The Dividend Cafe - Monday - January 27, 2025

Episode Date: January 27, 2025

Today's Post - https://bahnsen.co/3PX2z5a NVIDIA news: https://www.investors.com/news/technology/deepseek-ai-stocks-nvidia-artificial-intelligence-capital-spending/ Market Volatility and AI Rivalry: Deep Dive into NVIDIA's Impact In this episode of Monday Dividend Cafe, David Bahnsen discusses a highly volatile day in the market, marked by a significant dip in NASDAQ despite a Dow Jones increase. Central to the discussion is the introduction of China's DeepSeek AI tool, which challenges the dominance of NVIDIA's high-end chips, raising questions about the future of AI chip investments. Bahnsen also covers market reactions, sector performances, and economic indicators, emphasizing the vulnerability in valuations and the implications for earnings season. Additional topics include U.S.-Colombia tariff considerations, jobless claims data, home sales trends, and the upcoming Federal Reserve meeting. 00:00 Introduction and Market Overview 01:27 NVIDIA and the AI Market Impact 03:29 Market Reactions and Sector Performance 04:51 Tech Sector Vulnerabilities 05:21 Earnings Season and Future Projections 07:41 Trump's Tariff Tactics and Job Market Update 09:30 Housing Market and Fed Meeting Insights 10:03 Energy Sector and LNG Exports 10:51 Understanding Dividends and Yields 11:19 Conclusion and Upcoming Content 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 Dividend Cafe. I am your host, David Bonson. I am sitting in the Newport Beach studio where the market is now closed and I've been kind of in combat here for quite a while, began very early this morning. Actually things really kicked into high gear last night.

I want to talk about what I think is a pretty historical day in the market in a lot of ways. Now you say, okay, geez, this sounds either really good or really bad. Look, the Dow today was up 289 points. So that sounds like a good day, correct? It's one of the worst days in the NASDAQ in quite some time. And at 3.30 in the morning Pacific time this morning, it was down 1000 points. The biggest company in the world today, at least it was the biggest company in the world at the beginning of the day, was down 17%, that being obviously Nvidia. So it was a very big day, and yet, as I say, the Dow was up 289 points, even as the NASDAQ was down 3.1%, and that is only 612 points, I believe, where the thousand point futures was where they started off at

when I got up this morning. So it's been a roller coaster and obviously it begs the question as to why and what and what's going on. So I'm going to tell you all that now. And there may be some things I don't get to today that are covered at DividedinCafe.com. I'm going to try to cover all of it here on the video and podcast. But basically what had happened Sunday was report that the China AI tool, think of it like their version of ChatGBT because it basically almost is, it's called DeepSeek, was the most popular app in terms of these AI tools over the weekend replacing chat GBT. And the reason that's significant

is not just the introduction of an AI competitor from China, but that it runs off of one of the lowest quality or at least lowest expense and intensity chips that NVIDIA makes. And it starts to beg the question, is there really this big need for the much more expensive investment that many are making on the higher end of the NVIDIA, and it's not just NVIDIA, but other chip maker product suites that are relevant to artificial intelligence.

And when you can get less complex chips for less cost and still have a high degree of customer satisfaction, that seems like a really difficult fundamental story. I don't know that that's the story. I think it's actually way too early to say for certain that that's gonna play out that way. But when you combine a headline like that and some prima facie market events like that

with evaluation like the one that companies like Nvidia had, then you have a high degree of vulnerability. This is a theme. Obviously, listeners and readers of Dividing Café are well aware we've had for some time. The vulnerability evaluation meets fundamental anxiety, perhaps even fundamental distress reality and everything hits the fan. That's what happened today. It's evaluation story when there's no margin of error and then it becomes a fundamental

story and the two combining becomes a problem. So what you had today was Treasuries rallying, little flight to safety, the 10 year yield was down nine basis points, you're back near the 4.5 range, top performing sector, consumer staples, up almost 3%, technology down over 5.5%. So flight to safety in Treasuries, yes, but really a flight to safety within equities

as a lot of REITs did very well, a lot of the consumer staples and healthcare did very well. And then the utilities is a mixed bag because there's a lot of utilities trading off of the belief that there's a need for more power on data center around AI, that stuff got hammered today. Other elements of utilities and more conventional, traditional gas and electric rallied. So the defensive versus cyclical story was very much on

and evidenced in the numbers. Coming into today, the Citigroup panic euphoria model was at a level euphoria not seen in years. I have to think that came down a lot today, the Citigroup panic euphoria model was at a level euphoria not seen in years. I have to think that came down a lot today, but that was the pre-market print. Inside selling, on the other hand, has been the highest in over a year for the last month. Now inside buying and inside selling are never a very substantial amount of volume, but it's always worthwhile to point out.

