The Dividend Cafe - Monday - August 4, 2025

Episode Date: August 4, 2025

Today's Post - https://bahnsen.co/47cWpYw Volatility and Market Movements in Early August In this Monday edition of Dividend Cafe, the host discusses the high volatility observed at the start of August, noting significant market movements influenced by a poor jobs report and Federal Reserve rate cut expectations. The video examines the impacts of volatile earnings reports, trade deals, and changes in bond yields. Additionally, the host revisits topics from the previous episode, such as tariffs and trade deals, and provides insights into recent job market data and public policy developments, including the controversial firing of the Bureau of Labor Statistics head. The episode concludes with a look at sector performance, particularly the communication services sector, and anticipates more earnings reports in the upcoming week. 00:00 Introduction and Market Overview 00:22 Volatility and Market Reactions 01:41 Earnings and Trade Deals 02:45 Market Performance and Asset Classes 04:44 Bond Market Movements 05:10 Sector Performance and Seasonal Trends 06:37 Public Policy and Employment Data 09:11 Trade Policies and Tariffs 11:58 Federal Reserve and Rate Cuts 13:49 Conclusion and Upcoming Events 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 Dividend Cafe. We are into the month of August and we started the month with a big sell off on Friday and then came back after the weekend with a big rally today. So as we move a little deeper into the early part of August, a little higher volatility right now, but not a big net-net move. And it's an interesting story, because more or less, what happened on Friday was that

markets dropped after a very poor jobs report. And it rallied the bond market, and it caused stocks to drop. And then really, the reason that stocks were up so much today was a significant repricing of expectations for a Fed rate cut. So those that are astute at the art of inductive reasoning could say, you're telling me that stocks went down on Friday for reason x and then went up on Monday

for the same reason x. And there's some truth to it. And it does seem a little bit incoherent. But I think a better way to put it would be that last week you saw a lot of volatility. But I think a better way to put it would be that last week you saw a lot of volatility. And volatility is up and down movement. And this volatility's continued here today, Monday,

around what was a hawkish Fed press conference on Wednesday, but now very dovish Fed expectations today. What was very bad jobs report Friday, but what has been pretty good earnings season so far. Certain trade deals that have been announced, certain trade deals that remain unannounced. So whether it's jobs, rates, trade, and there's other categories too,

earnings are in this as well, because you've had some companies that came out with terrible results and got hit hard, other companies that come out with very good results and rallied. You're seeing a bit of both extreme seasons of things on all of these categories. So you would expect that to enhance volatility.

We're seeing that play out in markets. Before I go into today's summary, I would be remiss to not redirect you, if you missed it, to Friday's Dividend Cafe, trying to do an economic look at how to think about the tariffs and the trade deals further out. Six, 12, 18 months, what to expect and what will represent a kind of fair litmus test

for how it is played out in some ways maybe better than expected and in other ways worse than expected. So I would direct you to Friday's Dividend Cafe for that treatment. The market today opened up about 300 points after the big sell-off we had on Friday and then it went higher throughout the day and closed basically up near 600 points in the Dow. 1.34% to the upside for the Dow. The S&P up almost one and a half percent. The Nasdaq up almost two percent. All indices up somewhat inverse to how much they were down on Friday, although actually the downside of last week

was not fully recaptured today, but a good portion of it was, at least the S&P and the NASDAQ. Despite the big sell-off in markets last week, the S&P was down 2.4% on the week. The market in July, the S&P, was up 2.2%. So I guess you could say it gave most of it back just on Friday and then had a rally today.

But that speaks to the fact that July was a good month for risk assets without a lot of volatility. And then the heavy volatility of the last several days, you're going to see a lot of things go up and down almost by the amount that you saw in a whole month. And that's where we are with the S&P. Large cap stocks were one of the best performing asset classes in July. What we call frontier markets was actually at the top of the leaderboard, which is the

most emerging of the emerging markets, were the top performing asset class. MLPs were in second place, and I'm going to talk about that more in a moment. The worst were various elements of foreign bonds, foreign sovereign, emerging sovereign, the global debt that obviously trades inversely to the dollar. The dollar's comeback rally weighed on all those instruments that basically trade counter to the dollar. So remember the dollar had been selling off in April, May, June into July, but then really rallied. And that's what created that sell off in a lot of foreign bond instruments. Speaking of bond instruments, our own U.S.

Treasury 10-year, the yield closed today at 4.19 percent. That was down another three basis points. It had been down about 14 basis points on Friday. Some of the short-term, one-year, two-year, three-year treasuries, their yields were down 25 basis points on Friday. So just a massive rally over the last two days in the bond market. The top performing sector today was communication services, up 2.6%. Its cousin technology was up about 2.1% today. And all sectors were up in the market except for energy, which was down 44 basis points.

That was the only sector in the red. One thing I want to caution you about if you're reading other reports or if you are making the extremely unwise decision to get other financial sources of media and input besides the Dividend Cafe, that right now there is this theme I'm seeing more and more, both with institutional research that I read and even other media coverage of the seasonal conditions and what to expect, you

know, that there is a seasonal volatility this time of year in the VIX and that this can be a seasonally challenging time for credit spreads. August is historically a difficult season for stock markets. I even saw that and all those things I just said were quotes from various reports. I even read this morning that August in the second term of a presidency is historically a rough month. These things are almanac type indicators that can be true and at the same time unbelievably unhelpful. They do not take into account causation. They speak to certain correlations that lack causation. And even those correlations are not nearly all that high

or helpful. I'd be very careful of seasonal discussion, which doesn't mean it can't play out. It just means I wouldn't bet on it playing out. On the public policy side, I do want to address the president's decision to have the head of the Bureau of Labor Statistics fired on Friday. It's

a policy decision. There's a couple links in Divin a Cafe today to different op-eds and economic data and treatment of that whole decision and whatnot from Wall Street Journal and others, but I think it's going to be very consequential. I hope I'm wrong. I do believe that seasonal adjustments and revisions are unfortunate, but very, very common. What the BLS is attempting to decipher, the way it collects survey results from employers is subject to revision.

