The Dividend Cafe - Monday - August 31, 2026

Episode Date: August 31, 2026

Today's Post - https://bahnsen.co/4cPVI9C David Bahnsen recaps Monday market action (Dow -374, S&P -0.33%, Nasdaq -0.12%; 10-year yield 4.76% up 3 bps), with energy leading on oil up 3% to about $86 and communication services lagging. He briefly shares midterm Senate race dynamics based on conversations with analysts, noting multiple paths for Democrats to win or lose the majority and warning against overconfidence in political predictions. Housing data showed August national median rent up 0.1% and down 0.8% year-over-year. He reviews Fed Chair Kevin Warsh’s Jackson Hole speech emphasizing price stability over employment, asserting a healthy labor market, concern about inflation, and a firm 2% target; markets raised implied September hike odds from ~38% to ~60% and to ~88% for a hike by year-end. Warsh discussed productivity questions (including AI), tight credit spreads, repudiated forward guidance with a “hall of mirrors” analogy, and delivered a cordial, potentially consensus-building tone. Bahnsen also notes a reported 35% U.S. government stake in a Venezuela oil venture with no short-term price impact, and that since 1950 September midterm years were evenly split between up and down markets. 00:00 Welcome and Agenda 01:05 Market Snapshot 02:13 Midterm Election Outlook 05:32 Housing and Rent Update 05:47 Jackson Hole Fed Takeaways 07:02 Rate Hike Odds and Targets 09:00 Forward Guidance and Consensus 11:25 Oil Moves and Venezuela Deal 12:06 September Midterm Seasonality 12:39 Closing and Next Episode Tease 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. I'm your host, David Bonson. I am going to get right into it because we do want to cover today's market action and the normal things we like to cover. But there's a little recap on some Fed activities. In light of Chairman Kevin Warsh's speech in Jackson Hole, Wyoming, that I want to cover today. The Friday Dividing Cafe concluded a quick two-part series on dividend growth investing,

the strategy we believe in here at the Bonson Group that flows from our investment philosophy. And despite the fact that Chairman Warsh spoke of Jackson Hole Friday, I wanted our Friday Dividendon Cafe to stick to those core tenants and we did it. And yet there are some things worthy of covering. And so we're going to do it here today. In terms of market action, the Dow was down 374 points. It opened a down 300 and just kind of stayed right around there throughout the day in a pretty tight range, actually. So that was about 70 basis points to the downside for the Dow.

The S&P was about 33 basis points. The NASDAQ 12 basis points. The 10-year bond yield closed at 4.76%. So that was up three basis points on the day. and the long end was up. The yield were up a little bit on Friday as well. So you have some downward pressure on bonds over the last couple days, and then some downward pressure in equity markets, nothing too substantial.

The top performer, by a sector standpoint, was energy up over 2%. Oil was up 3%. WTI crude getting back to about $86 a barrel. But then you had communication services down over 1.5%. So a little disparate. version of results throughout the equity markets. Very quickly, in terms of public policy, before I get to the Fed stuff, I don't want to spend a ton of time with my own midterm projections.

First of all, I write about it more in the written version today, but I want to reiterate that I am not a political prognosticator. I don't really even consider myself the political junkie that I used to be. For those who know me, I've been a political junkie since I was a little, little, little, kid. And it is still in my DNA to some degree, but it's much less in the blood than it used to be because so much of it disgust me in a way I can barely talk about. But I follow it closely, and I talk to people extensively. And when I share things like, I believe it is more possible than it was, but still pretty unlikely, that the Democrats could lose Maine. They're trying to take

over that seat and lose Michigan. They're trying to hold that seat and possibly still take the majority in the Senate. I do not believe that will happen, but I do believe it is more likely than it was, but that would require them to take North Carolina, which I think they will, take Alaska, which I think they could, and probably better than 50% chance they will, Iowa, which I don't think they will, and Texas, which I think is a toss-up. Now, some will say, how stupid are you? you to think the Democrats might take Texas. And I recognize the argument that has not been a good thing to bet on for a long, long time. And that I know what the polls say, I know what the fundraising says. There's plenty of reason for the Republicans to believe they're going to lose that seat

in Texas. But the history of it is just, it's a high bar. So for those who say it's so obvious, I don't agree. And these are the things in political projections that get people in a lot of trouble. Nothing is obvious. And you would think enough have been humbled. I know I have been with political projections and predictions in the last few years and the last 10 years that we'd be past that. But people can have strong opinions. All I'm saying is mathematically, I think the Democrats might take the Senate if they hold Michigan. I don't think they will if they don't hold Michigan, but I think they could lose Michigan and still take the Senate, and I think they could hold Michigan and not take the Senate.

