The Dividend Cafe - Monday - April 6, 2026

Episode Date: April 6, 2026

Today's Post - https://bahnsen.co/41gK4Pa Markets rose for a fourth straight day despite rising Iran tensions and higher oil, with modest gains across the Dow, S&P, and Nasdaq. David Bahnsen underscores ongoing market rotation: all Mag 7 names are in bear‑market or double‑digit declines while the S&P is down just 9%, showing strength elsewhere. Oil spikes offer no predictive value after ~10% pullbacks. Private‑credit defaults remain low at 1.27%. AI/tech sentiment has cooled, though valuations remain a risk. Policy uncertainty includes potential NATO withdrawal. Economic data shows 178,000 March jobs (boosted by a strike reversal), delayed data‑center projects, a $57.3B trade deficit, softer ISM services, mortgage rates near 6.5%, and steep oil backwardation amid sharply reduced Strait of Hormuz shipping. 00:00 Welcome and Setup 00:46 Markets and War Headlines 02:45 Rotation Beyond Mag Seven 04:46 Oil Spike History and Sectors 06:02 Private Credit Defaults 06:53 AI Sentiment Reset 08:13 Politics and Big News 09:22 NATO Exit Threat 10:49 Jobs and Data Centers 12:54 Trade ISM Housing Fed 15:03 Energy Futures and Shipping 17:36 Wrap Up and Next Reports 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. Well, hello and welcome to the Monday edition of the Dividend Cafe. I hope you all had a wonderful Easter weekend. And if you missed the Dividendon Cafe that we put out on Thursday, please do check that out. Dividendoncafe.com. We did a kind of deeper dive into our thoughts around the energy sector. and where its present situation is relevant to the Iran matter, but also our long-term positioning is not so much determined by the Iran matter.

And so there's some important considerations long-term about our thoughts on investing in the energy sector at dividendcafe.com from late last week's dividend cafe. Today we're just going to do our normal around the horn with the market. It's kind of interesting because I think most people would be surprised to hear that the market has now been up four days in a row when the rhetoric around the conflict is increasing, which it certainly is. And as things stand now, there's an ultimatum that has been presented to Iran that either certain progress is made in the negotiations towards getting to a ceasefire, straight-of-hormuz reopening, or there's going to be a kind of new barrage of bombing, including targeting some of the critical infrastructure spots of the country.

So these things are in flux, and we don't know exactly what will happen. but oil prices have actually gone higher the last several days. And for the first time since all this began, markets in the face of higher oil prices have not gone down, but actually are up a bit. Today it was a little interesting. The morning open mixed with the Dow down, S&P and NASDAQ up a bit.

Then all three went positive about an hour after trading. And there was some zigging and zagging throughout the day. But all three indexes closed near, not at, but near their highs of the day. But this bandwidth of up-down movement has come in quite a bit. And so today you had the Dow up 165 points, which was 36 basis points in percentage terms, S&P up a little less than half a percent, the NASDAQ up a little more than half a percent. So all that to say that markets right now do seem optimistic about the idea that a ceasefire,

or some desire for one is coming, we will see. Let me go through a few other different market points, and then we're going to, of course, cover our normal categories. Let me just say that the rotation, and I just want to go back long ago five whole weeks to before the Iran operation started, and one of our major themes for the year being this idea of not a market correction per se,

but yes, a market rotation. And I don't know anyone, maybe even including myself, that would have said if someone came to me and said, hey, a couple months into the new year, the best performing Mag 7 stock will be Apple, and it'll be down 14%. And the worst performing will be Microsoft, and it'll be down 36%, 36%, with meta down 34%,

Tesla 28, Amazon, 23, Google 22, Nvidia itself down over 21%. Essentially, all of the Mag 7 stocks in a bare market, except for one, which is still in a double-digit correction, and yet the S&P would only be down 9%. I don't think anyone would have taken that bet. Most would have thought, including myself, that with those levels of decline in the AI,

my mag 7, big tech, AI adjacent names, the overall market impact would be much worse. And yet, mathematically, the only way the S&P can be down nine with all of those names down so much more is that something else has gone much higher. And that's really what this rotation has been. And you can say energy has done real well. And that's true. And it may have had a disproportionate impact in your portfolio if you're overweight energy. but the S&P is not overweight energy.

It has a very teeny tiny allocation energy. So what has kind of held the S&P in there are other things that have just simply done far, far better than Mag 7, and that's the textbook definition of a rotation. There is a chart at dividendcafe.com today that shows the last five major oil spikes. And essentially how in each case, afterwards, you got to a point of a market drop of about 10%.

