-market (on top of yesterday’s +520 point rally). The rally basically peaked at the open and then fizzled from there, going negative mid-day, before closing up just a hundred points or so. Dow: +104 points (+0.30%) S&P: +0.73% Nasdaq: +1.01% 10-Year Treasury Yield: 3.50% (- 11 basis points) Top-performing sector: Real Estate (+2.04%); Energy (+1.77%) Bottom-performing sector: Consumer Staples (-0.17%) – only negative sector WTI Crude Oil: $75.25/barrel (-0.19%) Key Economic Point of the Day: ASK DAVID “You (and just about everyone else) focus on the three major stock indices when reporting on the daily market. The Dow, the S&P 500, and the NASDAQ often move together, but when they don’t what does it mean? How did these get to be the Big Three, and what do each tell us about the market?” I actually think the difference between the three indices is quite noteworthy, and even if they often directionally move together, the magnitude of moves is quite different. The Dow is down roughly -7% on the year, while the S&P is down roughly -18% and the Nasdaq roughly -30%. This is really a by-product of the Dow being more diversified than the Nasdaq (i.e., broad American sector diversification in the Dow vs. heavy technology penetration in the Nasdaq). Then the S&P is market-cap weighted (that is, the S&P is well-diversified, but because its constituents are weighted to their size, it becomes very, very tethered to a few mega-cap tech companies. The Dow was constructed to be the bellwether representation of the American economy reflected in the stock market that it is. It wasn’t like there were competitive index options in the late 19th century and early 20th century when it was constructed. It has stood the test of time, to say the least. TheDCToday.com DividendCafe.com TheBahnsenGroup.com

It’s a crazy time in the ‘bizarro’ world when we have questions that we do about 2023’s economic health, the earnings environment, and financial markets liquidity, and yet one of the biggest stories in financial media for the week centers around a couple of obscure income real estate portfolios. Indeed, one could argue it is truly a ‘bizarro’ world when what appears to be one of the largest frauds and wealth evaporations in history (FTX) provides a pretty glowing media tour while some of the most successful wealth creation and capital markets success in history is given the third degree by the same people. But today’s Dividend Cafe is not about Blackstone or Starwood or FTX or CNBC, or any other particular asset manager, crypto scam, or media outlet. Rather it is about a broad issue in financial markets that is not understood, needs to be understood, and has no chance of being understood given the fact that the people doing the educating do not understand. So let’s jump into the Dividend Cafe. Mark this moment. The lesson will not prove to be over-valued. Blog post here: https://bahnsen.co/3iNX8IJ Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Dow: Up +184 points (+0.55%) S&P: +0.75% Nasdaq: +1.13% 10-Year Treasury Yield: 3.48% (+7.9 basis points) Top-performing sector: Technology (+1.59%) Bottom-performing sector: Communication Services (-0.50%) WTI Crude Oil: $71.81/barrel (-0.28%) Key Economic Point of the Day: Initial jobless claims came in at 230k – right at expectations. Continuing claims have inched higher as well, all at once indicating some softening (high since February), but very little to write home about (not a big movement up). Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

