The Dividend Cafe - Monday - February 10, 2025

Episode Date: February 10, 2025

Today's Post - https://bahnsen.co/4jKvUh0 Market Insights and Policy Updates: February Market Review In this Monday edition of Dividend Cafe, David Bahnsen discusses recent market trends and significant policy updates while preparing to travel from New York to California. Highlights include President Trump's steel and aluminum tariffs announced during the Super Bowl, market reactions, and the upward movement in shares of domestic steel and aluminum companies. The host also celebrates the nomination of Jason Trennert for Assistant Secretary for the Treasury for Financial Markets. Key statistics include a 167-point rise in the Dow, strong earnings reports from 9 out of 11 S&P 500 sectors, and changes in bond yield and financial sector performance. The episode wraps up with updates on tax reforms, the federal deficit, and speculation about Federal Reserve rate changes for the upcoming months. 00:00 Introduction and Weekly Overview 00:34 Market Reactions to Tariff Announcements 01:58 Highlight: Jason Trennert's Nomination 03:36 Market Performance and Earnings Season Update 05:51 Tax Policy and Budget Reconciliation 09:15 Economic Indicators and Federal Updates 09:54 Conclusion and Additional Resources 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. I am sitting here in our beautiful conference room atop Sixth Avenue in New York City, and I am going to be running down the elevator the second I am done recording as I have a flight to catch out of JFK tonight, back to California where I'll be a couple days and then in our beautiful Phoenix office for a few days. So big week ahead, but in the meantime, of course, today's dividend cafe matters.

I'm just going to hit the highlights though, real quickly, because of time. It was a interesting day in the markets because a lot of people who may have been noticing last night during the Superbowl, they were getting all kinds of pop-ups and warnings and noteworthy interventions that President Trump was implementing steel and aluminum tariffs across the board and was making an announcement about an announcement he was going to make about a plan to blah, blah, blah on steel and aluminum tariffs. And then the futures were up quite a bit. And I would say part of it is markets are not responding anymore to the threats of tariffs

or threats about threats or tweets about threats, about promises, about announcements about tariffs. But also part of it is that this is more targeted and more sector specific. And in fact, the steel and aluminum sector was up today, the US domestic. And so there was some market response in that sense. But yeah, I think that as I talked about in the Friday Dividing Cafe, there just isn't a real way for markets to absorb non-news. And that's what a lot of this stuff is.

It's not news until it becomes news. So that was something worth noting today because I don't want to forget. It's probably my favorite thing to be able to cover today. I could put this just in the public policy announcements, but I have eight other things there. So allow me just to say that one of the great things that's happened over the last couple of days, made more official this morning, was the nomination of my dear friend, Jason Trenor, the CEO and founder of Strategist Research.

I don't think we've done a dividend cafe in 10 years that didn't have a chart from Strategist Research. There has not been a day in 10 years, more or less seven days a week, that I have not read well over 10 pages, some days, 100 pages of research from Strategus Research. And Jason Trenard has been nominated by President Trump to be the Assistant Secretary for the Treasury for Financial Markets. Jason is also connected with Treasury Secretary Scott Messon. So it is not a surprise that he'd be in that group to be nominated.

I can think of very few people who deserve it more. He served as an admirable chief investment strategist and economic strategist at Strategus. I have no doubt he'll end up back as strategist after serving in the administration. But Jason is a real patriot, a real lover of markets, a real philosophical minded economist, which is the only kind of economist I pay any attention to. And I couldn't be happier for Jason and his family for this very well deserved honor. He will serve our country with distinction, I assure you. and his family for this very well-deserved honor. He will serve our country with distinction, I assure you.

