The Dividend Cafe - Market Turmoil Intensifying

Episode Date: March 10, 2025

Today's Post - https://bahnsen.co/41SXNwl Market Volatility, Tariff Impacts, and Bitcoin Speculation: A Deep Dive In this episode of Monday Dividend Cafe, the host explores the recent market activity characterized by significant sell-offs, especially in the NASDAQ and S&P 500, and highlights the decline in the Dow Jones Industrial Average. Discussions include the impacts of tariffs and their economic implications, the fluctuating bond market, and notable occurrences in specific sectors like technology and utilities. The episode also addresses Bitcoin's volatility in response to new federal policies, reviews the latest jobs report, and evaluates changes in the housing and mortgage markets. Insights are provided into public policy and its intersection with market movements, emphasizing the role of asset allocation, market sentiment, and economic data trends. 00:00 Introduction and Market Overview 00:12 Market Activity and Sector Performance 01:54 Bond Market and Yield Curve Analysis 02:47 Public Policy and Federal Reserve Insights 04:45 Technical Analysis and Market Sentiment 06:20 Bitcoin and Cryptocurrency Discussion 08:35 Tariff Impacts and Economic Outlook 09:59 Federal Budget and Tax Legislation 17:00 Economic Indicators and Housing Market 19:59 Conclusion and Final Thoughts 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 a very important Monday Dividend Cafe. I say it's important for a few reasons, and hopefully by the time I'm done talking, I'll be able to unpack all of that. Let's just start with the market activity. It is a two-week period now where markets have been mostly in sell-off mode. I think there's been a couple of big rally days along the way, but most markets have declined quite a bit here.

The NASDAQ dropped another 4% today, meaning it's now down 13% from peak to trough. I should point out 13% was its peak to trough drawdown last year as well that took place from July to early August. We'll certainly see where things go from there. The technology has gotten hammered. The S&P was down 2.7% today, and the Dow that opened down 400 points got as low as down 1,200 points. In the last 45 minutes, it took 300 points back, but still closed down almost 900 points, 890 to be down a little bit over 2%. So the whole tariff uncertainty and where things are going for markets

and the broader economy has now become a much bigger issue. And very candidly, and I don't say it in any kind of self-serving way at all, because I, of all people, am well aware of how quickly this can reverse. But if there are clients who are only looking at their accounts versus people who are looking at the broad market, they may not know how distressed things are. Because certainly a lot of the dividend growth space and consumer staples and healthcare, certain sectors,

certain names have done very well, but that is subject to reversal at any time. And then obviously those that are practicing the long-held discipline of asset allocation may not necessarily feel it to the same degree the pure index investors are feeling it or heavy mag-7 tech investors, because the bond market, particularly the boring bond market, not as much credit where spreads have widened, but yields have dropped like lead. And today, the 10-year was down another 10 basis points, putting the 10-year at 4.21%. Actually, the whole yield curve was down roughly about 10 basis points from the two-year all the way to 30 year. So a big rally in bonds

has played out even as risk assets have taken the brunt of this. You have a few reasons for this I want to get into and I want to just unpack what it looks like across markets then bring it into the whole circle of public policy, the Fed, all of our normal things. How bad is it in the market exactly? Look, S&P down eight or nine percent is still in normal territory. The rule of thumb I always like to use is five to 10 percent drops happen all the time, literally every year, except for a couple years in the last 30 years that are a rather stark outlier exceptions that prove the rule.

Ten to 20% is not super uncommon. It isn't the every year event that the five to tens are, but 10 to 20 from correction mode up to the point of bear market. It certainly happens enough that it isn't anything to fret about. Someone who is uncomfortable with it most certainly shouldn't be an equity investor. It happens that often. And then when you start talking about 20 to 30 percent, that's become much less common. And real bear markets have become much more of a almost once a decade type event and not nearly as frequent. So that's the averages of occurrence that play out. Now the VIX, which is a measurement of protection that investors will buy, it's up about 50%

in the last couple of weeks. So I don't think a $28 VIX is screaming panic. You see it sometimes hit 50 and 60 when people are losing their mind. But again, in a two or three week period, and the volume level of not only call buying on the VIX, but put buying on the S&P has gone through the roof. And that, I would argue, is somewhat of a contrarian indicator. That level of panic is usually a good thing for the simple law of nature that usually markets do the opposite of what a lot of people are doing.

