The Dividend Cafe - Monday - July 28, 2025

Episode Date: July 28, 2025

Today's Post - https://bahnsen.co/4m0KxNO Market Update & European Union Trade Deal - Dividend Cafe In this Monday edition of Dividend Cafe, David Bahnsen, Chief Investment Officer of The Bahnsen Group, discusses a range of market updates and economic observations from his office in New York City. He highlights the flat performance of major indices amidst the European Union trade deal news, the surprising low volatility, and the record number of S&P 500 companies above their 200-day moving average. Bahnsen also touches on upcoming earnings reports from major tech firms, bond market movements, and significant sector performances. Additionally, he offers his perspectives on durable goods orders, initial jobless claims, and existing home sales figures. The episode includes insights on the latest trade deals and how they may impact markets long-term, along with a personal anecdote about walking through a movie set in the intense summer heat. 00:00 Introduction and Market Overview 00:57 Unexpected Encounter on the Way to Fox Business 02:08 Market Performance and Key Indicators 04:06 European Union Trade Deal Insights 07:20 Economic Data and Predictions 08:57 Housing Market Trends 09:45 Potential Policy Changes and The Fed's Meeting 10:50 Midstream Companies and Dividend Growth 11:37 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. Hello, and welcome to the Monday edition of Dividend Cafe. My name is David Bonson. I'm the managing partner, chief investment officer of the Bonson Group, and I am sitting atop our offices on the 31st floor of 1336 Avenue in New York City where it is so hot outside I cannot even tell you. The reason I am doing this without my suit coat on is because I'm just thinking about

the heat that is outside this building. There's a few things to go through today, not a particularly eventful day, which is surprising because people would say, well, this trade deal with European Union is huge news. I think it is big news. I think it's a good bit of news, but not one that the market was not expecting, obviously, the S&P 500 today being completely, totally dead flat on the day. If you go to dividendcafe.com, there's the normal charts, normal bit of info, there's

links to some things. I was on Fox Business this morning for the opening hour of the market, and I should point out that on my way to Fox, speaking of the intense heat outside at 48 Street, accidentally just began walking through a live film, filming of a movie that was being filmed there, the Devil Wears Prada sequel that is being filmed, which who knew that they were making a new one of those. But that was taking place right outside on Sixth Avenue. And I decided to not pay attention to security and walked right through the middle of the filming. And that didn't make people very happy. And immediately my heart just went out to the

crew and all the people that were going to be filming presumably in this oppressive heat. But as I got into the Fox building and then was on set for Varney, we did talk about all these things with the European Union trade deal. On Friday, I had been on the Big Money Show on Fox and was actually on for quite a while. And so both of the links to these things are there at dividend cafe. But the things for those of you watching the video and listening to the podcast right now that I would share about today market-wise is not only was today a sort of boring day when all of a sudden none of the market, the Dow was down 60 points, which is 0.14%. The NASDAQ was up 0.3%.

I mentioned the S&P was totally flat. The markets really didn't have much of a rally even on the news of the European Union trade deal, but what little rally was embedded there dissipated throughout the day. But there are now 67% of names in the S&P 500 above their 200-day moving average. That's the highest so far this year of members of the S&P that have gotten above their 200-day average. And we also just closed today our 23rd day in a row of market trading day, where the S&P was not up or down 1% or greater, that the range of the daily movement, whether to the upside or downside, has been less than 1%.

That's become extremely rare. We've really gotten used to much more day by day volatility, up and down movements. So you have a market that all at once feels like it's going pretty well. And now we're getting into the real meat of earnings season. You have four mega cap companies, mag seven companies, multi trillion dollar companies all reporting this week. There's a link about that in Divin Cafe, but that's Apple, Meta, Amazon and Microsoft all reporting this week. We're early enough for the earnings season so far

that I don't really want to jinx anything. Overall, it's been pretty good. More companies than expected have beaten earnings expectations, but the magnitude of companies that have missed has been larger than expected. So it's not like a perfect report card so far, but it's gone all right, but it's very early.