And then from there, in the months or year ahead, you had times where the market went up 20%, or other times where it went down at 25%, or various spots in between. So this is not meant to provide any predictive benefit. It's meant to provide the opposite, that there is no predictive benefit. and what markets do after a 10% drop in oil,

because in five different cases, you have five different, very different outcomes with a high dispersion of results. It's a fascinating chart. Thank you to Callum Thomas, a weekly chart storm for that inspiration. So today, the 10-year bond yield was pretty flat. The best performing sector was consumer discretionary.

It was up about 80 basis points. Energy was right behind it, up 77 basis points. And then you had both utilities and health care were the worst performing, but they were only down about 30, 40 basis points. I wanted to point out that, because there's been so much talk about default concerns and private credit, the direct lending index, which tracks every holding in all traded and non-traded BDCs shows the default rate last quarter of 1.27%. Now, you could say, okay, well, that's pretty low, but relative to what?

Well, lower than the prior quarter, which had been 1.35%. So not only is the absolute level of defaults extremely low, but even directionally, it actually got slightly better quarter of a quarter, not worse. I think it's worth me making this comment. I have a whole paragraph about it in Divida Cafe, but I was debating if I wanted to go into this on the podcast or not, but I think I should. It's my cautionary tone around the AI adjacent.

story has been primarily valuation-oriented, but it's also a contrarian play that when sentiment gets so overwhelmingly bullish that the boat usually can only tip one way. And I do think that that's one area that's changed a little. Valuations still remain a vulnerability for the space, and certainly the fundamentals, I think, remain a vulnerability, as I've discussed many times. The question, though, is, has the sentiment gone from so overwhelmingly bullish that it can only move to a bad place? Or has it now gotten, shall we say, more in line with my view, in which case some of that contrarian argument is less compelling? And I think that's the case. I think you still have a valuation story. You still have a fundamental story. But maybe the best

thing that could happen for the AI and tech bowls is for the masses to become AI and tech bears. And that hasn't happened yet, but it's certainly less euphoric than it was. And that's actually really historically a good thing. All right. So we know the timelines and expectations have moved and can continue to move, but that the president has his ultimatum doubled down in his press conference on it today. We also know, I just want to mention, what an unbelievable story over the weekend. If you didn't read the Wall Street Journal's article, the links at Dividing Cafe about their heroic extraction of the pilot and then one of the other members on the plane that were shot down and how they were rescued.

And it's a pretty phenomenal story. Other news events I'll highlight the Attorney General of the Trump administration's cabinet, Pam Bondi, was the second cabinet. member now fired. She was relieved of her duties on Thursday. There's a replacement search underway for who will oversee the Department of Justice. And then Artemis II did end up setting the record now. It's a lunar mission, but the all-time distance record for humans travel from the Earth. This particular mission, which still has a couple days to go, has now transcended that record. It's pretty remarkable stuff. By way of public policy, it's interesting.

We've gone through a pretty prolonged period now where it used to be week by week. There was some kind of housing policy or credit card company policy or other things being thrown out there, stuff with Fannie and Freddie and what have you. And with the geopolitical moment we're in, there's been less of that. But the geopolitical moment has brought up a public policy issue, which is the president's threat to remove the United States from NATO. And I do not know if it will happen. I don't know if he's serious. And then whether or not it proves to be legal would be a pointed debate because there was a 2023 legislation passed that the Senate would have to prove it with a two-thirds

majority, and that's not going to happen. But there is a case to be made that the president could do it and then allow himself to be sued for it, claiming, no, that Senate rule doesn't. not account for the executive authority here. The negotiation treaties is not delegated to the Senate, and this should have been an executive branch authority to remove us from NATO. So even NATO provisions alone, though, require one-year notice. I just bring it out there to say that I don't know what will happen. I don't know if the president will. I don't know if the president can. And I also don't know what he'll decide to do in a few months, but it's worth putting all that out there.

All right, economic data. The jobs numbers came out Friday, which was interesting because it was a market holiday, and there wasn't a lot of attention around these things. But actually it was a decent report relative to expectations. In March, there were 178,000 jobs created. January and February's very poor numbers were revised even a little bit lower. And the two categories with the largest increase in March were health care and social assistance. The unemployment rate ticked down to 4.3%.

it was hit 4.4. But I want to point out, and I mentioned this when the numbers came out from February, that the numbers were made a little worse by the fact that there had been a nursing strike going on in the moment of February. And then the March numbers look a little better because you have a lot of the return to work of those people in that nursing strike. And that's exactly what did happen. So you get some lumpiness on both sides of the data and that reversal.