And that's something I've talked about for many, many years. The S&P broke meaningfully below its 200-day moving average today. And you go, David, is this a sign of technical support breaking down? And it would be a sign of that if there was such a thing as technical support breaking down. And it would be a sign of that if there was such a thing as technical support. But because I don't think such a thing exists. And then people say, Why are you telling us that it actually think that's a very good question.

I'm not totally sure I have a great answer. I guess here's what I'll say. The media is going to be talking so much about the S&P going below its 200 day movie average that I'd rather you just hear it from me. And then it gives me the opportunity to tell you how little I care about it. But there isn't any predictive reason for me to share that the S&P broke towards 200-day moving average because there's no predictive value in that sentence whatsoever. Bonds are rallying. Defensive sectors are doing pretty darn well.

The top performing sector today was utilities. It was up over 1%. So think about that breadth in the market and that rotational story. You have one of the worst days in the market in a while. You have the Dow down 1000 points. You have the NASDAQ down 4%, and yet you had utilities and energy up on the day. And until the last couple hours of the day, you had about five sectors. Over half of my screen had been green up until the last couple hours of trading. So this is still more of a rotation. And again, the worst performing sector was technology, which was down 4.3% today and that comes off of what's been a pretty two-week violent rally to the downside in tech. I do want to just quickly address the story of Bitcoin because the president put out his

executive order about a Bitcoin reserve, and now Bitcoin is pretty much back to where it was at the election. So let's see, if it was a 70,000, I think it hit 109, 110. So you're talking about like a 30% drop now in Bitcoin from its peak of just a few weeks ago. And a lot of that rally that had taken place apparently was on the hope that the government was going to be really supporting it by buying a lot of it. And they basically announced that they want to set up a strategic reserve fund, but they

only want to fund it, not with new Bitcoin purchases where the government provides corporate welfare for Bitcoin holders, but rather they want to take the Bitcoin they've taken from others, which remember, that's not supposed to happen, and then they want to fund their reserve fund with this. So here's your libertarian investment of the day, Bitcoin. I lack the words to explain how disastrous this idea is. I did talk about it on Fox Business today and there's a link there.

But apparently the sector is mad that the government isn't doing more to help it out and so it's sold off a bit. So where it goes from here, I have no opinion, high or lower, I don't care, I don't know. The chart in Divinity Cafe today from my friends at Shatigas Research is fascinating. The only thing I regret is that the data points

in the chart are all from before today's action, not after today's action, but it puts into quadrants, asset classes of those that were up since inauguration, but down since the election, those that are down since both inauguration and the election, those down since the inauguration, but up since the election, and that's a slowly shrinking quadrant. And then the very few that are left that are both up since inauguration and election. So you have a real interesting mixed bag playing out and it highlights a rotation since the

inauguration and then it shows how much gains have been given up since the election. And I just think it's a fascinating chart. I really encourage you to look at that. I also want to point out there's a lot of talk today of the ongoing tariff issues. I'm going to talk about in a moment, Secretary Leutnick's comments over the weekend, President Trump's comments over the weekend, and the continuation of the story that has been playing out last week around tariff uncertainty. But I do think that people are onto something to say this has become a real economic story, not just a market story.

But I also want to say when it comes to market reaction, it's somewhat underrated as a factor that full year 2025 earnings estimates have come down. Not a lot, and it's mostly in lower expectations in Q1 and Q2. Full year expectations are down a bit. They're still expecting 10.2% earnings growth on the year. But again, that's modestly lower than what was expected at the beginning of the year, and that was based on a very, very, very, very, very high multiple, a very high valuation. So downward revisions have been subtle. They could improve later in the

