The Dividend Cafe - Every Quarter’s Beginning is another Quarter’s End

Episode Date: March 31, 2025

Today's Post - https://bahnsen.co/3QVjOoi Monday Dividend Cafe - Q1 Market Review and Implications In this episode of Monday Dividend Cafe, we conclude the first quarter of the year with a high-level market review. The Dow closed the quarter down by 1.3%, the S&P by 4.6%, and the Nasdaq by 10.4%. We discuss the intra-quarter performance, noting a significant fall for Nasdaq and S&P since mid-February. Consumer discretionary and tech were the hardest-hit sectors. We also explore the historical performance of markets during midterm elections, the impact of tariffs on the economy, and potential future policy developments. Additionally, a detailed explanation of the put-call ratio is provided, offering insights into market sentiment. We close the discussion with a look at housing market expectations and the energy sector's outlook. Celebrating The Bahnsen Group's 10-year anniversary, we preview upcoming content focused on lessons learned over the decade. 00:00 Introduction and Market Overview 00:15 Quarterly Market Performance 01:46 Daily Market Movements 03:40 Understanding the Put-Call Ratio 06:29 March Madness Bracket Highlight 07:12 Policy and Economic Insights 12:41 Housing Market and Future Predictions 14:11 Oil Market Analysis 15:35 Tariffs and Global Trade 16:47 Conclusion and Upcoming Events 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 Dividend Cafe, also the final Dividend Cafe of the first quarter, the market for Q1. Closed out today, March 31, we are done. A quarter in the books. I'm going to have a lot more detail of quarterly closings, but I'll just give it a high level. I didn't do, because the market just closed recently, we haven't done the actual final

mathematical, hard closings with dividends and everything, but basically the Dow was only down 540 points on the quarter, 1.3%, but the S&P was down 4.6% on the quarter, and the NASDAQ down a more substantial 10.4% on the quarter. But more importantly is from the intra-quarter high, which took place right at the middle point of the quarter, the NASDAQ is down 13.9% from its mid-February high, and the S&P down 8.7. So the S&P fell out of correction territory, it had been down over 10 for a bit.

But all that to say that you basically had a really strong first half of the quarter and then a really bad second half of the quarter, and it was most bad for the riskiest things, let's call it NASDAQ, and then a little less bad for the S&P, which is much more NASDAQ-like than Dow-like these days because of the top heavy concentration reality. And then the Dow barely down, which is the least NASDAQ. Consumer discretionary and tech were the sectors that were down the most.

They're the most tariff consequential, obviously. And so that was the story. And the pre-market futures last night and then into early this morning were down quite a bit and the Dow opened down 300 points and that lasted just for a few minutes and almost immediately began its recovery. And a couple hours later went into positive territory on the day and stayed there for much of the day just right around the break-even point and then rallied in the last two hours of the day. So the Dow closed up 418 points, 1% today. The S&P ended up being up 55 basis points.

The Nasdaq was still down, but only down 14 basis points. I believe it had been down over 2% at its low this morning. The Nikkei, the Japanese market, is largely catching up. It was for us Sunday night in the U. US, but Monday for them is a trading day. On the piggyback of the Friday market action in the US, it was down over 4% in a single day. So the US market risk off moment, definitely getting a kind of global catch. The 10-year bond yield today was down 4.5 basis points to 4.21%.

On the quarter, that's a full 36 basis points because the quarter 10-year opened at January 1 at 4.57%. That's a meaningful rally and maybe one of the biggest quarterly rallies we've had in a while as the 10-year bond yield dropped 36 basis points on the quarter. Top performing sector today, consumer staples, a robust 1.63% to the upside today. Consumer discretionary, the only sector down after the midday market recovery, down 18 basis points. So a big delta between consumer staples and consumer discretionary. A point I want to make real quick on these contrarian indicators, early this morning

the VIX have been up a lot, the asset flows have moved. From a contrarian standpoint, one thing that has not really screamed, okay, there's been enough panic selling to view this as kind of a capitulation, a viable opportunity, that what's called the put call ratio has really not moved a bunch. When you start seeing a lot more put buying relative to call buying, then that is a contrarian indicator that is reaffirming along with these other indicators I look to. Now, you ask yourself, what is the put call ratio?

And I'm going to answer that as our glossary of the Monday item. Every Monday I'm trying to incorporate a glossary of various financial terms that we use a lot. This was a kind of reader request idea that I like as an opportunity to throw in some more vocabulary for those trying to learn more of this financial lexicon. A put is an options contract. It's an agreement between two parties whereby certain shares can be sold at a given price in the future and there's a given price and a given date, and so there's a time component and then a price movement that gets priced into this contract.

