The Dividend Cafe - Monday - August 25, 2025

Episode Date: August 25, 2025

Today's Post - https://bahnsen.co/4mqPbFc Dividend Cafe: Market Updates, Fed Insights, and Public Policy Developments In this Monday edition of the Dividend Cafe, the host covers a range of topics including market performance, recent movements by the Federal Reserve, and significant public policy announcements. The DOW and other major indices experienced declines after a notable rally on Friday following Chairman Powell's speech at Jackson Hole. Public policy highlights include the U.S. government's equity interest in Intel and plans for future investments, as well as new tariffs on imported furniture. The housing market shows signs of trouble with declining permits and new home sales. The episode discusses the potential implications of Fed Governor Lisa Cook's investigation and offers insights into crude oil prices and midstream energy sectors. Finally, it reiterates the resilience of dividend growth investing amidst economic and policy uncertainties and previews Nvidia's forthcoming earnings report. 00:00 Introduction to the Monday Edition 00:20 Market Recap: A Look at Recent Trends 03:02 Public Policy Updates and Government Actions 06:00 Housing Market Insights 08:17 Federal Reserve and Economic Policies 11:08 Energy Sector and Investment Strategies 13:30 Conclusion and Upcoming Highlights 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 Dividend Cafe. We had a reasonably normal dividend cafe for you today because we're just covering a few different things in every category, although I suppose there may be a few important things say about the Fed and based on the Jackson Hole time from Friday, let me start just by getting the market stuff of the day out of the way. Markets were down 349 points, the Dow, which is three quarters of a percent, opened down about 100 points, and then just kind of slowly but surely

down further throughout the day. This, of course, comes off of the huge, huge rally day of Friday after the Jackson Hole speech the Chairman Powell gave. So I'm going to talk about that in a moment, but I just want to get the data out of the way. Dow down three quarters of a point, S&P down almost half a percent, NASDAQ down almost a quarter of a percent. And when you look at the Friday rally, 91 percent of companies that are listed on the New York Stock Exchange were up. And it's only happened five times in two years, that level of breadth. And then the advanced decline line in the Russell 3,000, 14 advances for every one decliner. So you had really a pretty noteworthy day on Friday in terms of breadth. 80% of companies have seen positive

revisions the last three months in their forward earnings estimates. Now, this is more sentiment-oriented than fundamental. People start feeling better about things, and then they start revising higher the estimates. This is not about revisions going higher from actual earnings, but it is still generally a decently reliable forward indicator. And the fact that it's happened with 80% of companies speaks to this breadth argument I'm making that there has been a reasonably encouraging spread of where things are going well in markets has not changed the concentration and the top heaviness, but there's been more participation across different sectors of the market. The 10-year bond yield today closed at 4.28%, which was up two basis points on the day.

Of course, the entire bond market rallied violently. Bond yields fell across all spots on the yield curve on Friday. But today, pretty modest movement. Top performing sector today was communication services, was up 44 basis points. I think the only other positive sector today was energy, which is up about a quarter of a point. And then the worst performing sector day was consumer staples, which was down 1.6%. The only other anecdotal thing I think I'll mention is that Shanghai's stock market is making a 10-year high. So a lot of good things happening for China. In terms of the public policy side, the announcement started to come or it came that it was coming last week that the United States federal government has taken 10% equity interest in Intel, and there's a link to this announcement in the Dividend Cafe today. The government also in this deal that then finally got officially announced over the weekend is getting warrants to buy up to an additional 5% of the company at $20 a share, significantly below current market price.

Then this morning, National Economic Council Director Kevin Hassett said that the government plans to do a lot more deals like this and is essentially wanting to create their own sovereign wealth fund. Of course, unlike a lot of sovereign wealth funds, this would be deficit funded. They'd be using borrowed money to buy stakes in other companies, but he specifically referenced the government wanting to do this with other companies in multiple or across different industries. I'm going to write about this at length in the Friday Dividend Cafe. I had another topic in mind going into Labor Day, and I changed my mind this morning and decided I picked my topic for the week already.

But I'm going to have to leave you in suspense beyond that because if I start talking about right now, I promise you I'm not going to stop. Other public policy news that President Trump announced the U.S. is looking to pose, and he didn't say a number, significant tariffs on imported furniture. And as I said, those will start in the next 50 days. So I'm not sure if they're saying that's the furniture thing is related to national security or not. But that's the latest sectoral tariff we're after is couches coming in from other places. The trade deficit in the first six months of the year increased by 38% over what it was at the midpoint of 2024. So midway of 25, trade deficit higher by 38% versus. where it was the midpoint of 24. That's a movement from $421 billion in the first half of the year in

