The Dividend Cafe - Bear Markets, Oil Prices, and More

Episode Date: May 5, 2025

Today's Post - https://bahnsen.co/4jB7wxX Market Movements, Bear Market Rallies, and the Bond Yield Curve | Dividend Cafe Weekly Market Commentary In this episode, David discusses the latest market movements, including the DOW, S&P, and NASDAQ performance, and explores the concept of technical analysis with skepticism. He delves into the ongoing debate about bear market rallies, highlights public policy updates from the Trump administration, and provides insights into the bond yield curve. Touching on various economic data points, including job creation and housing market trends, David offers his perspectives on dividend growth investing in range-bound markets. For more detailed analysis and additional resources, visit DividendCafe.com. 00:00 Introduction to Dividend Cafe 00:56 Market Overview and Analysis 01:52 Technical Analysis Skepticism 03:21 Understanding Market Labels 07:10 Bond Market Insights 10:27 Public Policy Updates 14:18 Housing and Mortgage Rates 15:47 Conclusion and Disclaimers Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividend Cafe weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Hello and welcome to the Monday edition of Dividend Cafe. I am your host David Bonson and I have a fair amount of things to go through today so I'm going to get right into it. There's just a little more in markets and a little more in public policy than there often is. There's a few things we'll hit up as normal with economic data, with housing, with the Fed, with energy, all of those fun things. But I don't know, I love the Monday Driven Cafe. I love writing it. And I

really love when I get to pour a lot into it over a weekend, which I did this weekend. There's a whole bunch of links and other things at thedivencafe.com. So go to Divencafe.com if you want to see some of that. But in the meantime, let's just talk about markets today. The Dow opened down 200 points. It had improved throughout the first half of the day, it went positive, and then it dropped in the last hour of the day. So the Dow closed down 100 points, which was a quarter of a percentage point. But the S&P was down about two-thirds of a percentage point. The NASDAQ down about three quarters of a percentage point. I'll skip ahead just to say that all 11 sectors of the market were basically down. Consumer

staples was up two basis points, so call it flat, and then 10 of 11 were down. The worst performing of those, you know what, I don't think I got that in there, did I? Yeah, it was energy, was down over 2%. We're gonna talk about that in a moment. Pretty much everything down today, but nothing down that violently. But this is coming off of a pretty long winning streak in markets. And there has been a lot of factors in that I'm going to get into here. People talk about this thing called technical analysis in markets. And I've been talking about it, writing about it for literally 25 years as what

would be considered a technical analysis skeptic. And that's me being very friendly about what I really think about it. There is nothing I'd love more than to believe that in a chart there is something of predictive value or in various other metrics that somehow there is something predictive, even though everybody else could see it. It would also still maintain some sort of predictive value around it. I have never believed that. I believe it less every single day. And so, if you believe something less every day for 25 years, you can imagine how that disbelief compounds over time. But one of the things that this school of thought talks about is moving averages and what

it means for momentum of a particular stock index to be above or below a moving average. And the S&P is above its 50-day moving average. It did not get above its own 200-day moving average. And so there's folks that will extract some sort of predictive value out of that. And I say that to simply tell you that I'm not one of them. But I will say that if the S&P does go above its 200-day moving average, then from there, the S&P will either go up or down. How's that? That's my call. In the meantime, I want to talk about this thing of a bear market rally. I've had a fair amount of people reach out and say, hey, the market's up quite a bit here last few weeks.

It had gone into bear market territory in the initial violence sell off of the post Liberation Day tariff debacle. And now markets moved up. Is it possible this is just a bear market rally? And of course, the answer is yes. I don't really ever know exactly what these things mean. You can put a label on anything, but for a properly constructed portfolio, I think that this day-to-day uncertainty, the labels that are somewhat cosmetic are pretty

irrelevant, but we can put descriptive labels on anything with really good accuracy with hindsight. You get 20-20 vision looking backwards and then you could refer to something with the gift of not only knowledge of what it is that happened, but over what period of time in which it happened. A sell-off in a bull market or a rally in a bear market are all irrelevant in the present tense, they only become clear when you get the gift of hindsight because when it's happening you don't know what it is. You only know it later and I think that when you have a period of that we consider a kind of unambiguous screaming textbook definition bull market that is generally defined as a period in which earnings are growing and the multiple put on