That's a fancy way of saying its ability for one party to be able to bet on a stock price going lower and they're doing a lot of leverage because there's a certain time in which it has to be done, and they don't have to put up a lot of money to get a lot of exposure due to a decline in the stock. So it's a levered way for one party to take a position in a stock going lower. Now of course, that could be done for speculation and it could also be done for hedging. A call option is the same as a put, but instead to sell at a given price, it's to be able to buy at a given price, it's to be able to buy at a given price.

So in a way, you're betting on a stock price going higher in the future. And again, it involves a lot of leverage because of the time component of this agreement and that you're only putting up a little bit of money for large notional exposure. Puts and calls are options. They're not either good or bad, but they just each represent a different viewpoint, one being whether for hedging or speculating on something going down, one whether hedging or speculating on something going up. And so the put call ratio is a measurement of total people betting on something going

lower, total people betting on something going lower, the total people betting on going higher. Why would a person want the put call ratio to be high? Because the more pessimism reflected with a lot of puts and less calls, for a contrarian, the better that is. All right, so I just said four or five things at once, did it quickly, I hope it's helpful for you to understand this concept better. All right, there is a chart in Divinity Cafe today, some of you may wanna skip over, regarding a

certain person, the Bonson Group, who got all eight out of eight right in their March Madness bracket and then went on to get all four right in their final four. And this person happens to have been doing brackets since 1997, back when they were written out on a piece of paper you had to print and hold on to. And in 28 years finally got the entire lead eight correct and the final four and is going into the final four weekend in this very strong position. And I just felt like it wouldn't be right to not mention it. That person is, of course, the managing partner of the Bonnson Group.

Public policy lots to go through. I like this quote here that I put into Divided Cafe today. It's from the former head of research at Bridgewater Massive Hedge Fund, a former MD at Goldman Sachs, PhD economist. I read frequently. There's a longer segment with the link in Divided Cafe, but it captures a lot of what is some of the tension in markets around the current White House position on trade and tariffs. Normally, when analyzing economic policy, you can do a mapping from economic pain into

a policy response. But here we have a different causality with economic pain generated directly from the policy itself. And it's not obvious when the pain will be so severe that there'll be a policy response, policy reversal, if you will. It's quite a unique situation. I think it captures well what I was getting at in the Dividing Cafe on Friday. And that quote is elaborated on with some other insights from Dr. Nordberg, but I'd

encourage you to check that out. A couple of the policy things unrelated to tariffs. The courts are upholding Doge and the Trump administration's decisions to fire members of the National Labor Relations Board, the Merit Systems Protection Board. So some issues around governmental unions, there was court decisions in the administration's favor. But then they did reverse some of the dismantling of the Consumer Financial Protection Bureau,

which I found surprising, but Congress is actually taking that one on directly. What a surprise. The things, as I've said over and over, the things done with the executive branch can be effective, but they're not permanent. Alleged only things put into law are codified and the House Rules Committee is set to vote, maybe even as I'm speaking right now, on overturning some of these various CFPB rules. Interesting data point I want to share in the policy realm before I move to politics. Besides the post-9-11 election in 2002, the incumbent party in the White House has gotten

beat pretty badly in the midterm elections almost every time. And the razor thin lead the House GOP has now does make for a particularly vulnerable outcome for the Republicans in the House in 2026 just based on history. But I was shocked to see that there's only three House Republicans right now in districts that Kamala Harris won in the 2024 election. In 2018, when President Trump got beat pretty badly, the Republicans got beat pretty badly in House midterms, there were 23 seats that Republicans filled that were in districts

that Hillary Clinton had won. So there was a lot of low-hanging fruit or fertile opportunity or whatever cliche you want to use for the Democrats in those midterms. Both history and math still indicate that the Democrats are more likely than not to reassert a House majority in 2026, but the electoral demographics are very different and much less attractive, much less of a sure thing for the Democrats and certainly at least in magnitude than some of the past year's historical precedent. A policy percentage that I'm going to talk about then we're going to move on, it will come up again in the Q&A. The average US tariff rate on all foreign goods is 2.7%. Canada's

average rate on all foreign imports is 1.8. Japan's is 2%. The EU's is 2%. Mexico's is right around 2%. Reciprocity may not exactly work the way people think here. All right. Economic issues. What are the things in the economy that matter on tariffs?

There's uncertainty, which was the subject heavily covered in Friday's Dividing Cafe, that undermines capital investment. You could also make a point that I make only as a secondary consideration, the same uncertainty could impact consumer activity. Number two, price pressures from tariffs that impact the overall price level that have at least a politically inflationary component and the number three, cost pressures from tariffs that impact corporate profits. But what I did not say is that there's no short-term beneficiary.

