The Dividend Cafe - Monday - December 8, 2025

Episode Date: December 8, 2025

Today's Post - https://bahnsen.co/44NZ88R Market Volatility, Small Cap Performance, and Corporate Takeovers: A Comprehensive Market Update In this episode, we cover the Fed's anticipated rate cut, the current state of credit spreads, and the mixed performance of sectors with a focus on semiconductors. We analyze the significant increase in negative earnings within the Russell 2000 Small Cap Index post-financial crisis and highlight the importance of selectivity in small cap investing. We also discuss President Zelensky's visit to London, Netflix's bid to acquire Warner Brothers Discovery, and the White House's concerns about the deal. Other topics include the executive order on AI regulation, China's compliance with new trade agreements, and the state of the U.S. labor market. We provide insights into New York City's office vacancy rates, the Bank of Japan's expected rate hike, and recent fluctuations in oil prices and infrastructure stocks. Additional information is available on DivaidendCafe.com, including a discussion on the yen carry trade and its potential future impact on stocks. 00:00 Market Overview and Rate Cuts 00:30 Equity Volatility and Sector Rotation 01:07 Small Cap Index Performance 02:10 Global News Highlights 02:38 Corporate News and Mergers 03:42 Public Policy and AI Regulation 04:43 Economic Indicators and Trade 05:04 Labor Market Analysis 07:07 Commercial Real Estate Insights 08:00 Global Financial Movements 08:57 Weekly Recap and Closing Remarks 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 Dividend Cafe. We are back in it going around the horn, all of our normal topics. And there's a fair amount of fun things today, but it's not an overly abundant a listen today. So you may be in for a treat. I may get you out of here a little early, but nevertheless, some fun things to share. I'll first say that if you miss the Dividendon Cafe on Friday, it was the first,

and I would like to think the last time that I've done a deep dive treatment into our approach to Bitcoin and the crypto world, the Dividing Cafe on Friday, if you want either the video or the podcast or the written commentary at Dividendoncafe.com. Feel free to check it out for my comprehensive treatment as to why the Bonson Group doesn't own and never will, Bitcoin. Today, here in the Dividy Cafe, we are focusing on the normal categories that we like to cover, which is the markets, the Fed, housing, public policy, economic data, and so forth and so on.

Let me start with today in the market, Dow is down a little bit over 200 points. It kind of just went down slowly, but surely throughout the day. There were a few spurts and starts and ups and downs on the way, but nothing too dramatic. The Dow closed down 0.45%. The S&P closed down 0.35% NASDAQ down 0.14. There was only one sector in positive territory, and that was technology, which was up 93 basis points. But then the worst performing sector of the day was its cousin communication services, which is actually an offshoot of a sector from technology,

and it was down 1.77%. So when you see something like that with communication down quite a bit in technology up a decent amount, and that big disparity between the two, it's usually because there's a couple major companies, one where a couple companies went one way and a couple went the other, and it pulled those two sectors in a different direction.

The bond market, I think, is a bigger story right now, And not just today's action, the tenure was up just three basis points, the yield. And so bonds were off a little bit more today as the tenure closed at 4.17%. But this does represent 12 basis points over the last three trading days. So that isn't anything to be concerned or over responsive to. But I will say that having the tenure move higher while the Fed, the odds of the the Fed cutting rates are growing even more. And while inflation expectations have not moved a bunch, this is sort of in line with a little bit of a pro-cyclical trade. You've seen

financials rally. You've seen some of these semiconductors come back on a little bit. So I would think that so far the movement in the 10-year is mostly in line with a little bit of a pro-cyclical optimism. But again, it's only 12 basis points and bond investors have been having such a good run that they are probably sitting okay to see the tenure move that way in a few days. But we're watching it and curious what else it may indicate. What I also point out across the yield curve is that the one month, two month, three months, six months, the very short end of the yield curve are all at a higher yield than anything past six months all the way out to five years. So you have this strange inversion where yields are higher on the very short end,

