The Dividend Cafe - Monday - December 15, 2025

Episode Date: December 15, 2025

Today's Post - https://bahnsen.co/3MvD1Ot Monday Market Recap and Reflections on Recent Events In this Monday edition of Dividend Cafe, David Bahnsen discusses various market trends and policy issues from the New York City office. He reflects on the significant news events over the weekend, including the Brown University shooting, attacks in Australia and Syria, and the murder of filmmaker Rob Reiner and his wife. David analyzes stock market behaviors, including sector performances and reactions to AI infrastructure stocks, and provides insights into bond yields and the housing market. He also touches on Supreme Court cases affecting tariffs and forecasts potential policy moves regarding the Affordable Care Act subsidies. Lastly, he speaks about the tragic death of Rob Reiner, highlighting the impact of his films. 00:00 Introduction and Upcoming Schedule 02:13 Reflecting on a Tragic News Weekend 03:41 Market Overview and Key Observations 04:50 AI Sector Performance and Market Rotation 06:47 Bond Yields and Financial Sector Insights 09:31 Policy Updates and Supreme Court Predictions 12:08 Economic Data and Trade Deficit Analysis 13:14 Housing Market Trends and Builder Sentiment 16:17 Federal Reserve Actions and Interest Rates 19:28 Tribute to Rob Reiner and Conclusion Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividing 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, a Dividend Cafe. We are going to spend a few minutes going around the horn as we normally do to all of our normal subjects. I am doing this from the New York City office, where I arrived very late on Sunday night. We'll be here all week. And then on Friday, I will be recording the last Friday Dividend Cafe of the year, doing a special Dividendon Cafe Friday about the first 25 years of this new century and new millennium.

And what the single obvious takeaway of the single obvious investor lesson has been for the last 25 years. And that will be the subject to the Dividing Cafe this Friday. I will, though, do one final Monday Dividing Cafe from Newport Beach next Monday. And that will really be the last of the year. We won't do the final two weeks, the Friday, which is the day after Christmas, day after New Year's with the holidays. Let's say the squeeze is not worth the juice or the juice is not worth the squeeze, whatever the expression is, but we have learned that during the holidays, it is best to let that period go.

And actually, the week between Christmas and New Year's, I'll be very focused on the annual what we call white paper, but basically the year behind reflections, you're in review and year ahead commentary. We want to be focused on going into 2026. So once I start talking about what we're doing and not doing, dividend cafe around the end of the year, you know that we are really wrapping up a calendar year. And indeed, next week, being the Christmas holiday, tis the season indeed. Although I knew it was the season when I walked from my apartment to the office this morning and it was 12 degrees. And I had to walk very slowly to make sure I did not slip on ice or snow and make a mistake that I promise you I have made in times past.

It's an odd Dividy Cafe to do today because there are a handful of things actually that I think are substantive and important and hopefully useful observations for you all in our normal categories of markets and policy and whatnot. But it was just one of those weekends that was actually horrific. And there's really bad things that happen in the news cycle every weekend. But not like this. from the Brown University shooting, where the killer, by the way, is still at large, to the attack on the Jewish synagogue event in Australia,

to the ISIS attack on American troops in Syria, to the unspeakable murder of one of the great filmmakers of our age, Rob Reiner and his wife, Michelle. You just had a bunch of really big news events that, honestly, any one of them would have been a pretty substantive and abnormally heavy news weekend. And you had all four happening in the last couple of days. And I suppose that gives some perspective. It ought to.

But in the meantime, I recognize Dividend Cafe is not where people come for their normal news summary and that our function is to be focused more into markets and economics. But I just have to say it was not a good news weekend. And our thoughts and prayers were with an awful lot of people for awful lot of reasons at this time. And I mean that very sincerely. So moving into the market discussion, if I can force the segue, the market opened up about 100 points this one in the Dow, although I don't think either the NASDAQ or S&P were ever up. The Dow pretty much gave that back almost immediately.