year. They could worsen later in the year. But those downward revisions are also taking place with loft evaluations with this fundamental challenge around tariff uncertainty, not to mention broader economic uncertainty. So there you go on the market side. As far as the news of the day, you're going to hear all kinds of talk about a shutdown later in the week. It appears that there's a continuing resolution that I suspect a lot of the votes for to avert that, but then that has to get translated to a budget package that then the tax bill has to be reconciled to. So let me just go straight, first of all, by way of news, Mark Carney, new Prime Minister of Canada, replacing Justin Trudeau within the Liberal Party, but then of course they

will end up having to have an election, but within his party, he overwhelmingly took that. Mark Carney had been the head of the central bank in Canada back in the day. There are more and more talks of back channel improvement in the US Ukraine dialogue, including a rare earth minerals deal since the disastrous Oval Office meeting of about a week and a half ago. And we'll leave the main news stories there because the issues around this budget bill and a tax bill, and then of course all the tariff and economic talk are the big things we want to talk about. So Mike Johnson, Speaker of the House, has really done a good job of getting the President

to go to bat for him. President Trump has not left him out to dry. He is heavily whipping votes to try to fund government through September to avert a shutdown this week and any political complexity that comes from that. And even though there are some so-called fiscal hawks in the House that have been utterly unanimous before and emphatic in their opposition to a resolution, a clean bill. What they've done here though, they're not just providing new funding to extend it. There is a combination of cuts in spending.

They're increasing spending on border control, which is politically popular, and they're not touching Medicaid or Medicare. So I think it's going to be very politically hard, especially with this pressure from the president for Republicans and even some battleground state Democrats to not vote for this. So I assume they may get that budget, but then the hard work comes up beyond a stopgap funding bill, the budget legislation then has to be reconciled to a tax bill. A better way to put it is the tax bill has to be reconciled to a budget. The House Ways and Means Committee is meeting as I talk right now, drafting a tax portion.

And it's funny, the only thing I've gotten leaked out so far is that one of the pay-fors was going to be repealing some of the clean energy tax credits that were part of the Biden administration's so-called Inflation Reduction Act. And apparently there's about 20 Republicans that say they don't want to get rid of that and that's a meaningful pay-for. And it's not that meaningful, but it's one of the things. I bring it up just to point out how tricky this sausage making is going to be, but that's what we're watching. And I think the economy and I certainly think markets would prefer this be a massive priority in the days and weeks ahead. So I want to read from you a quote that Howard

Lutnick said yesterday, word for word, Howard Lutnick is the Commerce Secretary of United States of America. He'd been the CEO of Canterford's Gerald for well over 25 years, a big Wall Street firm. He had been a co-chair of the Trump 2.0 transition team. And here's what he said on Meet the Press Sunday. Yes, some products that are made foreign might be more expensive because of American tariffs, but American products will get cheaper, and that's the point. So will there be distortions? Of course, foreign goods may get more expensive, but American goods are going to get cheaper and you're going to be helping Americans by buying American.

So it is, I think, one of the first times I've explicitly heard that, yes, some things are going to get more expensive. That's the way a lot of regular people say tariffs are inflationary. They push prices higher. What he's saying here is that, yeah, that will happen. And since America imports a lot of foreign goods, it would happen on a lot of things. But then what he's saying is, but it's going to make American products cheaper. And I'm not totally clear how or why.

Why would American manufacturers cut their prices when their foreign competitors are increasing their cost? That would be charitable of them and maybe they're in a charitable mood. But it's an interesting argument economically I haven't really heard before. But there's an important point here. Other products that are made by Americans not competing with foreign manufacturers will get more expensive for the exact same reason using his logic. As foreign countries put retaliatory tariffs on those products, then that makes domestically made

products more expensive as he has conceded. So American-made products exported to other countries subject to retaliatory tariffs are going to get more expensive, less competitive. And the point I would argue is that this is a classic case of visible and invisible effects. I talk about economics all the time. So what Secretary Ludwig is doing is referring to a certain group they're trying to protect of American manufacturers in some sectors. And one can disagree with him on what that protection would look like and positive impact

would look like. I happen to disagree. disagree with him on what that protection would look like and positive impact would look like. I happen to disagree. But even if one agrees with him, the impacted parties that are not being addressed explicitly are American manufacturers who export goods already. American manufacturers that are going to see their prices go up as innocent bystanders in the trade war that is trying to protect American importers and will end up hurting American exporters and of course

workers at American export companies. President Trump then on Maria Bartiroma on Sunday Morning Futures on Fox News said, tariffs will make you so rich, you're not going to know where to spend all the money. So first of all, I think most Americans when they get richer and they get money back and good things are happening, he means as a figure of speech. So I'm just having fun, but I think they'll figure out where to spend the money. But no, the issue here is something in the messaging administration is not being believed, that there's just going to be this prosperity and richness that comes from something that is clearly a cost to the economy.