then they drop for a few years, and then they get a little bit higher at about the five-year mark and slope out from there accordingly to the 10 to the 30. So the kind of most sloped part of the curve is almost more like the 2 to 10 than the three month to 10. And that's not normal, but it is very normal if the Fed is making a policy mistake. And that's kind of what the bond market is saying, is that the ultra short part of the curve should be lower,

meaning the Fed funds rate should be lower to reflect a more healthily shaped curve. The Fed will, it appears, be cutting rates this week. We're at about a 90% probability in the futures market of a 25% percent. basis point rate cut. That normalization back to expectation of a rate cut came a couple of weeks ago. It had gone the other way after the late October FOMC meeting. And then about halfway between the two meetings, John Williams from the New York Fed came out to blend his argument for why the Fed should cut again and all of a sudden things move the other way. So we'll see what Chairman Powell says at the oppressor this week, the Fed meeting tomorrow, and then again Wednesday, making their

announcement where, again, all indications very nearly 100% are that they will be cutting rates another quarter of a point this coming Wednesday. Other issues in markets, I would just point out credit spreads tighter than they have been. Even as equity volatility has picked up, Credit spreads have narrowed a bit, levered loans, high-yield bond spreads have come in. You're not seeing a widening of risk spreads, which you would expect if we were having a more broad risk-off environment. Now, it's entirely possible that all we've seen in equities with this enhanced volatility was more sector rotation and a repricing of one particular sector. But even there, we saw so often semiconductors. and then you've seen a rebound in some semiconductors, but not others.

So it's a real mixed bag right now. And even something like a day where the top performing sector's technology and the bottom performing sector's communication services, it does speak to a little bit of the just oddness that is playing out in markets right now. We'll kind of wait and see how things sort of coalesce in the days and weeks to come. Just finally on markets, post-financial crisis, I thought this is interesting,

that from post-financial crisis, call it 2010 to 2020 that decade, the Russell 2000, the small cap index, average somewhere between 25 and 30%. That was the range of companies in the index that were losing money, that had negative EBITDA. And from 2020, 2021 through current, the last five years, that number has gone up and now between 40 and 45%. A significantly higher amount of the constituents in the Russell 2,000 small cap index are companies that have negative earnings. And so I do think that this is one of the reasons that you've had enhanced problems in the relative performance, a small cap to big cap, but I also think it speaks to the

importance of more selectivity versus a high beta focus when one is investing in the small cap space. So let me go around the horn with our normal categories. The new story of the day I'll focus on is President Zelensky of Ukraine in London today, meeting with European leaders about the next steps as far as this ongoing negotiation. It's largely been led this far with U.S. negotiators in Russia and Zelensky meeting with European leaders to discuss their own fate and response to this proposed negotiation. There's a link in Dividy Cafe reflecting this, but I think it was a big news story that came out Friday

regarding Netflix, receiving a winning bid to purchase Warner Brothers Discovery. There's a pretty lengthy process to close the deal for shareholder vote and for regulatory approval in front of them, but such a large breakup fee in the deal that there is a high degree of competence from both parties that this deal will close. But then today, first of all, you had a weekend of the White House expressing their own trepidation about the deal, and then today, one of the competing bidders, Skydang, which recently bought Paramount and CBS went hostile with their own bid, meaning going straight to shareholders since they didn't have the cooperation in management to try to purchase Warner Brothers

themselves. Generally, hostile bids don't go anywhere, but this is a corporate news story that we intend to watch. We don't own any of the companies involved, but it has other both regulatory and general media apparatus reasons that we're interested in the story. On the public policy front, the president announced he's signing an executive order establishing one rule on artificial intelligence regulation, trying to eliminate state-level policies on the technology. My best guess is that this will be going to the spring court. Our Constitution does, you know, talk about a 10th Amendment, and there is a certain amount of power delegated to states and their right to have their own regulatory treatment of AI.

