The Dividend Cafe - Down Eight Days in a Row

Episode Date: December 16, 2024

Today's Post - https://bahnsen.co/41DntgN Market Trends, Policy Insights, and Financial Updates - 1000th Episode Special In this special 1000th episode of The Dividend Cafe, David Bahnsen, managing partner of The Bahnsen Group, covers recent market movements, including an eight-day market selloff and insights on various indices. He discusses recent appearances and interviews, including one on Fox Business about President Trump's negotiations with the Longshoremen's Union. The episode also delves into the impact of potential tax policy changes, specifically the SALT deduction cap, and updates on regulatory developments from the Consumer Financial Protection Bureau. Bahnsen also provides an overview of the recent and expected performance of various economic indicators, commodities, and market sentiment leading into the new year. 00:00 Introduction and Market Overview 01:43 Market Performance and Key Indicators 03:34 Commodity Market Insights 05:10 Public Policy and Taxation 08:14 Banking Regulations and Financial Services 13:27 Sentiment and Investment Strategies 15:15 Upcoming Events and Conclusion 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 the Dividend Cafe. I am David Bonson, the proud managing partner of the Bonson Group. I am back in New York City this week where it is raining and cold and very wet and all that gray, dark, gross stuff. But we are in the midst of a eight-day sell-off in the market. So you do not see that very often. It hasn't been especially high magnitude. The Dow is down 1300 points since on December the 4th, it hit 45,000. And now it has gone down eight days in a row. But as a percentage, maybe that just hasn't been enough to get a lot

of people's attention. Nevertheless, there's a few things we're going to go through today. And at the Written Dividend Cafe, there's a few other charts and links and things like that. I did an appearance on Fox Business Today that's at our YouTube channel where I was asked some pretty pointed questions about President Trump's negotiations with the Longshoremen's Union going on right now and just other issues that I think may be of interest. So the link is at Dividend Cafe. The video is found at YouTube, but I'm going to move us forward here, which by the way, let me see if this is correct. Yeah. This podcast right now that you're listening to is the 1,000th episode of Dividend Cafe in terms of our podcast. So I think that's fun. Congratulations if you've listened to all

1,000 of them. Okay. So as I mentioned, the Dow was down eight days in a row. It was been flattish most of the day. It opened at the kind of flat mark and then stayed there and went up and down a tiny bit throughout the day, but then dropped about 100 points in the final 15 minutes of trading. So you did end up down 110 on the Dow, which is just a quarter of a percentage point. The S&P was up a little over a quarter of a percentage point, and then the NASDAQ was up one and a quarter. But when you have the largest name in the NASDAQ down over 10% in recent days, and yet the NASDAQ is at a new all-time high, that's very interesting.

When you look across the broader market, earlier in the year, the over 70% of companies that were listed on the New York Stock Exchange were above their own 200-day moving average. And right now that number is down to 61%. So you've seen stock prices broadly go higher in the last several months, but the breadth in recent days and weeks has actually declined a little. Breadth is something that's important to sustainability. The 10-year bond yield was flat today, still just a basis point below 4.4%. The top performing sector, it was consumer discretionary, was up almost one and three quarters with a very, very, very large

electric vehicle company driving a lot of those gains. It is monumental how much that company is up since the election. The worst performing set today was energy and oil actually is above $70 again. It was down 1% today, but oil is up a bit from where it had been into the mid and high 60s, closing today at $70.58 a barrel. I think on the commodity front, it's worth pointing out, you do have new highs. And I mean, big moves up in cattle. And so when you look at beef and steak at new highs, and then cocoa, which had been breaking out for much of the year, And there's a lot of shortage issues around that. But now, particularly today, hitting all-time highs. And yet the CRB food index is meaningfully,