And I think what you're going to see now is a spin of, no, no, no, there is a cost, but it's short term and so forth. And so then we'll see how that message goes. That's a very difficult message politically. There's just a very low tolerance for economic pain for a lot of reasons and remain of the opinion that the administration's not going to have a great stomach for where this is and where it's going, but they're certainly doing their best to hold the line and markets aren't liking that.

Let's move to the economy for a moment. Besides the issues I talked about, dividend cap and Friday, and my belief that there is a uncertainty dilemma in the economy that is even when these tariff things do get resolved, assuming they get resolved and assuming they get resolved favorably, that there's still going to be a cost to the economy in 2025, the longer it goes on. You had a jobs report Friday that was a little weaker than expected, 151,000. It was expecting 160. That's only marginal, but the unemployment rate ticked up to 4.1%.

There were no offsetting positive revisions the last couple months, which there had been the last couple. Tax refunds are tracking 23% higher at this point than they were a year ago, but it's very early. You're talking about February data, so that's obviously not a ton of filers, but I think that's interesting, and I'm watching that now. It has been brought to my attention. On the housing and mortgage side, I've had three different sources now that our multifamily developers, home builders, commercial developers say the capital markets have really reopened up in their space, that there's a lot more willingness to lend, more

aggressive terms, more aggressive loan to value coming back in their space, that there's a lot more willingness to lend, more aggressive terms, more aggressive loan to value coming back in the space after what's really been a pretty frozen market for quite some time, institutional capital coming into multifamily and home construction at scale. And so I'm interested to see if somewhat tighter spreads, a lower reference rate, that that's beginning to de-thaw that market. I know the Fed would love to hear that. If it were one source, I'd consider anecdotal, but I did pursue three different sources that

gave me this report, so it's a potentially substantive bit of information I'm going to keep watching. Now, as far as the Fed and their efforts, you're now looking at the market fully pricing in three rate cuts again, and we're up to a 39% probability again of four rate cuts, where we were at 0% probability a few weeks ago for four cuts. So now you're at 75% chance of three cuts and a 39% chance of four cuts by the end of the year from where we are now. So again, that is the market pricing in what it believes on economic weakness and what

the market believes the Fed will have to do in response to economic weakness. Crude oil, which is definitely right now responding to demand erosion or fears of demand erosion, down to $66, down a little over 1.5% today. Midstream energy was down 5% last week. It was up today, but again, the market was down quite a bit last week, but that's with no real exposure to tariffs at all. The domestic movement of oil and gas in midstream is not a tariff story, but it can be a risk off story.

And so that could become a great buyable opportunity if it were to sell off enough where there's a disconnection between sentiment and fundamentals. All right. Someone asked me a question about why I refer to Bitcoin as a sociological investment. That is the Ask TBG at today's DividendCafe New York City at 530 PM, I'm going to leave it there. I recommend you reach out with any questions you have. Questions at thebonsongroup.com.

Brian and I write back to these all the time. A good portion of them end up in print. We're doing two or three a day sometimes. We definitely want to cover your questions. And then on a wider note, as I sit here in New York City at 5 30 p.m. realizing that the clocks move forward and that the sun's not going to go down until much later than I like and that the sun this morning was still not up after I'd been awake for like three and a half hours. Why President Trump can you not go forward with this daylight savings repeal? I know everyone's either really happy or really upset with you about more substantive things but this is the one

I want to bring up, daylight savings. Let's get rid of this stupid thing. Thank you for listening, thank you for watching, thank you for reading The Dividend 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.

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