So there is more than one race worth watching, and it's just far more exciting than I would have guessed it was going to be at the beginning of the year. And everything I just said is not my own political opinion per se, but my opinion informed by the conversations I'm having with, in some cases, people, I believe, to be some of the greatest political analyst and commentators of our day. So I'm sharing it with you because of the market impact and economic tentacles that flow there from.

Now, moving to housing national apartment list for August, showed a 0.1% increase in national median rent. We are 0.8% lower than we were a year ago. And then let's get to Chairman Warsh's speech. I want to list off a number of takeaways from the speech. It did not shock markets. it did not push stocks around. It barely impacted bond yields. I mentioned that they were up a little bit, but it wasn't very much.

But nevertheless, certain elements moved. The yield curve has flattened to some degree as the short end has come up. But his primary theme in the speech was on price stability and curbing inflation. And he said a lot of those same things in his last speech and press conference after the FMC. But then this speech in Jackson Hole, he wasn't just. merely emphasizing the price stability issue over the full employment issue, the kind of competing mandates of the Fed, he flat out said, he thinks the job picture looks quite healthy, that he thinks it's a robust labor market, and he didn't just say that inflation was not meaningfully slowing.

He said it is really concerning. And so it did seem almost unambiguous that he was saying of the two issues were far more focused on price stability than the employment picture. The tenor, the content, the tone of the speech lifted expectations of a rate hike in September. But here's the thing. You go from 38% of a implied probability in the futures market of a Fed hike to 60%. It moved a lot, but it's still 60, 62%. That's not 100. That's not even 80. And so there's still going to be some uncertainty going into the next meeting. We are, though, now at 88% implied probability of some rate hike by the end of the year. But whether or not they hike in September, the odds did get more likely, but they still maintain that 140-yard line or the other around the middle of the

field. He was adamant that 2% as the inflation target will not change, that they're not going to go retroactively lift that to 2.5% as some have suggested he might. And I think, I thought it was very interesting that he was using rhetorical questions to demonstrate his focus on the next era productivity. You know, will AI cause a sustained rise in productivity, et cetera, et cetera? There are about nine questions that he posed his questions that were basically alluding to how the Fed has to ascertain whether or not he believes there are disinflationary forces coming from AI and when.

He did get in at great length, far more than the prior Fed chair ever did, and did the Eleanor. them in a financial markets and their role in speaking to financial conditions. He talked about credit spreads as really not being very tight, that they are really very narrow, that you have quite cooperative credit markets at this point. And the forward guidance discussion was just choice of explicit repudiation of forward guidance as a policy tool. And he used this analogy of a hall of mirrors. where forward guidance basically amounts to the markets reflecting the Fed

and then the Fed reflecting markets. That analogy is going to hold in public thought, no matter what the Fed chair ends up doing or not doing, that represents a compelling case for people to understand the concerns around forward guidance and the role of the Fed in the economy. I do want to share Renee Ananow pointed something out. Warsh's speech was extremely cordial. There was not an open criticism of his fellow Fed colleagues.

And to the extent some believe that what the Fed chair is in need of is building a consensus, which is not historically very common. Usually the Fed chair has the votes going in. But if some believe he wants to hike rates but hasn't had the cooperation of his fellow fed colleagues, he didn't do anything in this speech to ruffle Fed. You could argue it may have been a consensus building speech. So all in, I think that you have a better probability, but no way assured or secured of a rate hike in September. And a Fed chair that I think gave a very clear speech about his particular read on policy priorities right now.

Now, some say he isn't as clear as Chairman Powell telling you what he's going to do. And that's fine if you're talking about interest rates. And I don't think he should tell you what he's going to do. and allow the front running of the Fed that represents. But he's far more open and transparent about financial markets, about commodity prices. He has alluded to some of the issues of bank reserves, but he's holding back on some of that because he has a task force appointed to come evaluate a lot of that and make analysis and make recommendations,

and he's trying not to get in front of his own task force, which I think is fair and reasonable. So the Fed issues are what they are. It's recapped for you in writing and dividend and capital. cafe.com. I mentioned already that oil closed to $86 up 3% on the day. The United States announced a 35% stake, the federal government via a Pentagon subsidiary in an oil production endeavor in Venezuela, government stakes, and private business. And I have an ideological commentary on that that will be in my capital record podcast tomorrow. But in terms of those saying,

what would the impact be here in getting oil prices down? This is years and years away if it's successful at all. So you just simply can't get any kind of impact in the short term, but there is a possibility of impact into the long term. And then two, the question that I received, people wanting to know what the market is historically done in September of midterm election years and how that might be affecting our portfolio allocations here at the Bonson Group based on the history of what September is done

in a midterm election year, going back to 1950 through 2022. The answer is that half of the time market was up in September and half of the time it was down. So yes, we are incorporating that into our portfolio allocation. Thank you for listening. They give a watching. They give a reading. The Dividend Cafe. Look forward to being back with you Friday to discuss a really interesting risk in the AI world.

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