The Dividend Cafe - Monday - July 14, 2025

Episode Date: July 14, 2025

Today's Post - https://bahnsen.co/3GM1axv Monday Market Updates and Public Policy Insights In this Monday edition of Dividend Cafe, the presenter covers key developments in the market and public policy. Topics include the new tax and spending bill, market reactions to tariffs, potential trade deals, and the upcoming earnings season. Specific insights are shared on copper tariffs, the possibility of a second reconciliation bill in the Senate, and the president's position on Ukraine. The session also discusses the S&P 500's top companies' market cap and earnings contributions, and speculation about potential changes at the Federal Reserve. The episode concludes with a Q&A on the impact of tax cuts and recession on national debt, and a teaser for an upcoming special Dividend Cafe. 00:00 Welcome to Dividend Cafe 00:58 Market Overview and Public Policy 01:35 Tariff Impacts and Market Reactions 03:54 Copper Prices and Industrial Impact 05:52 Potential Second Reconciliation Bill 07:09 Shift in U.S. Policy on Ukraine 07:54 Earnings Season and Market Trends 08:59 The Dominance of Top S&P 500 Companies 11:03 Federal Reserve and Rate Cut Speculations 12:26 Tax Cuts and National Debt Debate 14:26 Conclusion and Upcoming Topics 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 edition of Dividend Cafe. We had a pretty interesting day today. I think there's a fair amount of things to cover in the news front and public policy. Not a super exciting day in markets, but we'll give a rundown of all of that and just cover our normal categories. And obviously we'll welcome your questions anytime.

I do want to direct any of you who may have missed the Friday Dividend Cafe to dividendcafe.com. As always, there's the full written report that I do each week, this week being my analysis of the One Big Beautiful Bill Act, the new tax and spending bill that has been signed into law by the president. There is obviously our video and podcast, which if you're listening to this right now, it may be one of your, but either way, dividendcafe.com Friday thorough analysis of the one big beautiful bill act. As far as markets today, the Dow opened down about 80 points. It closed up about 80 points, 88 to be precise. He had 20 basis points upside in the Dow today, 14 in the S&P, 14 basis points, and then the

NASDAQ was up about a quarter of a percent. So all three market indices up, but not by a time. They had all opened down. And I think that's probably the thing I'll skip too quickly to go into a public policy and then we'll come back to some of the other stuff. But I think it is essentially the biggest question of markets right now is the barrage of threats about tariffs and what is actually going to end up happening.

And I think it's easy to say the markets have now decided tariffs are not a problem when the president says we're going to implement a 30% tariff as a baseline on Mexican imports or a 30% tariff as a baseline on European imports, 50% tariff on copper imports, and that markets are still either going up or not really responding, and that my view is that markets are not going up, or excuse me, not going down, because markets do not believe that these things are going to happen.

I wanna give a bit of numbers behind this to the extent that a baseline tariff of even 15 to 20% was to be implemented across the countries this has been threatened on, then you're talking about anywhere from 15%, about 500 billion at 20%, about $650 billion of new taxes. That's a new tax cost to the economy that would have to be absorbed. And I, again, don't know that that will happen. I am very skeptical that it would. But the idea that if it did, it wouldn't have an impact to the economy and the markets is just ridiculous. That level of tariffs would essentially double the total taxes paid by businesses in America now. And so I think that you'd be looking at a significant cost, but you're not seeing a market response because the market doesn't believe that cost will end up happening

in the end. Now, again, the 30% tariff for New Mexico, very possible. A deal ends up getting worked out that is outside of automobile tariffs. Same exact thing with Europe. Europe today announced that they are not going forward with any retaliatory tariffs because they are still optimistic and confident that a deal is going to get worked out in the next two weeks. that a deal is going to get worked out in the next two weeks. The 50% tear off on copper imports, you do see an impact in copper prices. Copper has averaged somewhere around $4.75 a pound for most of the last several months.

It's gone a little higher, a little lower, but that's been the median price, the mean price, 4.75, and it has pushed up to $5.50 a pound. That's over a 15% move in a few days. Copper is of course vitally important in semiconductors, construction, appliances, machinery, and all sorts of industrial and computer equipment. The main issue, I would say, even in housing, construction, et cetera. It is a kind of bizarre thing in my opinion, because on one hand, this is not a national security

or critical infrastructure risk. We make about 50% of our copper needs domestically as it is. So there's no sense in which we risk being reliant on a foreign adversary for copper. We have adequate domestic copper production, but we also do import a lot for price advantages and volume. Even though that isn't necessary for critical infrastructure, there is still a marginal price impact that is for our commercial needs of copper that is clearly pushing upward prices on

it. So either that is also another threat and negotiating tactic that is largely being ignored in equity and bond markets, or there will end up being a price to be paid later that I have no doubt would be significant. But this is the ongoing story of how markets are supposed to absorb policies that could be concerning to markets that face value, but if markets don't believe those policies will end up happening. And so we're going to see what kind of trade deals get announced in the next couple of weeks. The other public policy thing I want to get to while I'm here, and I'll go back and cover a few other basics in a moment, is that there are more and more whispers I'm seeing, including from some folks.

The reason I'm actually covering it today in the Dividend Cafe is because some of the people talking about it are people I respect enough and trust enough that I think there is some legs to it of a possibility of a second reconciliation bill being pursued in the Senate this year to essentially now get a different swing of the bat at potentially some greater spending reductions, some greater deficit reduction, and some additional tax reform. Now, there is no accompaniment with these murmurs, murmurs, whisperings, what have you, of any specifics, of any actual, even theoretical particulars as to where this could go. But there is a political pressure. Senator Johnson, Wisconsin, Ron Johnson is pushing it.