One issue that I think is really important to point out in the economic data is that now about half of the current data center construction projects are either delayed or canceled, half. And Peter Bukfar has done a great job pointing out that data center construction was over half of GDP growth last year, or you could call it right at half, about 1% of the 2% real GDP growth that we got. So it is a big deal as to what it means to total economic growth if data center construction is going to be delayed or impaired and even canceled. I think that right now, electrical equipment is simply not available in the proportion it's needed for the relative level of ambitious projects that we have. Some of the electrical equipment has gotten too expensive with tariffs, but we certainly don't have an adequate. grid to meet the power demand. So there's a lot of headwinds to data center construction. And that could end up having a bigger impact to the overall economy. The trade deficit came in at 57.3 billion for the month of February. exports were up 12, but a big portion of that was gold.

And gold is not calculated in GDP calculations in the export import data. Imports were up by 15.2 billion. But here's the thing I want to say as one who doesn't care one iota about the trade deficit, and that is total trade imports plus exports, were only up 0.9% from a year ago. So total trade did not collapse, but total trade did not grow at a normal level, and certainly not even at an inflation, keeping up with inflation level. that is kind of a muddle through middle ground number in terms of total trade. Then ISM services came out today for last month. It fell to 54, still expansionary, down from 56.1 last month, worse than expectations.

Business activity dropped the most, new orders picked up. There's some stockpiling of oil products involved in this. It was not a terrible report. It wasn't a great one either. Again, kind of a muddle through a middle ground number. Mortgage rates are back near 6.5%. The long bond yield having moved higher the last few weeks as it has. Mortgage refinances have obviously stopped with this.

Active listings, though, people wanting to sell their homes are up 8.1% versus a year ago. National median listing prices are down a little bit. So those two things put together should bode well for buyers, but the question is how serious or motivated some of the sellers are. You do have a lot of listings going stale, the things just sitting on the market for a while, indicating a high number of potentially unserious sellers. As far as the Fed goes, we're at 80% probability right now

priced in the Fed Fund's futures market of no rate change through the end of the year. 10% chance of a quarter point cut, 10% chance of a quarter point hike. And then on the energy front, we'll get ready to close up from here. Oil was up nearly 1% today. WTI accrued at $1.44. Midstream did finally have a down week last week. Both mid and upstream energy stocks were down about 3% on the week, but certainly that comes off of a ferociously good Q1 performance.

Oil prices were actually up 12% on the week, but mid and upstream stocks were down. I think it's worth pointing out that the front-end oil contract is at $112, as I said, and that the December of this year, December of 2026 contract, this is how severe the backwardation is about $71, $72. I'm not sure if that's being priced accurately or not for how low things will go on the other side of this military operation. But the futures market very much pricing in an expectation.

Real life deliveries of oil and contracts for future deliveries taking place around this expectation of oil prices dropping quite substantially in the months ahead. In the meantime, shipping through the Strait of Hormuz, this is more than just oil products. Total shipping is down 94%. Oil out of the Middle East, the exports out of the Middle East are down 63%. They had been exporting about 7.5 million barrels a day. It's now down to below 3 million, about 2.8 million barrels per day. Now, how are even those barrels getting exported? Because there's a Saudi pipeline getting it out to the Red Sea, bypassing the need for Strait of Hormuz. Apart from total oil products, it's refined products that have seen their exports collapse,

fuel oil down 88%, jet fuel, 85%, diesel fuel by over 55%. But the area being hurt the most by all this lack of access is Asia. Asia represents 33% of global demand for oil, 50% of that coming through the Persian Gulf. And again, this could get much worse because one of the reasons it hasn't worsened already is that many have lived off of their storage supplies that they had coming into the war. And obviously, as storage supplies get depleted, you would, think that would put more pressure on the supply shock and therefore prices moving higher. All right.

We're going to leave it there. Clients should expect on Wednesday their Q1 weekly portfolio holdings report, our normal portfolio weekly report will come, but we'll summarize the whole first quarter. And I'm going to have a video with that as well as we are trying to do every new quarter. In the meantime, reach out with any questions you have. I always want to thank you for reading, watching, and listening to the Dividendon Cafe. Look forward to being with you in the Friday Dividendon Cafe once again and as always. Have a wonderful night.

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