The Dividend Cafe - Is This the Dreaded Top

Episode Date: June 19, 2026

Today's Post - https://bahnsen.co/4fUPJml David Bahnsen hosts Friday’s Dividend Cafe from East Hampton on June 19, a Juneteenth market holiday, and discusses whether current conditions signal a “top” while rejecting short-term market timing. He notes elevated S&P 500 multiples based on operating earnings and warns that today’s concern is more about market mood and complacency than valuations alone, citing Bill Ackman’s SpaceX-related quote as symptomatic of circular reasoning about value. Bahnsen argues the risk paradigm is shifting as companies move from low reinvestment and buybacks toward heavy capex, more borrowing, and potential equity issuance. He highlights NVIDIA and Broadcom stocks lagging despite strong revenue growth as possible signs of over-discounted narratives, and points to extreme SpaceX valuation as a sentiment indicator. He also describes a Fed leadership shift toward a more constrained approach that may tolerate froth coming out of risk assets, concluding investors should prioritize rational, defensible portfolios tied to operating performance and dividend growth. 00:00 Summer Intro and Holiday 00:57 Is This the Top 02:33 Valuations Aren't the Trigger 04:45 The Market Vibe Problem 06:13 Ackman Quote Warning Sign 09:27 Risk Paradigm Shifts 11:59 NVIDIA and Broadcom Signals 14:32 SpaceX Valuation and Mood 16:19 Fed Regime Change 19:53 Do the Right Thing 22:19 Closing Thanks 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 this Friday's Dividend Cafe. I am your host, David Bonson. I am coming to you from the beautiful village of East Hampton, New York, and I am excited for a summer. Whenever you start to see me recording out here, it means summer is officially upon us. It will be a wonderful weekend. and I want to wish you all a great weekend. Today, Friday, June 19th is not a market date. For at least the last couple of years, it has been a stock market holiday in conjunction with the federal holiday that is Juneteenth.

And so what I am really wanting to focus on here is the subject matter at hand, totally disconnected from any particular events. But I'm going to talk about a couple of things this week that were actually events of the week. things with the Fed that took place, things ongoing, following up from stuff we talked about last week with the SpaceX IPO. What I'm doing all of it is part of a broader conversation that I want to get into asking the question, is this the dreaded top? Are we at that moment that many have

feared for some time where a market frothiness takes us into a place that we don't want to go? I'm hoping that many of you right now who are regular listeners to the Dividy Cafe are saying to yourself, we've been following David for some time, but we already know that he is not prone to believing that one can make some sort of forecast about imminent market turn, an imminent market rally, these various predictions about short-term market phenomena. Even in my belief about the relevance of valuations, I have never attached them to timing. I think as a matter of mathematics, that it is true that one's long-term expected rate of return is connected to valuations and entry point. But I do not believe that that question has anything to do with what I want to talk about today, which is allowing. investors, the intellectual and, if you will, emotional, honesty to think about the environment in which we are in, if nothing else, at least at a high level. I want to tell you why we're

not having this conversation. It is not merely about the aforementioned valuation issues. I've been talking about and writing about for quite some time. Right now, the SMP 500 is expected to generate something in the range of $330 to $340 of operating earnings this year. So when you look at an S&P at around 7,450, you're talking about two and a half times earnings. And again, it could be 23, it could be 22.1, depending on the exact. exact numbers. There's moving targets here. Some have said, oh, I'm hearing $360 to $370 of earnings, and that's not operating earnings. They're doing a little bait and switch there because that is, it's totally gap compliant, but it is utilizing certain one-time non-recurring

events. And in this particular case, it's just an anomaly that there's three companies that have moved the needle to the extent, what is the amount? $63 billion of gains in Q1 from various other income markups in privately held assets or one-time tax benefits or things like that, literally just from three different companies adding $30 a share to full earnings. But the operating earning side is the apples to apples, how we look at it. And I want to point out, all of this is being done on a forward basis, like full year into the future, where, you know, a bunch of my career, we evaluate.

