The Dividend Cafe - Monday - July 21, 2025

Episode Date: July 21, 2025

Today's Post - https://bahnsen.co/414n2Lt Market Overview and Economic Insights: Dividend Cafe In this episode of Dividend Cafe, Brian Szytel stands in for David to provide a comprehensive update on market activities and economic indicators. Despite a quiet day, the Dow closed down 19 points, contrasting with record closes for the S&P and Nasdaq. Interest rates saw a decrease, influenced partly by political events in Japan. Earnings are generally positive with a 5.6% EPS growth, and 83% of reporting S&P 500 companies beating earnings estimates. Economic activity remains resilient with balanced labor markets and upcoming economic reports on jobless claims, PMI data, new home sales, and durable goods orders. Key political and economic developments in Japan, housing market dynamics, and potential Federal Reserve actions are also discussed. Lastly, insights on oil, energy, and the impact of tariffs on inflationary measures are shared. Brian encourages audience engagement through questions and looks forward to upcoming episodes. 00:00 Introduction and Market Overview 00:17 Market Performance and Earnings 00:41 Economic Indicators and Interest Rates 02:19 Sector Analysis and Valuations 03:37 Economic Calendar and Labor Market 04:15 Global Political Events and Currency Movements 06:00 Housing Market Insights 06:40 Federal Reserve and Interest Rate Speculations 07:37 Oil and Energy Sector Update 08:07 Inflation and Tariff Impacts 09:10 Conclusion and Viewer Engagement 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. Welcome back to Dividend Cafe. This is Brian Seitel here again on Monday standing in for David, who is in route from DC, Washington DC, back into the meet after a meeting there in Washington. Overall, fairly quiet day. So I'll run through things here for you on Dividend Cafe. We actually closed basically at the worst levels of the day.

The Dow ended up closing down 19 points, but we were up by 250 points in the morning, gave all of that back, but not necessarily on a lot of anything bad, just lack of frankly news. The S&P though, and the NASDAQ still closed at record territory. Dow was down 19 points, S&P was up eight points, NASDAQ was up to about 80 points on the day. There was a decrease in interest rates across the yield curve, particularly on the long end.

I think some of this had to do around a political event in Japan that I'll walk through, but you had 10-year yield, it closed off about four basis points. We, but you had 10-year yield close off about four basis points. We closed 438 on 10-year. So there's your around the horn, at least on some of the broad market action. But the path of least resistance essentially remains higher in markets. You've got a benign or less aggressive trade paradigm that is priced in. You just have a lower volatility backdrop that is into markets now. You've got earnings that are coming out and are generally positive, and you've got some depreciation that was included in the reconciliation bill out of Congress, and then likely some

lower interest rates that will come through towards the end of the year, and then also deregulation backdrop as well. So all things being equal, the market is tilted more towards the upside. That all said, it's now more about just where valuations already are. And of course, there's comment in there today about what will come out in earnings. I don't suspect something will blow away these numbers, but I do suspect that they'll hold in and just to that point, so far only 12% of S&P 500 has reported earnings. There hasn't been a whole lot out yet, but what has come out has been better than expected.

We've got about 5.6% EPS growth. We were thinking it was going to be something at 4.8. I'll call that pretty much in line. But of the companies that have reported, 83% have beat earnings, and that's above what we've seen historically around 77%. So more beating earnings, and by a slightly larger model, that's doing is essentially supporting current market levels. It's not necessarily expanding them.

The other thing I think that is interesting is we look at things like bull bear ratios and just different metrics that give us a sense of where sentiment is and where investors are. And there's a city panic euphoria index that was created 10, 15 years ago. And it also hit the highest level. So there is some good stuff all being priced into markets here at these levels already. We've talked about the top weightedness of the S&P 500, how it's, you know, over a third now

technology, and if you include technology adjacent industries, it's more like half of the index. But what we sometimes don't talk about is the defensive sector. So of course, those things are a totology. If you think about an overweighted tech sector, then the other sectors have to be underweighted at this point. But if you look at defensives, to put it in perspective,

what is usually say a 30% waiting in the market is only about 15%. Again, it just goes into being selective, looking at valuations, and those things are very important. And to that point, if you look at something like the semiconductor component or sector, while this is a very hot sector, and actually has come up about 20% here, it's just back to where it was a year ago. So if you invested in this sort of hot sector, you're basically at a 0% return over the course of the 12 months.

And again, it goes back to the point of just the starting valuation really matters. But if you look in the economic front now, we've got a pretty quiet calendar both today, which is Monday and tomorrow, which is Tuesday. And we don't really get into much information until we get into Wednesday and Thursday, we'll have initial jobless claims, we'll have some PMI data. We'll have some new home sales, some durable good orders on Friday. If you just look at where labor is and this 221,000 jobless claims number

that we seem to be hovering around now for about a month, it's just a very balanced labor market. And I think we've spoken about that, but to make another note of it today on the economic front, this is not an employment picture that is falling out of bed yet. The US economy continues to be resilient. Public policy today, there was news out of Japan, Prime Minister Ashiba lost his governing

majority, just by a narrow margin, really. He needed 50 seats, he kept 47. The Japanese voters essentially suggesting that maybe the porridge was just right when he had a deflationary environment and 0% interest rates. Japanese voters essentially suggesting that maybe the porridge was just right when you had a deflationary environment and 0% interest rates. You get addicted to that as an economy. I think there's part of the US economy that is also addicted to that. And I think that's why a lot of the housing market remains frozen because it's assuming

that interest rates will go back to these low levels. I don't know that they'll go back to zero, but potentially they'll go lower than they are now. But in Japan, it's a different story. You've got 30 years of deflation. You've got just inflation now and positive growth and frankly, positive risk assets in the Nikkei in the stock exchanges there for the last couple of years. And so the fact that the political side may be turning over is a little disappointing.