It stayed between the flat line and down a bit pretty much all day. And then it closed down 41 points, which is just nine basis points. So basically very near the flat line. So really the only upside in market today lasted just in the first 30 to 60 minutes of trading. The S&P was down just 16 basis points. And then the tech heavy NASDAQ was down 59 basis points. And that goes in line with the worst performing sector of the day being technology, which was down a little over 1%.

And the top performing sector of the market today was health care, which was up over one in a quarter. And certainly, as I see on our screen in terms of our own portfolio, that it was a good day for defensives and not a good day for some of the other more volatile type sectors. Speaking of which, I do believe that the story of the quarter has been the big four in the AI infrastructure, AI hype kind of world. All four came in with better reported numbers for their quarter than had been expected. And those expectations themselves were already sky high. And all four after better than expected results saw their stocks drop meaningfully. And I have links in dividend cafe.com to the different four. I'm referring to Nvidia, Oracle, Pallentier, and

Broadcom, but I think that the reason I bring it up is the idea of a consistency of stocks dropping on good news and better than expected news. These are the things that I think very often don't happen unless you're dealing with evaluation excess, and the consistency of them across these four companies is where you get a narrative, and that to me is probably one of the most significant. stories in investing markets right now. But when you look at the broad market, I think almost everything is indicating rotation, not correction. The market indices are hardly that bruised. The breadth of the market is substantially improved. Advanced decline ratios are quite good.

The even weight index versus the cap weight index has improved dramatically. The small cap world has picked up an awful lot versus large gap. So you do have a number of different rotations playing out at once. And I think it's a little early for me to call value and certain defensive sector rotation versus some of the others. But I most certainly wouldn't rule it out either. The 10-year bond yield today closed to 4.18%. That was down about 1.6 basis points of the day. So a modest little move higher in the 10-year bond as that yield dropped a tad. The short end of the curve, though, over the last several weeks, has dropped as the Fed cut rates and expectations for more rate cuts are out there. And the long end has picked up a bit.

It had been around the 4%. I just mentioned it's today at about 4.18. It got up to about 4.2. So that's what we'd refer to as a steepening yield curve, a wider distance between the short end and in the long term. in a healthy manner of slope. And the reality is that that setup is generally pretty constructive for the bank stocks. And although financials were down today,

mostly asset managers, the bank stocks have done well as of late in line with this kind of steepening yield curve story. An interesting thought here, the market has never been down a year later when the S&P was at or near an all-time high, And then the Fed began cutting rates. And that's where we were in late 2024.

The S&P at the time was at an all-time high. The Fed then began cutting rates. And here we are a year later, obviously the S&P higher. And there are, let's call it, it's not two dozen, but it's a dozen and a half or so instances of that same situation. And every one of them at that point, the S&P was higher. there is a chart at dividend cafe.com that I'm grateful to Callum Thomas research for sharing. It just uses a well-known company, PayPal, which is immaterial to my point, but it's taking a

company whose stock price back in 2022. A lot of things dropped in 2022. The stock had dropped. Their earnings had dropped. Now the earnings have come way higher, but the stock is still down. And it said the reason I mentioned is not anything to report about pay. PayPal per se, but about what that indicates is the significance of valuations, that many, many companies, when they come down in price because of high valuations, earnings can improve without the stock price improving when the valuation is what explains that disconnect. That had been the story for a lot of companies three years ago, and it's borne out over the last three years, and it continues to be our sort of evergreen belief about what these things are.

what the risk-reward embedded in them is, and you could decide for yourself what companies that may apply to now. On the policy front, I still believe, I think the prediction markets are estimating right now a 74% chance that the Supreme Court will rule as unconstitutional. The Trump administration rationale

for a significant amount of their tariffs, known as AEPA, the International Economic Emergency Powers Act. It's a 74% chance that the Supreme Court would say, no, that isn't going to cut muster. Now, if you're asking me, it's a 100% chance that they ought to rule that way, and we'll see what ends up happening. But the reason I bring it up is to point out that between the Section 232 rationale, which is their national security pretext, and then the Section 301,

which is retaliating against other unfair trade practices, there are a lot of replacement plans in place. And so I've long held that even the Supreme Court does end up doing the right thing, a lot of these tariffs are not going to go away. Now, many will be delayed. Some maybe will go away and the administration won't bother to fight to put them back on. But I do expect that the majority would continue, albeit with a much more difficult administrative burden going forward.