I mean, it's not a big percentage, but it is nowhere near an all-time high. And under the hood, you see corn down about 50%, wheat down well over 50%, I think over 60% from its 2022 highs. Soybeans are down. It's just a good reminder of something that's been a theme of mine, living through some true commodity super cycles, both bullish and bearish. In the 25 years I've been professionally managing money. Commodities disprove the monolithic idea about this asset class. When we talk about inflation as a comment on the overall price level, a select commodity that has dropped a lot in price and

trying to make a broadly deflationary theme or picking a commodity that has dropped a lot in price and trying to make a broadly deflationary theme, or picking a commodity that has increased a lot, trying to make a broadly inflationary theme, it can be rather disingenuous. And in fact, prove the rule that these things sometimes function off of their own supply-demand characteristics, not as a part of broad inflation or deflation, for that matter. In equity markets, the final thing I want to say before we move into a lot on public policy is that sentiment is still red hot. There's a couple indicators that are middle of the road, maybe like when I say middle of the road, 60 to 70th percentile, not 90th percentile or 99th percentile. But most sentiment indicators are still very hot. And that notion of what it means for sentiment and the risk assets and equity markets in particular

would be a big theme of what we talk about going into next year. I am more and more in the camp from various sources, pundits, commentators, and officials in the incoming administration I'm speaking to of the belief that there will be an effort to raise the SAL that there will be an effort to raise the SALT cap deduction. The $10,000 is presently the cap of what can be deducted in state and local taxes against one's federal return, federal income. And I have been of the mindset that moving that to $20,000 or $30,000 was sort of a nothing burger because the vast majority of people who benefited from that deduction had state and local taxes far, far, far higher than that.

So essentially, let's say someone has a 35% federal rate and you increase this deduction by $10,000, you're saving them $3,500. However, what I have not properly understood is that the SALT deduction cap did not cause the net net taxes to go higher of very many people because when it was done in the 2017 tax bill, it was accompanied by a lowering of marginal rates that offset the loss of the deduction. But now, if you raise that limit $10,000 or $20,000 and leave the marginal rates where they are, it is a backdoor middle-class tax cut and a rather sizable one. So what they end up doing with the SALT cap will be interesting. I make this comment, by the way.

Look, many people in blue states of high income brackets saw taxes go up a lot. And I happen to be supportive of the cap on state and local tax deduction, just for ideological reasons. But now I really think you have to assess this in the context of what could end up happening as a rather significant middle class tax cut by raising that cap, but not impacting the other rates. In other words, not bringing the rates back to where they were prior to the cap being put in place. It really won't make a difference at all for high earners and high brackets, but for some of the middle and upper middle brackets, it could end up being significant. That's one of many

pieces that will need to be assessed as we get ready for whatever the tax bill may be in 2020. I just thought this would be a little tongue-in-cheek, but also to be bitter and somewhat pointed in my language around it. The Consumer Financial Protection Bureau finalized a rule that would limit the amount a bank can charge a consumer for overdrafting their account to $5. Their banks actually have another option where they could treat the overdraft amount like a credit line and then charge some interest on it. The Consumer Financial Protection Bureau was created in the aftermath of the financial crisis and Dodd-Frank to address matters of systemic risk and a lot of the mortgage leverage and credit bubble that took place building up 2008.

And so now going after these overdraft fees is essentially going to change the pricing of banking for low deposit, which generally means low income, low asset people. And the unintended consequences of this are obvious and silly. And this is all coming out of a bureau that was tasked with something much more significant than this small ball stuff. There, I've said my piece. By the way, French Hill, a representative in the great state of Arkansas, will be the new congressman to chair the House Financial Services Committee. I have known Congressman Hill for some time, spoken with him at multiple conferences, and am a huge fan of the congressman. And I don't say that about 10 people in the United States House of Representatives. There are 435 of them. I'm not sure I'd say about five people now that I think about it. So for me to offer that compliment to my friend, French Hill,

chairing the Financial Services Committee, which by the way, is one of the committees that has a significant portfolio and relevance in what they're able to get done. OK, the meeting at Mar-a-Lago, it got some press. I don't want to say it didn't get a lot of press, but I was surprised it didn't get more. We had significant pharmaceutical company CEOs breaking bread with not only a president like Trump, but his nominee to chair the Health and Human Services Department, Robert F. Kennedy. So all the reports we're getting out of the dinner from Trump, people at Mar-a-Lago, and from some of the executives in attendance is that it may have gone a lot better than a lot of people expected. And that some of the executives in attendance is that it may have gone a lot better than a lot of people expected. And that some of the feared bans on vaccines and just other hyperbole that has come

about in the wake of this nomination may be being backtracked already and seems to have been a positively received meeting. My partner, Brian Saitel, mentioned this in one of the daily recaps late last week. The CPI was in line with expectations last week. You have 2.7% year over year, 0.3% month over month in November, all in line with estimates. But the shelter component was only up 0.2% in the owner's equivalent rent. And if I'm right that the lag effect of shelter prices that is involved in the CPI calculation is now wearing off, this to me will represent an accelerated move down in future monthly prints around inflation. So whether or not this indicates the start of something new in owner's equivalent rent will be interesting to see. As far as where rates are, the Fed's