But when I hear Majority Leader Thune taking up the mantle and again, others that I'm talking to that are my sources on the Hill. I think it's something I'd be curious to watch. And obviously if a second bill were to come that does better address deficit reduction than the first bill did, I would view that as a positive. Some of the new stuff I want to cover is just the obvious shift in the president's posture about Ukraine.

They announced this morning they're ramping up missiles that will be providing Ukraine through NATO. The president's articulating his own frustrations of Vladimir Putin much more clearly now. Trust me that China has to play a big role in where this is going. When they're talking about now imposing tariffs on those that do sell Russia oil or sanctions on those that sell Russia oil as a way of putting more teeth into the sanctions that are on Russia. There is some leverage now that is being used or at least talked about that can make a difference.

On the market front, I mentioned how markets are closed today. I just wanted to reiterate that I'll close today. I just wanted to reiterate that. Earning season is starting tomorrow. We'll have a barrage of financial companies announcing Q2 results in the days ahead, and then you're going to have a lot of focus as it should be on what they say about Q3, about Q4, about forward guidance. I'm particularly curious in the financial sector where they anticipate some M&A activity.

There is a pretty solid movement afoot for deregulation. And are we seeing more corporate finance activity taking place that would be a driver of growth? We're going to be watching for that. Obviously, the media wouldn't let us not watch for the update in AI CapEx. That'll be a big discussion more a couple of weeks out in earnings season. And then obviously where companies are addressing tariffs and the uncertainty around tariffs, where that may or may not be impacting activity, price levels, and obviously plans for hiring. So those are the kind of the major themes we'll be looking to during earnings season.

The top 10 companies in the S&P 500, which is obviously two, excuse me, not 10%, 10 companies in the S&P 500 make up, you know, 10 divided by 500 is 2% of the companies in the S&P 500 are now an all-time record high, 40% of the S&P 500's market cap. The delta, there's a chart at dividendcafe.com, the delta between the weighting of these 10 companies and their contribution to earnings is staggering. Now they have a very large and disproportionate contribution to earnings, but how the level of their cap lading and their earnings has kind of grown apart here in the last five to seven years is remarkable. I encourage you to check out that chart.

NVIDIA is at a $4 trillion market cap. Four trillion is a big number, but I think that the 3.6% of global GDP that that represents is the bigger story. And I had a tip to my friend Peter Bookvar pointing out that Cisco at its peak in 1999 was 1.6% of global GDP right before it ended up going down 80%. And Nvidia right now is 3.6% of global GDP. A huge success story from Nvidia, a huge thing for investors to understand. Is the Mag-7 unstoppable? Well, it's down 3.5% since December.

So yes, there's some names in Mag-7 that have had a big comeback here in June, but keep in mind, Apple's down 15% year to date, Tesla's down 22% year to date, Google's down 5% year to date. So as a group, Mag7 is down 3.5%, even as the market is up quite a bit. That speaks to that story changing,

and it also speaks to a de-correlation amongst the names within Mag7. Only, you know, we have the CPI number for June coming tomorrow morning, the PPI number coming on Wednesday. There is intensifying drama around the Fed. It appears to me they are working on a pretextual foundation to try to fire J-PAL for cause, talking about cost overruns and the construction of the Fed building. I want to quote word for word when the House Financial Services subcommittee, I believe it was Maxine Waters, a member of the committee a couple of years ago, asked Chairman Powell,

will you leave your term early? And he said, wondering if he was going to give in to political pressure to go, and he said, I will never, ever, ever leave this job voluntarily until my term ends under any circumstances, none whatsoever. You will not see me getting in the lifeboat." So are they doing this to jawbone them into a rate cut? Are they doing this to jawbone them into resignation? Or are they doing this to set up a termination? I say all this as someone who is actually in agreement with the White House that Chairman Powell should be cutting rates that they are unnecessarily tightening in their present posture.

But with that said, I would consider it very disruptive to markets if such a pretextual and laughable situation was used to force out Chairman Powell undermining Fed independence. Oil was down 2% on the day, and then somebody had responded to the Friday Dividing Cafe in which I say I favored the tax cuts from 2017 being extended. They were primarily at their largest level of impact, middle-class tax cuts,

and that to have seen a couple trillion dollar tax increase go into effect at the end of the year would surely have been recessionary. And someone said, okay, well, that's fine, but if you're so concerned about the national debt, wouldn't a recession be a good thing, a small price to pay, even if it lasted a few years, to deal with the national debt?

And my response was, can you give me any example at all where a recession caused revenue to treasury to increase? And if we're going to be a little more realistic about it, can you give me any example at all where a recession didn't create more public demand for greater governmental spending? Isn't that been the Keynesian way for almost 100 years? Can you give me any example at all where a recession created higher trend line growth that results in sustained revenues needed to deal with governmental debt? I just don't agree that the problem with the debt issue that I am so upset about is the revenue. The revenue as a percentage of GDP has stayed flat for quite some time. Spending as a percentage of GDP has moved higher and higher and higher. So there's two sides

to it, a revenue and a spending side, but the part that is moved higher is the spending. The part that has not moved lower is the revenue. It stayed constant as a percentage of GDP. The revenue to government is growth as GDP is grown. So I continue to believe that we have a growth issue we have to focus on and that by utilizing tax cuts to try to get more revenue, but undermining growth would be a terribly misguided policy idea. So I appreciated that question to ask TBG as I appreciate all your questions and we'll leave it there. Okay.

So very special to VinCafe coming on Friday, required me reading three different books on the same topic this summer and with those books done, I'm ready to write this. I'm going to leave you in suspense on the topic, but let's just say it will be a blast from the past. Our earnings season is here starting tomorrow. Get ready, I know we are ready here at the Bonson Group. Thanks so much for listening.

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