There's been a lot of talk about the yen and its weakness versus other currencies. It weakened a bit today as well, but if you look at it where it's been over the last couple of years, it's essentially been floating around 140 and 150. So same thing with the dollar. When you get the media saying the dollar is weakening in perpetuity or something like that, they're just talking about the last three to six months. There is some talk, I know Secretary Lutnick was out today talking about confidence in a deal with the EU. Again, if you remember, there was a self-imposed tariff deadline of August 1st, and that's

obviously a huge trade partner for us and for the US. And supposedly there was some momentum or some deals to be had there, some confidence about them. I'm always a little reluctant to spend a lot of time going into that stuff because it's just so volatile on what actually will happen and what will just be spoken about. Going into the housing side of things, we had single family housing starts

at an annual pace of 883, that's 883,000. That's technically the lowest level that we've seen in about a year. We also had a decline in permits too, so that's a80,000. That's technically the lowest level that we've seen in about a year. We also had a decline in permits too, so that's a forward-looking indicator. And again, housing remains stuck. But what we are seeing is this dichotomy between single-family, which is anemic, both on existing sales and new builds and pretty much across the board. Again, interest rates play a big part of that.

And then also on the multifamily side, which has actually been pretty decent. There's still a need for people to have a roof over their head. And whether that's in the rental market, in the multifamily space, so be it. On the Fed front, they're in a quiet period here before a policy. I will say there's about a 24% chance

for a third rate cut now before the end of the year. There's still 50 basis points priced in. Again, that's basically pricing in September and December, but we feel pretty confident, at least from the change in rhetoric around the Trump-Powell narrative of Trump thinking he may want to fire Powell on one press conference and then maybe not on another. I feel pretty confident that Besant probably talks some sense into that because even just from a legal perspective in a timing perspective We're only talking about a short period of time what would be the upside very little the downside would be collateral damage on market volatility and

Things that would be unsavory for for the president's administration to deal with and so I believe Powell will basically fill out his term And they get replaced by one of the top Fed governors that are in the running now, call it Warsh or Waller, one of those. But moving into oil and energy, oil has been positive. Midstream particularly last week was positive. S&P was up a little bit too, but midstream was up about 1% last week. S&P was only up about half a point, but that was with oil down. As far as what midstream was always supposed to be, which is not tethered to the volatility of the commodity price changing, but the amount of volume that is going through those pipelines, it has actually been performing obviously very, very well for about three years now, three string there. It's a version

of some things that we've gotten before, but it's a very astute question from a great client asking about if tariffs are inflationary and the fact that they're basically just shifting supply and demand dynamics versus actually creating a monetary event, which is more dollars chasing fuel goods and causing an increase in prices. And the answer to that is that's exactly right. The inflation, the definition will always be a material phenomenon. So the fact that a tax might increase the price of a good or even a service, at least you could say temporarily or in a vacuum, meaning other sectors may not be affected. It's hard to call that broad-based inflation.

If you look at the formula of it, while it may change some of the supply and demand imbalance, ultimately, if it's destroying or hurting the supply side because of higher taxes decrease productivity rather than increase productivity, then I think you could get monetary inflation out of it. But just in and of itself, a tariff and a tax isn't inflationary in and of itself by those definitions, at least formulaically. I'll be back with you tomorrow. We'll obviously have for clients, the weekly portfolio holdings report on Wednesday. Then we'll have a longer version of Dividend Cafe on Friday again. There'll be more in the economic calendar

as the week goes on, but there's your round the horn. And I still encourage everyone that's watching and listening to please reach out with questions, obviously. We love to get them. They're fun to answer. And I do think there's a value added to other readers seeing what's on folks' minds. So please do.

With that, I will let you go. I wish you a lovely evening and we'll be back with you soon on Dividend Cafe. Thank you. 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 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's no guarantee that the investment process or investment opportunities referenced herein 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 investment advice. The Bonsall Group and Hightower shall not in any way be liable for claims and make no expressed or implied representations or warranties as to the accuracy or completeness

of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice. This document was created for informational purposes only. The opinions expressed are solely those of the Bonson Group and do not represent those of Hightower Advisors LLC or any of its affiliates. Hightower Advisors do not provide tax or legal advice.

This material was not intended or written to be used or presented to any entity as tax advice or tax information. Tax laws vary based on the client's individual circumstances and can change at any time without notice. Clients are urged to consult their tax or legal advisor for any related questions.