implied probability of a rate cut in two days is 97% in the Fed funds futures market, but we're down to only a 17% chance of another rate cut in January. So the fair thing to conclude at this time is that they're absolutely going to cut rates a quarter point this week and that they're absolutely not going to cut rates next month. Plenty of other countries are cutting rates right now. In the case of Canada and Switzerland, more aggressively, even the United States. We know the European Central Bank cut again another quarter point last week. Japan is not cutting and there's talk of them even potentially hiking rates. Of course, they're already at a much lower level. That would go a long way for a new level of unwind of a yen carry trade. So we're watching that. I mentioned oil already. Midstream was down again last week.

It had been up so much on the year. And it still held for the most part these gains. Having a couple of weeks in a row down is not something we've seen a lot of. And MLPs that were down about 1.5%, but the broader midstream sector last week was down about three. Now that's in a week where the stock market was down, but where oil and gas were both up. There was a large midstream industry conference

here in New York last week. And a little hat tip to Howard Hines from the commentary of his I read. But it does seem that markets and a lot of companies presenting continue to be indicating higher CapEx plans, higher pro-growth spending in terms of different capital projects, but doing so where their growth prospects of those projects are very visible and the leverage is being kept in line. Where leverage starts to leak higher and the balance sheet deteriorates is where I think markets may not like seeing some of this growth expansion, but that isn't yet really on the table. I was asked if I, based on the dividend cafe I wrote

Friday, if I was open to the idea that sentiment could change about the Trump administration, which by the way, was the whole subject of the Dividend Cafe was the fickleness of sentiment and where things stand now, where they could be, and how do you direct an investment policy around sentiment. But the question was, if some of the things that could go bad in the next administration go bad, do I think sentiment would change? And I assume there was a rhetorical question, because obviously, if things go badly, then you expect sentiment to change. And I'm aware of certain opportunities for things to go badly.

But I'm also aware in the meantime as to where some of those sentiments and expectations are lined up, both, as I pointed out in Dividend Cafe this Friday, the small business expectations as well as from larger corporate America. One of the insinuations in the question was, well, if these policies end up just favoring the wealthy, won't that really churn sentiment against the president? I think it would if that were the case, but I don't see policies right now being proposed that I think would do that. Real wage growth was very heavy out of the bottom deciles of wage earners in the aftermath of the tax policies and deregulation policies in the first Trump administration. So there's plenty of things out there that I can say negatively and critically, and there's plenty of things out there that I can say negatively and critically, and there's plenty of things I can say optimistically and hopefully, but I don't anticipate it exacerbating class warfare and creating a disappointment in people around the

policies not benefiting them. But again, we'll just call balls and strikes when pitches start getting thrown. Right now, the pitches I'm seeing, I would not see that on the radar. All right, so I will have a Dividend Cafe for you this Friday before next week's break for the holiday Christmas week. There will be a Monday Dividend Cafe next Monday. I'll have a lot of it written. Brian Saitel will bring it to fruition and be doing the Cafe next Monday. I'll have a lot of it written. Brian Saitel will bring it to fruition and be doing the recording next Monday. And then at the end of that week, which is Friday, January

3rd, I will do a normal Friday Dividend Cafe, but it will not be the annual white paper, which will by then be done, will be at the design teams getting curated and ready for publication the following week, our annual year behind, year ahead issue. That will be coming out on Friday, January 10th. So that's the scoop here from us in the Dividend Cafe. Thank you for listening. Thank you for watching. Thank you for reading Dividend Cafe. We'll see you soon. Thank you. referenced herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary and does not constitute investment advice. The Bonser Group and Hightower shall not in any way be liable for claims and make no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors

contained in or omissions from the obtained data and information referenced herein. The data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice. This document was created for informational purposes only. The opinions expressed are solely those of the Bonson Group and do not represent those of Hightower Advisors LLC or any of its affiliates. Hightower Advisors do not provide tax or legal advice. This material was not intended or written to be used or presented to any entity as tax advice or tax information. Tax laws vary based on the client's individual

circumstances and can change at any time without notice. Clients are urged to consult their tax or legal advisor for any related questions.