earnings, the valuation is itself growing, you're getting multiple expansion, and that becomes a clear as day secular bull market over a long period of time. And I believe that all periods that with hindsight we could define as secular bull markets, that when they ended they were fall, which again you don't know until you have that hindsight, they were followed by multi-year periods of what we call range-bound markets. And I don't know what the predictive value of any of this is, but I believe that dividend growth investors love periods of range-bound markets. I believe dividend growth investors love all other periods too,

if it's properly understood. And ultimately, I also believe that those who believe in the profit motive and self-interest and human ingenuity and incentives and free enterprise and the ability of extraordinarily gifted business operators to navigate the various headwinds and challenges of their own business. to navigate the various headwinds and challenges of their own business. And then with the right timeline, I think that history is one big bull market. And because I believe in those other things, you know, with the right timeline, in a 10-year period, you can have a bull market, you can have a bear market, you could have a couple bear markets, 20-year timeline.

Cain said it negatively, in the long run we're all dead, but I guess I could say positively in the long run, we're all dead. But I guess I could say positively, in the long run, it's all a bull market too. History has not been kind to those who disagree with that. But in the midst of what we deal with month by month and people saying, hey, the market went down 20% in a period of time, that's a bear market. The market's rallied right now. Is it possible it's just a rally in a bear market? Or was the other thing a sell-off in a bull market? Or is it really just all something happening up and down in this range-bound market, post bull market? None of those things are knowable when they're being said, and none of them have anything to do with predicting what will happen next month

or next quarter. So I'm describing the vocabulary here in the way I think you ought to think about the vocabulary, but I'm offering nothing actionable. And with that, we'll move on. The 10-year bond yield today closed at 4.34%. It was up two basis points on the day. The 10-year bond yield was 4.57% the day of the inauguration. It hit 4.65% just a couple days later and after 100 days it was at 4.23%. But the 2-10 curve, the delta between the two-year bond and the 10-year bond yield, steepened by 30

basis points. So what I mean by that is that even though the 10-year came down 30 basis points in the first hundred days, the 2-year came down 60 basis points. So you had a healthier yield curve, you had a steeper yield curve as the 2-10 widened, the delta between the two, even as the 10-year itself so its yield drop and the bond market, up and down the yield curve rallied. It is staggering the difference between what's actually happening in the bond market and the way almost every man, woman, and child is talking about the bond market. Moving on. Oh, I got something to be bearish about. If you're looking to make up bearishness bullishness and all these types of things

I'm somewhat being sarcastic But look the S&P is now at a 21 times multiple again on the questionable earnings picture If you believe those earnings are gonna be at a standstill, they're not gonna go lower Despite the fact that we're in a trade war with our second largest trading partner, then the 21 times multiple is probably something to think about. But apart from that, I would say as a contrarian that flows are an issue. And what I mean by that is that flows have not gone away from equities, actually picked up quite significantly. They were investors, retail investors, were buying the dip throughout April.

So you can say that's a really good sign. And I would say as a contrarian, no, it is not. Now who was the exception to flows in the month of April? Because retail investors are buying the dip, but who was not buying? Foreign investors. So there does seem to be, both of the ETFs and mutual funds, a notable exit from US equities from foreign investors. How volatile was the month of April? This is fascinating. If you take intraday volatility, that is the intraday high minus the intraday low divided by

the prior day's closing price. So the up-and-down movement in the day divided by the price it started with. That was higher in the month of April than it was in March of 2020 when the COVID insanity was going on and that was some serious intraday volatility. And the only two and that was some serious intraday volatility. And the only two times in recorded history of intraday volatility being higher were in that September, October 2008 period and Black Monday-ish period in September of 1987. So you really had tremendous intraday volatility going on during April, and yet here we are. All right, on the public policy front, I'll go quickly. The Trump administration came out on Friday

with its blueprint for a budget, cutting $163 billion from discretionary spending, which is a 23% reduction, adding to military spending, but not touching entitlements at all. This is not the budget bill Congress will vote on. It's a framework that the White House has put out and now of course we already know the Senate and the House of Representatives are trying to come up with their own bill. There is growing skepticism about that reconciliation bill. Speaker Johnson get it done and more and more have pretty much thrown in the towel on the idea of Memorial