P.E. ratios, the context of trailing earnings, backward looking, which would cause the market multiples to be significantly higher than what we're talking about. But look, a few things are different. It's also true that we've stayed above the normal range of a market valuation. When we talk about the average market multiple being 16 to 17 times for 20, 30, 40 years, we've been above that, not for six months now, but for several years, there are various moving targets. But I just want to make clear, the rich market multiples are not the catalyst to today's topic. I hate the word vibe.

I hate it with our politics. I hate it when someone tells me they're excited about a politician divorced from policy or technique or philosophy or voting, that they like the vibe of a candidate. I hate it in pop culture that people get associated with one particular mood or personality. And this nebulous concept takes over a lot of other categories. And it's frustrating. But look, data is limited in what it can tell us. Data is very good descriptively, but not always good predictively.

Data does require execution. It requires implementation. It requires interpretation. There's no hard science way to do any of this. But I would like to say that some of the things in the vibe of the moment are very concerning. And I, as a contrarian, as a value-oriented investor, as a defensive investor, as a fiduciary of nearly $10 billion of client capital, I take this stuff very seriously. And there are certain things that when you hear and see, they can become problematic. I want to read you a quote, word from word, and I'm going to tell you after I read it, who it comes from. One of the things that makes SpaceX so valuable is how valuable it is.

The cursor acquisition costs materially less in dilution because of SpaceX's high valuation. SpaceX's ability to do economically, strategically, and technologically accretive acquisitions, is an important component of its value. There is enormous value inerrant to a company with a high value. I'll repeat that sentence for you. There is enormous value inerrant to a company with a high value, particularly when it is controlled by an entrepreneur that is the most talented people want to work for and partner with.

Value begets value, talent begets talent. If that was from one of the regular grift of the universe or pump and dump cheerleaders out there, I would ignore it. But that's from Bill Ackman, who's one of the great investors of my adult life. He's an alpha machine. He's very aggressive. He has some big losses at times, but he has just a lot more big wins. And I hold Bill in very high regard, both personally and professionally.

But this quote is, I think, indicative of a vibe I'm talking about. And I want to be very clear, has nothing to do with SpaceX. I'm using it as symptomatic of a broader context, that when people start saying things like something is valuable because of how valuable it is, and that value is an error to a company if it has a high value, that's indicative of a moment that I believe warrant some caution. High stock prices as an acquisition currency, well, of course, they're less dilutive by that's a tautology. It's narrowly true. But the idea of a company using high stock price to make an acquisition into greater value is just not remotely defensible historically. Some of the worst

deals ever done in human history were done with high stock prices. And it also is a classic case of begging the question. It doesn't tell us about the underlying company making the acquisition or the underlying company being bought and how they will perform into the future and at what price they were bought and so forth and so on. So you can look at all kinds of very high profile stock debacles. I've written a whole Divini Cafe in the past

about the mother of the mall with the AOL Time Warner purchased 25 years ago. But you could find good companies that bought good companies at high stock prices and then went on to create great value from it. That's all totally doable. But is it ipso facto, true. And that's my point is when we start talking about things being in narrowly true that are

not, I think it indicates a certain environment that we're in is problematic. It's a creeping attitude that I think is dismissive of reality, that I think is apathetic about risk, that it invites an investor complacency that is very problematic. I would suggest to you that in addition to a general societal conversation and attitude that is problematic, that there's a risk paradigm changing before our very eyes that not a lot of people seem to understand. We've had a long period now of not requiring a significant amount of capital to continue funding the profitability of the weighted S&P 500. We've come off of a significant period of what you can refer to as de-equitization, that you not only did not need to raise more equity and more