And I've said this before a few times, but I just want it repeated. Those banking on a market rally, they may get a trade rally, they may get a covering rally, there may be a technical rally, but something more economically substantive out of a Supreme Corps ruling in the next, let's say, month or so. I think that the markets are seeing through that and we'll see. Another quick issue just in the policy front is that we're waiting on some sort of figuring from the Republicans in House leadership what they plan to do on the Affordable Care Act subsidies, there are many Republicans that I am reasonably confident would not agree to extend

subsidies. There's other horse trading that could go on to get something done. And there's many Republicans that wouldn't agree to not extend subsidies. So I don't think there's any clarity as to what's going to happen. It's a politically tricky issue for good reason to go about extending. And then obviously it's always politically tricky to take away a subsidy that people had gotten used to. So we'll see. But that is all probably going to be active in the news in the days ahead. On the economic front, the trade deficit came in a $52.8 billion for the month of September. But again, September, because we're still playing catch-up from government data delays during the shutdown.

The total trade is only up 0.4% on the year. It's not good. It's down 10.3% from the March 2025 high. But again, I want to get more data going forward as we get a little bit more clarity on what tariffs are staying, what trade issues or trade deals are going to happen and not happen. But again, total trade has not gone the way you would want it to since Liberation Day. And so that is the major economic data point of the last few days I want to focus on. China released a slew of data for their month of November.

Definitely a meaningful decline in their consumer spending, ongoing challenges from their very over-extended property sector. But that's not a big surprise that China's dealing with some of those economic headwinds, and we've been talking about it for a long time. All right, let me cover housing and then the Fed, and I'll let you get on with your evenings. 75 of the top 150 metro areas in the United States, 75 out of 100. So not only is that 50%, which is a big chunk, but this is a very large representative sample. Many would say they didn't even know we had 150 metropolitan areas in the United States.

Half of them had declining year-over-year rents in apartments. The metric that is being used to measure rent in the CPI calculation is still claiming over 4% year-over-year growth, not a decline. As the housing shelter component is over a third of CPI, you can see why I believe this is continuing to create a very distorted cosmetic image of the inflation picture. But again, some of these markets seeing price relief decline, they were legitimately oversupplied. There was a significant amount of new inventory built in Denver, Austin, Phoenix. and they're seeing rent prices come down despite very high demand in those very healthy, robust markets. Then there's other less, more low demand type areas.

They're also seeing prices come down just because, again, I think they were plain overpriced. Washington, D.C., Los Angeles, Sacramento are all on those lists. So declining rents are what happened. When rents get too high, the solution to high prices, always in forever is high prices and certainly greater supply as well. Secondly, on the housing front, the NAHB, the NAHB Home Builder Sentiment Index was a very low 39 in November. It had been 38 in October. 50 is just a neutral rate for sentiment.