Okay, so the Dow was up 167 points today, a little less than half a percentage point. The S&P and NASDAQ were each up more than that, pretty much across the board in upday and markets. We're 60% of the way through earnings season now, and growth is trending year over year, meaning the Q4 results of 2024 announced in Q1 of 2025 versus Q4 results of 2023 announced in Q1 of 2024. You follow me? So year over year, 15% earnings growth, a tiny bit less than that, and 5% revenue growth,

a tiny bit less than that. Nine out of 11 S&P 500 sectors have come in above expectations this quarter. It's been a pretty good earnings quarter so far. We still have 40% to go, but so far so good. However, full year earnings expectations, because again, earnings results are backward looking. They're resulting the quarter that just was, then they provide forward guidance, updating on expectations for the future. And that has come down a little bit. So full year 2025 earnings guidance is right now coming in at $271 a share in the S&P. That would mean about 11% earnings

growth on the year. And we started the year expecting about 13% earnings growth, maybe a little more. But there's lots of time to go. That'll be revised further as we go. The bond yield closed at 4.5%, 10-year up just one basis point of the day. Energy was the top performing sector up over 2%. Financials were the worst performing down about 79 basis points and about 50% right now. Right in the middle of the S&P is trading above its 50 day moving average. So you really talk about a market kind of running in place. That's where we are.

The breadth, the momentum, it's just all in a range and moving up and down. And people go, is that good or is it bad? And the answer is it's just what it is. And people trying to get a short term prognostication out of that are not doing something I recommend. So the House is looking to present one budget reconciliation bill to extend the 2017 Trump tax cuts permanently and address the border energy defense things they have on the table.

The Senate wants a two-bill approach, doing the easy stuff first and then getting to taxes second, which would definitely mean much later. President Trump's priorities for the tax bill include no tax on tips, overtime. He's still saying Social Security. I think one out of those three makes it to the final, maybe two out of three, not three out of three.

He does also say he wants to expand the state and local tax deduction, which I think he will, but how much remains to be seen. There's a lot going on with the trade and tariff talk right now, but Secretary Besant really throwing down a gauntlet last week that he wants to use current policy as their baseline in setting the budget reconciliation gives you an idea of how aggressive the administration wants to be on tax agenda. The current policy framework is a big deal relative to assuming all the tax cuts go away and then setting it because if they do that, it takes about $4 trillion off the table over

the next 10 years. They may end up meeting in the middle at 50%, which is $2 trillion, but Secretary Besson says no, he wants to go a current policy, which would basically not give them any handcuff around the tax cuts going away. I don't know if they'll be able to get that across the finish line with the House, but that's where things are. If you're lost on the details there, feel free to reach out for more clarity, but I just want to say it's a big deal because where they set that baseline out is going to tell you how much window they have for the additional tax reform they want to do. By the way, the CBO revisions already

reflect $1.9 trillion in increased tax revenue for the next 10 years. This was a big theme of mind in the 2025 year that the deficit would be coming lower even apart from any fiscal discipline or fiscal spending corrections. And they're still calling on $820 billion of increased spending over the next 10 years and there's no new spending bills. Where's the 820 billion coming from? The automatic escalations in Medicaid. If they're right, and this is the way it's going to be scored, that 800 billion are new

spending but 1.9 trillion are more revenue, then they see 1.1 trillion coming out of the deficit the next 10 years? 60,000 federal workers so far have opted into the offer to leave their job, get paid for eight months, and leave federal government work. Consumer Financial Protection Bureau has basically been left for dead. Congress created it so only Congress can kill it. But now by essentially allowing it to see, they've marginalized it to a point of irrelevance by stopping enforcement. They've moved the new OMB director, Russ Voulette,

into the kind of director role on an interim basis, softening these regulations. PB has been taken to the woodshed. And then you may have heard, President Trump said he's ordering the Treasury Department to stop minting pennies. Okay, economically 143,000 jobs created in January, which was a little less than expected, but 100,000 jobs from the November-December report were revised upward. People always talk about revisions and always assume they're revised downward later, but it's not true. The revisions cut both ways. And we're at 92% chance and no Fed rate cut in March. That'll soon be 100. Only a 72% chance of no change in May, but 72 is still pretty high. You get to June and we're 50-50 as to whether or not there'll be a cut or still a continued

pause in rates. I'm going to leave it there. There's some information on the Fed balance sheet and the reverse repo facility, wonky stuff that's important to understand about liquidity in the financial system. I'll leave that in dividendcafe.com, but based on my timing here, I need to let you go. Great question as to whether or not the Bonson Group uses options to hedge market risk in the Ask TBG section. Check that out at dividendcafe.com as well.

I'll leave it there. We'll be back with you all week as always. Thanks for listening. Thanks for watching. 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.

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