The Dividend Cafe - Monday - January 6, 2025

Episode Date: January 6, 2025

Today's Post - https://bahnsen.co/40m6YEQ Kickoff to 2025: Market Updates, Budget Reconciliation, and Key Economic Insights In the first Monday Dividend Cafe of 2025, host David Bahnsen delves into the latest market fluctuations, the complexities of the budget reconciliation bill, and key economic updates. Important highlights include President Trump’s preference for a single omnibus bill, Speaker of the House Mike Johnson’s appointment, and the surprising resignation of Canadian Prime Minister Justin Trudeau. The episode also discusses the stock market's performance, including sector-specific movements, the yield curve, and various valuation metrics. Additional topics include President Biden's rejection of the Nippon Steel purchase, credit card debt trends, and expectations for Federal Reserve rate cuts in 2025. Tune in for an in-depth look at these developments and more. 00:00 Introduction and Overview 00:27 Market Updates and Economic Data 01:44 Public Policy Discussion: Budget Reconciliation 07:33 Market Reactions and Analysis 09:38 Public Policy News and Economic Insights 13:00 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 first Monday Dividend Cafe of 2025. I'm your host, David Bonson, and we're going to get right into it talking about a bunch of exciting developments in the budget reconciliation bill, potentially what was a pretty odd day in the market, the market being up at 1.400 points and being down at 25 points at the close, far normal around the horn. So the Monday Dividend Cafe is going to continue in 2025 to do what it's been doing, giving just current market updates,

looking at economic data, talking about the Fed, housing, answering your questions and all that good stuff. I do want to remind everyone, DividendCafe.com at the basic homepage of the website there, we're continually updating questions that come in from you with our answers that scroll there at the homepage of the website. And we also on every Tuesday, Wednesday, or Thursday are giving a daily market update with commentary from Brian and myself and answering further questions. So we want you to be benefiting from the content and we hope that we're scratching the itches you have always open to your feedback. The DividendCafe.com today has a link. I was on Hugh Hewitt's show this morning and it was kind of a fun one because almost right after I was on, the president-elect

of the United States, Donald Trump, was on and so he had a kind of high-profile interview. He hasn't done a ton of interviews since he was elected, but he did a big interview on the Hugh Hewitt show this morning. And the news of the weekend, and certainly the issue that I want to center my public policy discussion around today, is the indication that we are headed towards a single reconciliation bill approach. This is complicated and wonky, but some of you do know what I'm referring to. For those who don't, I'm going to try just to give the most basic update. To pass something through a budget reconciliation process, it essentially allows you to pass it with only 50 Senate votes,

a simple majority as opposed to a filibuster-proof majority, which would be 60. It's very hard to pass legislation in such a partisan moment, and the polarization makes bipartisanship, which is necessary to get 60 votes, very, very hard to come by. And yet yet you can do certain things legislatively that are budget oriented by passing a budget and then moving a reconciliation bill that is essentially a new piece of legislation that reconciles to the budget. And so there's all kinds of procedural limitations around this. And it has deficit impact. In other words, the bill that is reconciliation to the budget is not allowed to move the deficit beyond what was approved in the budget window. And so it makes it very

complicated. However, there was a school of thought. I will add it's still the school of thought that Senate Majority Leader John Thune and that Stephen Miller, who's one of President-elect Trump's most trusted advisors, still want to do, which is essentially open one budget reconciliation window to pass some lower hanging fruit legislatively that they believe will be more popular and easier to pass. It has less complexity around it involving the border immigration that would give the president and his new administration a victory early in the term, but then would give them more time to open a second reconciliation window later in the year to do a rather meaningful tax bill. A lot of us, I'm in this camp, do not prefer the two-window approach because you do not want to leave that kind of uncertainty in markets all year and you do not want to leave it to chance that a tax bill will be able to get done and so would prefer to move the prioritization of tax reform higher than it has been. Well, all that to say that over the weekend, it was really kind of the first time where we got

a chance to see President Trump's cards that he is now favoring a single, what he's calling a big, beautiful, bold bill or what have you, an omnibus bill that would cover all of the aforementioned categories in one bill. It cannot get done as quickly as the first bill of a two-bill approach would, but it can get done a lot quicker than the second bill of a two-bill approach would. And there's some question, would it get done closer to April? Would it be more like June, July, a summer bill, which is probably what it would be? That's sort of the tension on the situation. However, President Trump came out, he's tweeted and really indicated that he wants to go down the path of one big single bill, which is the path that Speaker of the House Mike Johnson