Now, you have very, very low things that are dragging the number down in categories like the present situation. You have a slightly better number in expectations going forward, but overall, a home builder sentiment is not good. Rising construction costs are continuing to be cited as the biggest drag with tariffs impacting the rising construction costs negatively. The affordability issues that sidelined buyers are running into is a pressing concern. I would point out 40% of builders said that they cut prices last month. The total price cuts averaged 5% from sticker to get the deals done. And a record since COVID, the highest number we've seen since COVID, 67% of home builders are offering an incentive to a sales incentive of sorts to get deals done. So again, the data is pretty

consistent about a softening home builder environments that is waiting for some catalyst for better optimism. All right, so the Fed's $40 billion a month at T-bill buying, isn't that QE? Well, when they're not net net adding to the balance sheet, when one thing is coming off when things coming on, that isn't technically quantitative easing, but it is a liquidity tool and intervention. And I have to say, it seems to me to be a latent admission that something's not functioning within their own reverse repo facility. I would also point out the Bank of Japan is set to be increasing interest rates this week. President Trump has either pump-faking markets or legitimately back to a 50-50 situation with his two Kevin's.

He had really seemed to indicate that he had made up his mind on Kevin Hassett as the NEC, who's the NEC director becoming the next Fed chair. They canceled other interviews. There are a lot of things that took place in the new cycle to price that in. And now the president has indicated that Kevin Warsh is very much still one of the front runners. So is just a pump fake? Is the president throwing a trial balloon out there to see a. markets respond respectively to both of the two Kevins, we shall see.

I do not know the answer. By the way, the Fed, there's a chart at dividend cafe.com. The Fed has cut in the last 15 months quite a bit, but we remain higher in the United States with our policy rate than most of the entire developed world. And that's simply because we were so much tighter than the rest of the developed world. After 2022, the Fed's more aggressive rate hikes put them up at a higher place, higher absolute rate level and certainly a higher relative level. Oil prices have stayed pretty weak down 1.4% today sitting in the mid-56s. Oil was down over 4% last week. Natural gas had dropped

about 20%. Energy stocks were not down too much. Midstream was down about 2% on the week. Exxon Mobil, there's a Lincoln Divida Cafe held things in to some degree with pretty strong production plan announcements, especially out of the Permian. Speaking of that high production and a lot of it being out of the Permian, almost 50% of U.S. production, we are right now producing an all-time high in the United States, a 13.6 million barrels per day. And so very heavy daily production in the U.S. despite weaker prices. The Ask TBG today deals with whether or not long-term interest rates to the big driver will happen with a dollar when rates go higher to doesn't that strengthen our dollar? When they come lower, it does not weaken the dollar?

And my answer is essentially that that is a big factor, but interest rates are not the only factor. That what goes into a currency's relative value versus another currency is going to include trade imbalances. It's going to include economic growth of the respective regions in question. It's going to include geopolitics, inflation expectations. So while you might expect a high correlation with interest rates in the dollar up, or Dan, it isn't the only thing that creates foreign exchange currency movement, and that's important to remember. In the tragic passing of Rob Reiner, the murder that took place, it's interesting because Rob Reiner, a lot of people are focusing on the kind of politics of it

and whatnot, and I don't really ever understand that at all during a death, let alone something as tragic and awful as this, the way it all took place, and he and his wife been killed together and all that stuff. I just want to say that he didn't make, like, one movie that was iconic. From my childhood or teenage years, he made a lot. And I think when you talk about Stand By Me, when Harry Met Sally, here in New York City, it's one of the most, like, just shout out to New York movies ever made. And then the movie A Few Good Men, which I have seen, there's no way you're going to

to believe me if I tell you and I don't even know the answer, but I do know I can quote the entire movie all the way through word for word and my family and friends can attest to that because they do not like watching the movie with me. I watched it last year, day after Christmas because my oldest son had not seen it and I was no longer willing to say that my older son had not seen a few good men, so we watched it together and as much as I could resisted going along with the movie quoting it, but it is a masterpiece. And so I guess in my own way, just is part of my condolences and out of this tragedy and rest in peace, wishes, believe that the honor is due for such an extraordinary filmmaker as Rob Reiner.

I'm going to leave it there. I hope you all have a wonderful Monday evening. I have to reach out with any questions you have for us. And I do thank you for watching, reading, and listening to the dividend campaign. The Bonson Group is a group of investment professionals registered with High Tower 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.

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