A DEAD FLAT day in the Dow – up/down +0.00% (you do not see that often), and a whole lot I discuss in the DC Today. MARKET ACTION Dow: Up 1 point (LOL) (+0.001%) S&P: -0.19% Nasdaq: -0.51% 10-Year Treasury Yield: 3.42% (-9.3 basis points) Top-performing sector: Health Care (+0.85%) Bottom-performing sector: Communication Services (-0.93%) WTI Crude Oil: $72.43/barrel (-2.48%) Key Economic Point of the Day: Used vehicle prices hit their lowest level in over a year as outright deflation continues to permeate that marketplace (-15.6% decline since January) Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Lots to cover here in the DC Today … Listen to the podcast or watch the video, and check out the info below! MARKET ACTION Dow: -351 points (-1.03%) S&P: -1.44% Nasdaq: -2.00% 10-Year Treasury Yield: 3.53% (-6.6 basis points) – ferocious bond rally of last month continues Top-performing sector: Utilities (+0.66%) Bottom-performing sector: Energy (-2.65%) WTI Crude Oil: $74.34/barrel (-3.35%) Key Economic Point of the Day: Business Roundtable CEO Outlook Survey was at its lowest number since Q3 2020, but is way, way above the breakeven level of expectation (that is, still anticipating substantial economic expansion, albeit with a grimmer relative outlook than last year) The trade deficit came in at $78.2 billion in October, less than the $80 billion expected. But total trade was up on the month and is up +13.7% versus a year ago. The container ship debacle has largely subsided and yet there are still some issues marginally constricting trade (China COVID policy, Russia sanctions, etc.) Key Economic Point of the Day: Business Roundtable CEO Outlook Survey was at its lowest number since Q3 2020, but is way, way above the breakeven level of expectation (that is, still anticipating substantial economic expansion, albeit with a grimmer relative outlook than last year) The trade deficit came in at $78.2 billion in October, less than the $80 billion expected. But total trade was up on the month and is up +13.7% versus a year ago. The container ship debacle has largely subsided and yet there are still some issues marginally constricting trade (China COVID policy, Russia sanctions, etc.) Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Futures opened last night down -40 points and stayed around there into the evening. This morning they pointed to a down -100 open pre-market and worsened a bit from there. The market opened down -175 points and worsened throughout the day, though it came a hundred points off the low late in the trading day The Dow closed down -483 points (-1.4%), with the S&P 500 down -1.79% and Nasdaq down -1.93% Markets on Friday gave us the full gamut of today’s idiocy, as futures quickly dropped over -400 points upon the God-awful news that more jobs were created than expected last month and that lower-income people were making a little more than they had the year before. Then, hours later, markets finished to the upside after a day of volatile trading. Right now, consensus expectations are for $232/share of earnings for the S&P 500 next year, about 7-8% lower than what their peak expectations were but +5% higher than the $221 level of this calendar year. The best thing I can say is that if we had a recession in 2023, and earnings were up +5% on the year, that would be a rarity. The ten-year bond yield closed today at 3.58%, up eight basis points on the day. Top-performing sector for the day: Utilities (-0.60%) Bottom-performing sector for the day: Consumer Discretionary (-2.95%) Most cyclical sectors were down the most today; the most defensive sectors were down the least (but all were down) Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

The markets rallied dramatically on Wednesday when the chairman of the Federal Reserve, Jerome Powell, gave a speech at the Brookings Institute essentially confirming the likelihood of a Fed “slowing” its plans for interest rate hikes. Other speeches this year have seen markets fall a thousand points. The direction of market impact is less important to my point than the impact itself: we have markets that are highly susceptible to speeches given by one person. And when I refer to “markets” I do not merely mean the stock market but also the (much larger) bond market, the (similarly-sized) housing market, and the (gigantic) market for currencies. Of course, the nature of market movement is not so much about a speech, per se, but rather policy expectations that are derived from a given speech. And the response in financial markets to the policy decisions of the Federal Reserve is hardly where it all stops; Fed decisions impact all aspects of the economy. No person lives a life free of impact from the decisions of the Federal Reserve. Today I want to unpack this a bit more, at least as much as a commentary of this size will let me. I doubt all of this information and perspective will be new to consistent readers of the Dividend Cafe, but I do believe you will find it relevant to your investing life, and more importantly, relevant to how you think about the economic affairs in which we live. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

December has launched and I have some things to tell you … MARKET ACTION Dow: Down -195 points (-0.56%) S&P: -0.09% Nasdaq: +0.13% 10-Year Treasury Yield: 3.50% (- 19 basis points); down 72bps from the 4.22% high of just five weeks ago! Top-performing sector: Communication Services (+0.29%) & Health Care (+0.24%) Bottom-performing sector: Financials (-0.71%) WTI Crude Oil: $81.28/barrel (+0.91%) Key Economic Point of the Day: The Fed’s favorite inflation measurement (PCE) came in up just +0.2% on the month, less than the +0.3% expected, and known to be tainted by the misleading contribution of housing’s lag effect (which I have written about extensively). The September gain had been +0.5%, so the stock and bond market responded favorably to the disinflationary trend. Initial jobless claims came in at 225,000, actually lower than expected Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

A monstrous rally ensued today when Jerome Powell verified Fed plans to slow down on rate hikes. Do I think this makes sense? Well, I will tell you what I think about all of it in today’s podcast and video! MARKET ACTION Dow: +737 points (+2.18%) S&P: +3.09% Nasdaq: +4.41% The S&P 500 ended the month of November up +5.37% and the Dow ended up +5.7%. Combined with October Q2 has been monstrous, so far anyways. 10-Year Treasury Yield: 3.61% (-14 basis points) Top-performing sector: Technology (+5.03%) Bottom-performing sector: Energy (+0.56%) – one of those days where the WORST sector was up this much WTI Crude Oil: $80.45/barrel (+2.88%) Key Economic Point of the Day: Q3 GDP growth was revised upward to +2.9% annualized (from +2.6% before) Job Openings fell in October to 10.3 million, down 353,000 from the month prior and 760,000 less than a year ago Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com