Then you have some things underneath the surface in the technology sector that I think speak to more vulnerability. For example, on Friday I've been at an all-time high. That obviously went away today, but 61% of companies were in an uptrend at an all-time high Friday. The last couple all-time highs, you had over 80% in an uptrend at an all-time high Friday. The last couple all-time highs, you had over 80% in an uptrend. So a lot less breadth and a lot more top heaviness in the tech sector, speaking of vulnerability. People are asking what this means in terms of earnings season, but 78 out of 500 S&P

companies have released so far. So I just think it's way too early whenever you're south of 20% that have released results to start making any judgments about where revenues are coming in, where earnings are coming in, where forward guidance is coming in. It's too early to say. So we're going to unpack a lot more of it in the days ahead, but I just think that's the takeaway, that you have a story of vulnerability combined with valuation, the vulnerability wondering if these hyperscalers really need to be ordering what they're ordering. Fundamentally, I would add, let's say that goes away. Let's say that these concerns, you go away and we come back to the belief that no, the

much more complex chips that a company like Nvidia really need and that the hyperscalers, your Googles and Metas and Microsoft's, Amazon too, really want to order a ton of, I'll come back. By the way, there's links on all of these things I'm talking about in dividendcafe.com today. And let's say though that the narrative kind of returns to something that was pre-today, pre-Monday. You still are dealing with a question that I've been talking about for a long time that maybe people are going to end up being very happy with the answer.

Maybe they're not. As to what the real beneficiaries of the AI moment are going to be in terms of markets, because the story cannot stay those who make AI and not those who use AI forever. Because those cannot continue making AI well and profitably for investors, if eventually there's not some using AI well and profitably. So this either becomes an efficacy, efficiency, utility story, or the other part of the story has to unwind.

That's the question, and we've talked about it quite a bit here. There was another story yesterday that had the makings of being the big business story of the day, connected a little bit to the topic I had in the Dividend Cafe on Friday about the big torrent of executive orders and the early indicators

of policy priorities from the Trump 2.0 administration. But then this China AI story took over the business news indicators of policy priorities from the Trump 2.0 administration. But then this China AI story took over the business news Sunday night into Monday morning. But at one point, President Trump had tweeted out yesterday that he wanted to impose 25% tariffs on Colombia for Colombia allegedly turning away migrants that the US had been returning. They had been deported, and that the President of Columbia had refused to take the planes, and Trump said, fine, I'm using tariffs and

we're going to get you. And then an hour later, two hours later, he had reportedly changed his mind. If there's more to the real story here, then so be it. I wouldn't be surprised if there is, but that was the headline side. And it does reinforce this narrative of tariffs as negotiating tactic, even a successful negotiating tactic getting Trump some headline wins. And in this case, again, the appearance of being able to affect other policy priorities using the threat of tariffs without ever actually having to implement tariffs.

On the job front, there were 223,000 jobless claims on Thursday. That's not a particularly high number. It's been in that range for a while. But the continuous claims were up to 1.9 million, which is the highest it's been since November of 2021. So well over three years, highest continuous claims, even as initial claims stay reasonably low. Existing home sales did increase 2.2% in December. That's up over 9% from a year ago. But again, the full year total of 2024 sales transactions was the lowest in 30 years.

So we're down about 1 million house sales per year from where we were pre-COVID. We're down over 2 million home sales per year from where we were in 2020, 21 into early 22, the COVID years when there was an excessive activity. Speaking of housing and mortgage and all these things going on in the frozen market, the Fed, the FOMC is meeting Tuesday and Wednesday of a PAL press conference Wednesday. Those things often go, the futures are basically at 100%. There'll be no rate change on Wednesday. But then March is at a 32% chance of a rate cut then. So we'll see how that goes. That's still, I think, another seven weeks till that comes up. Oil down 2% in the day is still above $73, not a big deal.

I certainly maintain my belief that crude oil production is not the big story of Trump 2.0. The drill baby drill and talking about how much oil we're producing is an easy story to talk about. People understand it. The media gets a good headline, but LNG exports is the big story, and we are out of the infrastructure that we need to be prepared to export more liquefied natural gas, and any efforts from this energy department of the new Trump administration,

I think are going to have as a top priority, freeing up more LNG exports. It was one year ago today that the Biden administration mysteriously put a moratorium on approving new permits for LNG export. That's been reversed now in the first few days of the new Trump administration. It's a story we're watching closely around midstream energy infrastructure.

Someone had a question and asked TBG about how yields work when stock prices are going up and down. Do dividends go up and down with them? What happens to the yield? And if you read my answer at dividendcafe.com, I think you're going to get a better understanding of the vocabulary about dividends work, how yields work, and what it means philosophically for an investor. It's an important answer. So I'll encourage you listening to check out dividendcafe.com, the it there for today. Available questions at thebonsangroup.com always. And I'll be back with you Friday in the Givening Cafe. If not sooner throughout the week for some what's on David's mind and Ask

TBG in the daily recaps. And of course my partner and client Brian Santel will have you covered other days too. Thanks for listening. Thanks for watching. And thank you for reading the Givening Cafe. I'm going to leave it there for today. I'm going to leave it there for today. I'm going to leave it there for today. and Ask TVG. In the daily recaps and of course my partner and client Brian Santel

will have you covered other days too. Thanks for listening, thanks for watching and thank you for leading the Giving Fact Pack. 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. Advisory services are offered through Hightower Advisors LLC. This is not an offer to buy or sell securities. No investment process is free of risk. There is no guarantee that the investment process or investment opportunities referenced herein will be profitable. Past performance is not indicative of current

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