shares and more offerings to pay for growth, but in fact, the growth and the cash flow growth was creating were being used to retire a lot of equity, causing earnings per share to be higher as share account itself dismissed, just basic supply and demand stuff. And companies were staying private, than ever. So there was less companies in the public sphere that were being competing for your public equity dollars. The POs were minimal. And then that cash flow use was really not required in terms of reinvestment in a lot of businesses. And we're going through multiple stages very quickly where a lot of this is changing. I've already talked a ton this year about how much it's changed the companies that used to need zero, five, 10 percent of cash flow to reinvest into the capital spending

needs of the business are now spending 80, 100, 120%. But then we've gotten to a point where companies that didn't really need to borrow money are now tapping debt markets. And I think that the final phase of this is going from cash flow to borrowings is to equity issuance. And I would suggest to you that this cycle is all potentially fine. But it is not devoid of a change in risk paradigm. You went from no debt needed to lots of debt needed, from retaining all your cash flow to spending all your cash flow, from buying back equity to issuing new equity.

I mean, I think there's a bunch of links I put at divincafe.com. You can see for yourself how much this is changing. I don't know that a lot of investors understand how relevant that is to the risk-reward tradeoffs embedded in weighted market index investing. I'm going to suggest to you two different considerations right now. They look more like anecdotes or illustrations of another concern or at least contemplation worthy of your attention in the market. I'm going to put a chart up right now on the screen of Nvidia's stock. Nvidia is one of most successful companies in human history. Nvidia is basically dead flat going back to October, as you can see.

see from this chart on the screen. And through this period, do you know what their quarterly results have been? Year over year revenue in the last three quarters was up 62 percent and then the next quarter 73 percent and then the next quarter 80 percent. That's sequential quarterly year over year revenue growth. In this period of time, the S&P 500 is of 12%. We haven't been in a tough market, and that was with a 9% market drawdown in there. You have one of the great companies of our era and moment in one of its great executions, as things are playing out in the story that we're discussing, it's totally flat. I'll spare you another chart here, but Broadcom is kind of the second player that's been a major beneficiary of the pick and shovel thesis whose products require

massive amount of purchases from the hypers as we build out this AI story. Broadcom was down 22, 23% in the first part of June after announcing, are you ready for this, 143% quarterly revenue growth in an AI chip business? Their guidance going forward. was another 85% revenue growth into the next quarter. And yet the stock was killed. It's come back a bit from that initial drop. But my point being, these are stories that when I start to see them, I believe it to be precursor to something where you're not seeing yet a degradation of the fundamentals,

but you are seeing a degradation of stock prices, or at least a flattening and a relative change because I think that the pricing in of the underlying story has been so overdone. Look, at a high level, I talked about this in the daily recap that came out yesterday, excuse me, Thursday,

because I don't know what day you're listening to this. But the fact of the matter is, you know, that aforementioned IPO, SpaceX, I'm not here to say anything about where it's going up. or down or anything like that. There's links about all this different stuff at Dividendant Cafe. But what I'm getting at is that this week it was sitting at a two and a half trillion valuation on $19 billion of revenue and on negative earnings. So you're talking about valuation

in the same pool as Amazon and Microsoft that have a gazillion dollars of revenues and SpaceX sitting there in that range. I don't have anything to say about this as a story about these companies. I have something to say about it as a story about market mood. There's no exact parallels, but I just want to tell you that when people start defending some of these things in the market, it does ring a bell. It brings me back to a time in the late 90s that I remember vividly. And it is always possible to rationalize things ex ante that I believe ultimately become very easy to mock and criticize after the fact. Some of these stories that seem outrageous may play out. Some may not.