There is absolutely no reason to believe this is new or partisan, that it has any precedent in history recently or more than recently in helping one political party over another. I happen to think what's weird about this is that this particular revision helped the president in the sense that a narrative was cooked throughout May, June, and into July because we didn't get this July report till early August that, oh, the economy was doing real well despite all the tariffs. And that was touted by his own economic policymakers and communicators time and time again.

So if someone said, well, they were cooking the books politically, it would have been in his favor. And yet again, I don't think any of that was happening. There's ample precedent of these revisions being both upside and downside, being helpful or counter helpful to both political parties. And again, I think that they can be frustrating, but they are consistently applied in their model and methodology. Now, you say, okay, well, I want to look for confirming data. That's fair, and here's some confirming data.

The ADP private payrolls report, private payrolls not going through Bureau of Labor Statistics or any other governmental office reported a three-month average of 37,000 jobs per month over the last three months in the private sector. The six-month average had been 67,000, so that's been cut basically in half. The 12-month average was 130,000. So it's been cut in half twice over the last three months versus last year. And again, the ADP number could be wrong. I don't think anyone thinks it's being cooked. So we're dealing with a lot of different data points. While in the public policy front, I will point out that we have a framework of a deal now

for trade with places like Japan, the UK, Vietnam, the European Union. There's still some unsettled things with Canada, and tariffs are supposed to now go to 35% with Canada, 39% with Switzerland. 20% tariffs are now effective with Taiwan, although those talks are still going on. I don't see that there are any constructive talks going on with Brazil.

Those tariffs have become very onerous. The only thing I want to say is when we talk about, well, now these countries are facing these larger tariffs in Canada and Brazil and everybody, it's fine. You can say that, and there's certainly a sense of which that language can have some technical accuracy to it. But these countries are not the only ones will suffer from confusingly punitive new taxes and this of course will have some cost to United States as well albeit much less of a cost than if we were dealing with the same thing with these larger

trading partners like the European Union and Japan and so forth. So the jobs number that I mentioned created the controversy due to President Trump's decision to fire the head of BLS. It was a bombshell. 73,000 jobs created, much weaker than expected, but the far bigger factor was May and June being revised down by 258,000 jobs. A three-month average of just 35,000 jobs per month. That's the lowest since COVID. That's in line with what the ADP number indicates.

The unemployment rate reaching 4.2%, so up just 0.1%. Household survey saw a drop of 260,000 jobs. And then the labor participation force dropping to 62.2%. The small business data being where a lot of the difficulties lie, the NFIB, National Federation of Independent Businesses, survey showing plans to add new jobs and increase wages at the lowest level it's been since 2016. The home building space is not allowed to update, not allowed to say on new housing starts, on new inventory, on new supply, on affordability, on price levels, and even mortgage rates.

They're all where they were, no new data report. But I will say that the home building sector as a public stock sector has taken a turn for the better seems to have bottomed a bit and has formed a little bit of a formation chore indicating coming off of its bottom and if that proves to be constructive markets are discounting mechanisms and if it's forward-looking that this could be a good sign I don't want to get ahead of ourselves but it would be nice to believe that some of the worst is in in terms of those other

data points, whether it be affordability or new home construction. The odds of two rate cuts now, as far as the Fed goes, went from 48%. So two rate cuts before the end of the year went from 48% after Chairman Palace Presser, meaning it was at 48 of two cuts, and it's now up to 81%. So you saw a massive move in the odds that there'll be two cuts. And as I mentioned, the short end of the EO curve dropping 25 basis points, the bond market certainly telling the Fed to get on with its rate cuts.

Now, I would say maybe even more interesting is that there's a 50% chance now for three cuts by the end of the year. That could be one half a point cut and one quarter point cut. It doesn't need to be three, but there is a 50% chance of 75 basis points coming out of the Fed funds curve by the end of the year. We shall see. And then Fed Governor Adriana Kugler resigned Friday. The president gets a chance to replace her now.

And will he choose to replace her with someone who would hold the seat and then become the new chairman? Once we see some of the nominees for the position, I'll have a better feel for that. It will be interesting. Oil down 1.7% today, sitting there still in that range, $66. Midstream last week was up 1 1⁄2% with the market down 2 1⁄2%.

So some names coming in, good earnings results. Midstream mostly trading company by company in tandem with how their results come in. And the Ask TBG is a long enough answer as to how I would address whether or not tariffs are a good way to deal with government funding, whether tariffs are a good way to deal with other countries misbehaving. I will let you go to dividendcafe.com and the Ask TBG for my answer to that.

So other than that, what's on deck this week is mostly more earnings and I will look forward to being with you in the Dividend Cafe on Friday as always here in beautiful Newport Beach California where I have returned for the month of August. Thank you as always for listening, thank you for watching and 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.

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