If allocation of scarce resources is the definition of economics, in scarcity there are tradeoffs and there may be a winner for a period with tariffs. I happen to not believe there will be, but I understand theoretically there could be. The issue is understanding what the tradeoffs were to get there, and these three issues represent pretty big tradeoffs. So if there's some winner, let's assume that there's a short-term beneficiary of certain elements or certain sectors of domestic manufacturers, but it comes with this broader uncertainty undermining capital investment or broader upward price pressure putting inflationary

elements into the economy or broader cost pressures on tariffs that impact corporate profits. All three of those things are pretty big trade-offs to whatever we believe the upside will be. There's my economic message. Exports, by the way, have quadrupled over the last 35 years. So we talk about the trade deficit expanding.

It is not because exports have come down. They've gone up massively. It's because imports have gone up more than exports. But nevertheless, exports have come down, they've gone up massively. It's because imports have gone up more than exports. But nevertheless, exports have increased by over 400%. Housing, I'm not talking this week about prices, I'm not talking about volume, I'm not talking about mortgage rates, just simply the Fannie and Freddie future. They were put into conservatorship by the Treasury Department in September 2008, and we're sitting here now going into April of 2025, and they're still there.

And $250 billion of preferred equity is built up as they've had excess capital. These are very well capitalized now. Why hold them in the conservatorship of the federal government, which is of course the taxpayers? I would say to you that there is a Trump administration policy agenda with Secretary Besson and the Treasury Department to do something about this. I advocate for a full privatization with an explicit non-guarantee, but I do not think this is something that animates President Trump a lot, and I don't think it's something

that they have the political capital or resources to go after until they're on the other side of tax reform or the other side of trade. But I do believe it's something that we could possibly see in the second half of the Trump administration, maybe even as soon as next year. The odds moved quite a bit this week on more rate cuts than last by the end of this year from the Fed, the federal funds, futures market, pricing in a 70% chance of three or more cuts by December, but up to a 35% chance of four or more cuts. So a lot of movement on that this last week.

Oil, by the way, it wasn't up a lot today, but had moved up since last week, closed at 71.40. S&P hammered on Friday on the weak down 1.5%, midstream up a little bit on the weak, and MLPs in particular up 1%. We continue to like the all-weather performance of the midstream energy sector. There's a chart at DividendCafe.com today of, thanks to my friend Peter Buchvar, of the Dallas Fed showing what the price of oil needs to be at various geographical regions,

the Permian Basin. There's different major regions where we have a lot of well activity. And not measuring what the break-even level of current wells is, but to get what prices needed to get new wells up and running, to lock in new wells for drilling. And those prices are really basically from $60 to $70. So you're not looking at a drill baby drill phenomena pushing oil to $50 oil anytime soon. The oil sector just simply would not stand for it. They won't produce enough to push oil to prices at which new production becomes unprofitable.

That's just a fact. All right. Then somebody did ask how tariffs work in a world where there's some different unequal tariffs out there, how the comparative advantage law works, and wouldn't world trade be more robust without any tariffs at all? And I certainly think it would be. I would love for no country to punish its own citizens by taxing imports. But to the degree one country is imposing such and others are not, the issue really comes down to, if we consider that unfair, who is most qualified to make the decision.

The economic actor with skin in the game,'s a party to the transaction or a third party central planner who's not in the transaction, this is not a question that people on the economic right have had a lot of problems answering for many years. The kind of desire to see central planning solve that problem has never been a temptation on much of the right until more recently. So my exhaustive answer to the question is at dividendcafe.com. Hoping for a Senate parliamentarian reading this week on the current policy baseline issue that will go a long way towards the budget reconciliation bill and the level of magnitude

of future tax cuts. We're going to have a special quarterly version, a weekly portfolio holding reports for clients on Wednesday morning, summarizing all Q1 action in the portfolio. And with that, Q1 is done. We're celebrating our 10-year anniversary week since the Bonson Group came to be this coming Wednesday, April 2nd will be our 10-year anniversary since the day that the group of us left Morgan Stanley and Friday's Dividing Cafe will be dedicated to the lessons learned in this whole process. I'm gonna leave it there for now. Look forward to being with you. I

will definitely be with you tomorrow and Wednesday with Ask TBG but also the What's on David's Mind and our daily blurb as I am embedded in all the action out of Washington regarding this week's trade announcements. Thanks for listening. Thank you for watching and thank you for reading The Dividing Cafe. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC member FINRA and SIPC 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 may not be suitable for all investors. All data and information 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 Bonsall 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 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.