And so the devil will be in the details on a lot of this. Congress, of course, can pass certain regulations that states will be subject to, but they have not done so. So doing something by executive order that trumps the state's rights is unlikely to me. But nevertheless, it speaks to how important of an issue this is in Silicon Valley and where things stand right now. And the really very cozy relationship between the White House. and Silicon Valley, very different than we saw in the Trump 1.0 administration. U.S. trade representative Jameson Greer confirmed that China has been compliant thus far with the new trade agreements that are in place and that they are reporting vast increases

of their purchase of U.S. soybeans, so helping to satisfy some who are worried about China's compliance with the deals. On the economic front right now, I would argue that the question around job health, and what we're seeing in the jobs data is a very important one, but so is the cause behind what we're seeing. And so you, on one end, have a debate about how good the labor market is, but on the other hand, you have a debate about whatever we see in the labor market, what are the primary factors. And one school of thought is that the labor market is softening, but that it is not softening because of weakening demand, that there is not necessarily less employers wanting to hire more people, which would be a problem for the

economy, but that actually softening is a weakening supply, that whether it be the government workers or more particularly access to immigrant workers, the H-1B visa issue, that that's putting downward pressure on the data as it pertains to supply of workers. I don't know the full answer, What I would speculate is that small business hiring has dropped a great deal and that not all of the weakness, but some of it is related to changes in labor supply. In other words, there's a sort of splitting of the baby that probably gets you closer to the truth. Private sector jobs in November were negative by 32,000 according to ADP. We got in the report last week. The layoffs report from Challenger Christmas Gray came in with 71,000.

layoffs in the month of November, 1.7 million layoffs, year-to-date. That's a 54% increase from the year-to-date number a year ago. Last night, we found out that China's trade surplus is now over $1 trillion. So their exports globally are clearly not being hurt by the U.S. trade activities. That was one of the rationales for the trade war is to diminish China's role competitively. and what we see is that their exports are actually up 5.9% on the year. This isn't so much related to housing and mortgage, and sometimes I throw anything kind of commercial real estate, commercial mortgage, not to mention residential mortgage and obviously multifamily and single family housing.

I kind of lump it all into one category here in the Monday Dividend Cafe. But just as a factoid that was extracted from the S.L. Green report that came out last week, New York City office vacancy, which is most certainly up and up, quite a bit from pre-COVID levels, it is 10% lower than Chicago and 20% lower than San Francisco, and New York's office market is larger than both of those cities put together. Both of the office markets of Chicago and San Francisco combined are smaller than New York's, and yet New York has a substantially lower vacancy than those other cities, just for whatever it's worth, an interesting factoid. I already mentioned the Fed 90% chance of a cut this week.

One thing I will put out there is that the Bank of Japan, which doesn't meet this week, but meets near the end of next week, is all but assured now of hiking rates at their meeting. So you say, okay, wow, the Bank of Japan's going higher, the Fed's going lower. What is the two-year rate in Japan, moving higher, an 18-year high because of the Bank of Japan tightening, it is at a whopping 1.05 percent. Oil down over 2 percent today, closing a little bit below $59 a barrel. Utilities got hit hard last week. Infrastructure stocks were down. Midstream was actually up, 1.3 percent on the week. MLP's were down a bit. Canadians okay, and then the corporate pipeline companies. The corporations did actually quite well. There's an ask TBG about whether or not I worry

of the yen carry trade, creating kind of drawdown in stocks in the beginning part of 2026. I encourage you to go to dividend cafe.com, our homepage, to read the answer and ask TBG. I will be with you in the dividend cafe on Friday as always. We have some very fun things in store for you in our daily recap throughout the week. And naturally, clients will receive. their weekly portfolio holdings report on Wednesday. In the meantime, reach out with any questions, questions at the Bonson Group.com. And thank you for listening.

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