2004 to $583 billion in the first half of 25. Now, it is, first of all, my opinion, as I've expressed several times in different context, that the tariff policies of the administration won't ultimately do anything to reduce the trade deficit, but that they don't need to because there's nothing wrong with the trade deficit. Now, that said, you could say the trade deficit actually went up 38% year over year. Doesn't that kind of pour water in the idea that they're going to do this? And I would say that no, actually the trade deficits in this case skyrocketed higher because of front-running imports, whereby companies were accelerating their import orders to try and get in front of the tariffs. So I wouldn't be surprised to see that come lower, but I would not

say that I care either. On the housing front, a number of data points I want to get into here that came out in the last several days. First, the NHB Housing Index, the home builders, 68% of home builders reported using incentives to get a transaction done last quarter. That's the highest level since May of 2020 when the world was shut down. New building permits dropped for the fourth month in a row. So while new multifamily starts have had a good rebound, the leading indicator that permits are in terms of permits being pulled for new single family construction continues to be very depressed. Now existing home sales increased by 2% in July and they saw median prices drop. That may have helped to get a little bit additional volume. But the annual

pace of home sales is over a million homes less than it was pre-COVID. It's over two and a half million homes less than it was post-COVID. In terms of new home sales, so we get the data for existing homes, what they've bought and sold, and whatnot, and then brand new construction selling to a buyer for the first time. The volume of new home sales was down 0.6% month over month, and the average price of a new home sold is down 5% versus a year ago. That's the mean, and then the median is actually down 5.9% from a year ago. Now, according to Redfin, July was the slowest sales month in over a decade. The average home is now on the market for 43 days.

That's the longest in over 10 years. Supply is up to five-year highs. And this is the stat that grabbed me. Only 29% of homes went above their asking price. That's the lowest number selling for over asking price in over six years. So still a pretty unanimous verdict. unanimous set of data in the housing world of some slowing, troubled circumstances. So I mentioned the Fed, J-PAL's speech in Jackson Hole, clear as could be a rate cut is coming

in September. Futures, though, were already over 70% probability for a rate cut in September, and then, of course, that basically went well up into the 90s. It's unlikely to me that markets rallied just on the shocking news that was already over 70% priced in. that the Fed would be cutting in September, I think more likely it removed some hedges, removed some kind of people having to put trades on allowing for unexpected results, and then expectations for marginally

more accommodative monetary policy into next year. In other words, markets trading on what they're thinking this might mean for December, January, et cetera, versus just what it means here in a few weeks. The line from his speech that I I think has been repeated the most with policy and restrictive territory, the baseline outlook, and the shifting balance of risks may warrant adjusting our policy stance. That right there captured the narrative shift.

I won't get into a lot on this issue of Fed Governor Lisa Cook. That is apparently the president's starting to fire her, and she's facing investigation about claiming on two different mortgage applications. primary residence. The reason I'm even bringing up at all is just simply because of the fact that it would mean if she were replaced, either because she resigns or is terminated and that were to hold up in court, all of which are big ifs, that four of the seven seats of the board of governors would be Trump appointees. And I'm not including in that Jerome Powell. He was actually a Trump appointee too, but they've obviously gone adversarial. But why does that matter

when the Board of Governors is not the same as the Federal Open Market Committee that does the voting filled up of different Reserve Bank presidents. Because the Board of Governors can fire Reserve Bank Presidents at will. The President can only fire for cause. So I don't know that this would happen. It has certainly never happened. That Board of Governors has fired reserve bank presidents for no reason. But there is theoretically a backdoor way that a Trump-controlled body, or at least a Trump-appointed body, the Board of Governors, could move different people in and out of positions at their sole discretion. I still would be skeptical of that would happen.

There's a link, by the way, in Dividendon Cafe today to the Atlanta Fed, and a paper that they've recently written opened to the possibility of a tariff-induced elevation of prices being sticky, and there's a lot in the paper that's interesting and noteworthy. So crude oil closed at $64.73 up about 1.68% on the day. I'll point out to that last week, midstream energy, the midstream energy sector we follow so closely here at the Bonson Group, was up about 1%. And energy stocks were the top performing sector of the week. Somebody had asked in the Ask TBG, and I definitely recommend you go to the homepage, Dividendoncafe.com,

and look at the Ask TBG for the written answer of the question. But someone had asked if our concern about the administration taking equity stakes and companies, newness around sustained tariff policies and what it could mean to economic health or financial markets, liquidity, all topics I've written about recently, if it would cause us to impact portfolio strategy, change things entirely in what we're doing. And I just want to read my answer to give those who only listen to the podcast or video a little take on this, because it's very important. It was a great question. There is newness across policy and economic conditions right now, no doubt, but various economic vulnerabilities, volatility, and even policy

abuses are not at all new. In fact, they're the norm. The specifics twist in turn, yes, but the basic underlying reality of some economic and policy vulnerability is incredibly common. So with that said, one of the basic profundities of dividend growth investing is that it is reasonably agnostic about economic vulnerability and policy, madness. Particular companies may have particular impacts we have to manage for and always have, but the general thesis is to replace the risk and reward of macro with the risk and reward of individual companies sustainably growing their dividends. The macro things I address are not going to change our investment philosophy and your age and stage benefits from our approach, meaning the reason for the context is someone who asked the question was nearing or entering retirement. So I think that to pick up where I left off, we would not be abandoning dividend growth

investing over the headlines of the day here and, in fact, believe that they are a feature not a bug. All right, so you have NVIDIA releasing earnings results Wednesday aftermarket. The first time ever, a company that makes up over 8% of the S&P 500 is releasing earnings. And I mentioned that Dividy Cafe on Friday is going to cover this talk of government, equity, ownership, and private companies. With that said, feel free to check out Dividendcafe.com. There are links to different things and lots of fun stuff to check out as always. But in the meantime, reach out with questions you have for us, comments you have for us anytime. Questions at the bonson Group.com.

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