A lot of them are going to play out, but before they play out, they're going to feel real problematical on the way. My point being that there's just a series of things. worth considering when you think about the environment that we're in. The one I'm going to spend a little more time on now is the Fed itself, okay? And I could have done a full dividend cafe this week about Kevin Warsh, his first FOMC meeting as Fed chair, his first press conference as the Fed chairman. What he has laid out as a changing of the guard, his announcement of task force, task forces to evaluate Fed communication strategy, their own balance sheet activity, their reliance on various sources of data, their full task force to look at productivity and jobs

in this moment of AI, and a task force to look at their old framework around inflation and the way they model growth, inflation, and so forth. But look, moving away from forward, guidance, having a full holistic revisiting of some of the major categories of how monetary policy has been done, leaving behind a Phillips curve framework, embracing the idea that some productivity growth could serve as a disinflationary force. And so therefore, the Fed does not need to be afraid of some of its potential monetary policy movements. I'm not saying that Kevin Warsh this week said I'm taking away the Fed put. I think you get another global financial crisis moment or COVID moment. Fed is going to do various things, some of which they should do, and some of which in the past

I think that they shouldn't have done or should have done differently or what have you. But my point is that he's talking about a more constrained and a more defined and a more prudent Fed. And I think that his willingness to flatten the yield curve and see the short end come up and the long end come down is different. And I want to be very, very clear. I do not think the Fed chairman is looking to pop a bubble in risk assets. But I most certainly do not think that he cares if he does. And I have not said that or thought that about any Fed chair since I was in high school. Alan Greenspan became Fed chair right as I was entering high school. And I've thought that about every Fed share, and I think that that represents, again, people are going to agree or disagree with

certain elements of monetary policy. There's going to be good things that come of it economically. They may get better price stability. They may not. I'm not here to right now dig into it. I'm bringing up the events of the week in the Fed in the context of how we're thinking about risk assets where I believe a lot of people think that while bubbles are being blown, the Fed is there helping with some of the balloons. When the punch bowl is feeling nice and taste, They're there helping to keep it spiked. I'm making up analogies as I go and I can come up with more metaphors if you want to. They're all kind of overdone, but you get my point.

From the vantage point of valuations to the mood of the moment, the sentiment that is being expressed in society around us, the anecdotal things you see with certain elements of extreme valuation and things that feel to be excessive. and the changes in risk paradigm around capital structure, the removal of certain tailwinds, the introduction of other headwinds, a Fed that is perhaps very willing to let some froth come out of risk assets. I don't want this to sound like any exhortation to time the market because I'm not saying anything different than I've ever said, ever, ever. I'm saying it as an exhortation to be doing the right thing now as much as ever.

I was a big advocate of doing the right thing a year ago, tears ago as well. What I mean by the right thing is not being on the right side of a trade or a vibe or a momentum move or a bubble, what have you. It is in, I think, allocating a portfolio to that which is sensible, rational, defensible, and I would suggest connected to something more than merely hoping that others will continue to ride it out, connecting it to those actual operating performance metrics that I believe are well embedded in dividend growth investing. But even apart from reiterating my own investment philosophy, our investment philosophy at the Bonson group, contrasting that to what is going on out there. I started off this week's Dividend

Cafe asking a question about the topiness of the market and reiterating that I don't know. And I'm ending it in the same place. I don't know. And I think a lot of you knew I was going to say, I don't know. I just want to really remind you that there are pumpers, cheerleaders, have a very vested interest because the. continuation of this moment is entirely driven for a lot of them by others believing it will be continued. And I think that your investment portfolio needs a better rationale than that. It needs something less exogenous and something more inerrant intrinsic to the actual operating performance and delivery of value. And I think you'll find that far more measurable

in dividend growth. Do I think that we're about to tip over in the S&P or in the AI trade or what have you? The timing of these things can be remarkable. I have no idea. But I think for all the reasons I laid out here today, it's just as good a time as any to think about the right time to do the right thing. To that end, we work at the Bonson Group. Thank you for listening.

Thank you for watching. And thank you for reading the Dividend Cafe. Have a wonderful weekend. and I will be back with you for our normal Monday Dividing Cafe per usual. Take care. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC, member FINRA and SIPC, and with Hightower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities LLC.

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