wants to do. Well, then on Hugh Hewitt's show this morning, he said, I prefer a single omnibus bill approach, but I'd be open to the two-bill approach if that's the way we have to go. So the timing of this, the procedural complexity that lies ahead, the details as to where all this is going, there's not a ton of clarity on it right now. What I do know is that they want to go try to get it done on one bill. What I don't know is if they will or what impediments they'll run into that may cause a pivot in the plan. But that was the big development on that front this morning. Now, it's funny, I say all that taking for granted that actually, since I recorded Dividend Cafe

in Newport Beach on Friday, predicting that Speaker Johnson would get approved, but it would have a little bit of hair on it on the front end and then go through. And I think it was about an hour or maybe two hours after I recorded that exactly that happened. He was three votes short on the first ballot, but then two of those three votes changed their roll call vote to allow it to go through first ballot upon being lobbied by the president. So Speaker Johnson was reappointed into the new congressional session of Congress as the Speaker of the House, technically on the first ballot after two votes reversed with only one vote voting against from the Republican side. Obviously, the Democrats were unanimous in their opposition. So that was the kind of public policy news of the day and the weekend.

Then Prime Minister of Canada Justin Trudeau unexpectedly resigned. It was expected he wasn't super long for that world, but the timing and circumstances were a bit unexpected. And so Justin Trudeau stepped down today in a press conference that took place mid-morning. stepped down today in a press conference that took place mid-morning. And as far as markets go, I mentioned that Dow was up quite sizably and then gave all that feedback in the second half of the day. The communications services sector was up over 2%, which is why the NASDAQ was still up over 1% and the S&P was still up half a percent. The defensive sectors were all pretty much down today, but the real estate sector was down the most, down 1.4%. The 10-year bond yield was up three basis points to 4.62%, even as the two-year was

down a bit. And you now have a 35 basis point spread, positive slope between the two and 10. So another way of saying that is a steepening yield curve where, of course, for most of the last two and a half years, we've had a inverted yield curve and it has uninverted and then some. There are a bunch of charts to this effect, three charts, as a matter of fact, in the Monday Dividend Cafe. But you are looking at 38% of the S&P 500 being the top 10 capitalization companies, by far the most in history, most top heavy, most concentration we've ever seen. So you're basically at 490 companies are 62%, 10 companies are 38%. You're also very near the all-time low for the

dividend yield of the S&P, sitting barely at 1.2%, getting closer to 1.1%. And then you have an all-time high for the price-to-book ratio, the price-to-book valuation. We're used to talking about price-to-earnings. That's very high as well as there's price to cash flow. There's all kinds of different valuation metrics, but price to book value is at an all time high for the S&P. I mentioned on Friday, President Biden rejected the Nippon Steel purchase for U.S. Steel. A little more information that came out over the weekend that I just wanted to share was that his Treasury Secretary Janet Yellen, his Secretary of State Anthony Blinken, his economic advisor, Jared Bernstein, who's the chair of the Council of Economic Advisors, who was Vice President Biden's economic advisor when he was a vice president

under President Obama for eight years. So Jared Bernstein and President Biden go way back. All of these names, including the ambassador to Japan, Rahm Emanuel, opposed President Biden's opposition to the deal. In other words, all four of these major actors and advisors and policymakers supported the Nip and Steal acquisition of U.S. Steel and President Biden overrode all of them. On the economic front, credit card debt as a percentage of disposable income is now less than it was before the pandemic. So bear that in mind when you hear these metrics about credit card debt being higher. mind, when you hear these metrics about credit card debt being higher, on an absolute basis it is. As a percentage of income, which is really a far more meaningful statistic, it is actually lower than it's been in over five years. ISM Manufacturing did not print an expansionary

number on Friday, but it got very close. It came in at 49. 50 as expansion, and that was the highest it's been in nine months. New orders increased for the fourth month in a row in the manufacturing side. We're very close to 100% chance of the Fed not touching rates in January. We are basically somewhere around a 20% chance of two cuts by June and a 44% chance of one cut by June. So you have a 65% chance that there's either one or two cuts. And as you'll see in my very special Dividend Cafe on Friday, that the bigger issue I think around monetary policy in 2025 is going to be quantitative tightening. Oil was down a little bit today, but it's still

sitting now about $73.5. Midstream was up 3.4% last week. December was the worst month of the year, even though it rallied in the final days of the year. But again, the midstream sector up over 40% on the year. MLPs didn't fare quite as well, around 24%, but with corporations and Canadians, a very big sector for the midstream energy space. Fourth year in a row now, the midstream was up over 20%. There's an against doomsdayism and an ask TBG that I will direct you to thedividendcafe.com

and we'll look forward to more of the same throughout the week. And then the big year behind, year ahead Dividend Cafe coming this Friday. Thank you, as always, for listening, watching, and 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 Thank you. will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors. All data and information referenced herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary and does not constitute

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