Day happening. But there is higher, I would say there's more pessimism about anything getting done imminently, but there's more optimism that a bill will get approved in the months ahead. Futures last night, by the way, took a second leg down. They were already down a little, but then they went lower when the president announced a 100, using social media, a 100% tariff on any movie made overseas and talking about the unfairness of other countries getting tax breaks and said, is going to make Hollywood great again by forcing country companies to make their movies and film content here in the United States. I don't think the markets care much about where movies are made, but I do think this

resurfacing of that's pretty explicit protectionism, that it was just again bringing back this unpredictability and a substantially arbitrary executive action that again is reinforcing a risk premium that kind of took place after markets were starting to accept some degree of off-ramping that they thought was taking place around a lot of the tariff dialogue. May 13th, the market calendar with the United States Court of International Trade will hear arguments.

There's a consortium of small businesses challenging the constitutionality of some of the tariffs. The White House has said they will move to a different legal argument if this one doesn't prevail. I don't think that what is gonna happen in the courts is gonna block what the White House is looking to do, but that's largely just because of the delays

and the red tape around it and the way that the White House wants to advance some of that. By now, you hopefully know the April jobs report did show 177,000 jobs created. That was higher than expected, but then there were 58,000 job revisions from the two months prior. The household survey was strong. The labor participation force grew, but then as I talked about in the Divinity Cafe on Friday, the weekly jobless claims and the ADP number

were weak. So we just got a mixed bag of data. Some were saying, oh, but we got to watch out because the government sector showed 9,000 jobs spared. I took the exact opposite read. I was very surprised that number was only 9,000. It makes you wonder how kind of consequential some of the Doge cuts are if only 9,000 net jobs have been shed so far.

There's a chart at DividendCafe.com today regarding certain household products and the level that we import from other countries and I thought you would enjoy just seeing the data as to what exactly is on the line. The president made headlines over the weekend saying that people don't need so many toys and dolls and they can have less. And so yeah, there's a lot of toys and household products that are heavily imported and president Trump says people can get by with less of them or pay more for them or whatever, but I thought you might want to look at the whole data set.

76% of manufacturing companies in the newest Federal Reserve Board Dallas survey said they will be passing on the cost of tariffs to customers. My retort to that is I think 24% are lying, but 76% are coming right out and saying they will be raising prices. Quickly, housing mortgage, it's more in the commercial mortgage backside. The April CNBS delinquency showed a move higher in multifamily delinquencies and lodging. They're still in the six, 7% range. That's not super high in delinquent loans, but we watched that commercial mortgage activity.

Speaking of mortgage rates, Fed rate activity, the FOMC starts their meeting tomorrow, Tuesday. J-Pow will have his presser on Wednesday. They'll come out and announce right now in the futures market 100% chance of no rate move at all on Wednesday. But surprisingly, futures are all the way up to a 68% chance now of no rate move in June either.

The odds had been almost inverted, more like 60 to 70 that they would cut. Now 60 to 70 that they won't cut in June, but still three to four cuts are still priced in the futures by the end of the June. Oil was down over 4% overnight but it closed at $57 today so down 2% of the day. Maybe not as big of an impact as was expected but still oil down into the 50s now. There's a lot of information on midstream energy that I want to point you to at DividendCafe.com. Just in interest of time I'm gonna move on and let you get that at DividendCafe.com. Just in interest of time, I'm going to move on and let you get that from Dividend Cafe. So I'm going to leave it there. If you have any questions,

always reach out. Questions at TheBonsomGroup.com will of course come to you with our questions answered, our daily summary blurb each day, and the what's on David's mind or what's on Brian's mind that he and I seek to do every Tuesday, Wednesday, Thursday and then I'll be back to you with a full dividend cafe on Friday from here in New York City although I will be in Dallas in between for a couple days but looking forward to the whole week and everything going on in markets and more of earnings season and more of the Fed coming out to give us canned lines about what they're doing and not doing. And in the meantime, I would say thank you for listening. Thank you for watching.

Thank you for reading this Monday edition of the Dividend Cafe. Have a wonderful evening. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC member FINRA and SIPC with with Hightower Advisors LLC a registered investment advisor with the SEC. Securities are offered through Hightower Securities LLC. Advisory services are offered through Hightower Advisors LLC. This is not an offer to buy or sell securities. No investment process is free of risk. There is no guarantee that the investment process or investment opportunities referenced in Tyrion will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein

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