The bond market today, the 10-year was up 2.8 basis points, the yield, so up at 4.4 plus change. Energy was the top performing sector today, up over 1%. I'm going to explain why in a moment when I talk about the European Union trade deal. But real estate got hit pretty hard. That was down 1 and 3 quarter percent. The dollar had one of its biggest days in a while, and that's not unexpected at all, and probably not something President Trump would like a lot. down one and three quarter percent. The dollar had one of its biggest days in a while, and

that's not unexpected at all. And probably not something President Trump would like a lot, but the dollar was up one percent on the day. The euro is now down. It's the most, it slid in over two months. And again, a lot of that is that to the extent there are certain new tariffs that are now clarified, currency adjustment becomes one of the easiest ways to try and pay for it without paying for it. But yeah, I mean, that's the state of affairs right now. We're waiting on earnings season in terms of short-term market stuff, which I don't really care a whole lot about, but short-term volatility has been low and breadth of the market has actually improved. Now, in terms of the bigger picture of where we're going, more fundamentals, more longer term stuff, I'm going to write in Divinity Cafe this Friday about the real way to measure

the efficacy of these trade deals that are getting announced, the most latest one being the European Union. Nothing in writing was released, neither country put a ton of meat on the bone about it. But we understand the framework, which is what has been pretty much the focus of the latest one being the European Union. Nothing in writing was released, neither country put a ton of meat on the bone about it. But we understand the framework, which is what has been presented with some of the other countries as well, UK, Japan. But we don't have anything yet with India. We don't have anything yet with South Korea, with Taiwan.

We actually have a lot of indications that things are getting worse with Brazil, but we do have deals. And by the way, with India, Taiwan, South Korea, for that matter, we expect deal announcements to be coming. But when you have the European Union and Japan and Vietnam and to some degree China covered, those are the elephants in the room for the most part. But the point I want to make is on the European deal, the baseline level of 15% is better than the US had been threatening. We avoid another round of trade war. This is what I have been predicting for some time, that the administration would do what it had to do to not go back to where it was. 15% on the other hand is higher than 10,

but there's a whole bunch of 0% in there. So the blended tariff rate, it's a little bit difficult to calculate when they're talking about 0% tariffs on aircraft, semiconductors, certain drugs, certain chemicals. There's ambiguity as to whether or not steel and aluminum are included, and if they are, how they're included. The US seemed to say it was, but Europe said, no, we're going to a quota system, but that is going to require a separate piece of paper. So there's still some ambiguity there, but all things being equal, the big commitments of Europe to buy more energy, I have to think they would have done that anyways, but I love

them putting that into this deal. And certainly it's one of the reasons energy was up today. The US becoming an exporter of liquefied natural gas, a bigger exporter of liquefied natural gas than it has been, has been one of our major themes for well over 10 years now, and I think it represents a significant amount of both geopolitical and economic benefit globally. The economic front, the new orders for durable goods came out Friday, and they were down almost 10% in June, which was actually a little bit better than the almost 11% decline that had been expected. But commercial aircraft was the major part of that. If you take aircraft out, we were down about 0.7% for new orders on the month, but we had been up 2% the month prior.

Initial jobless claims came in, we're expected actually a little bit better, but just not moving right there around that 220,000 weekly figure, not indicating any major deterioration in the job market at all. Keep in mind, the BLS will come out with the jobs report here this week. the Q2 GDP, the first print anyways, these numbers get revised a lot, will come out this week. I expect it's going to be a pretty good positive number based on the negative number we had in Q1 and the lumpiness that is responsible for that, both on the downside as you add a front running of imports and now on the other side is that offsets itself. I would think you'd have a better chance of getting a front running of imports, and now on the other side, as that offsets itself, I would think you'd have a pretty

good print here, but all of it is sort of in that anomaly category, because there are things that are one time. And as I'm going to be talking about Friday in the Dividend Cafe, the sustainable result in consumption and especially in business investment and in capital flows, and what we're going to see in terms of total trade, that's really going to take a long time to play out. And that's going to be the ultimate report card for how these trade deals really ended up playing out. On the housing side, existing home sales declined 2.7% in June. Sales are right now running 1.3 million homes per year, less than our pre-COVID average.

It's 2.5 million homes less than the post-COVID average, but of course, middle of 2020 to middle of 22, we had a huge spike in housing activity. But this current pace is the slowest we've seen in 30 years. the average 30-year mortgage rate right now is 6.84%. So even with the Fed funds rate, one and a quarter less than it was, the mortgage rate has not moved. It's not something that we're going to see in the next few years. It's not something that we're going to see in the next few years. It's not something that we're going to see in the next few years. It's not something that we're going to see in the next few years. It's not something right now is 6.84%. So even with the Fed funds rate, one and a quarter less than it was, the mortgage rate has not moved. It's not something there's a lot of meat on the bone with yet,

but the president has floated the idea of eliminating capital gain taxes when one sells their primary residence. You get $250,000 a gain without capital gain for a single and $500,000 a gain without a capital gain for a single and 500,000 of gain for a married couple. But that number was set in 1997 or hasn't moved since 1997. I am not sure that the president really will go forward trying to eliminate capital gain on primary residents. But I do wonder if he's setting the stage to inflation adjust the exclusion amount, which would be a very big deal and a very logical matter of public

policy. 30 million homeowners, by the way, have equity in their homes in excess of the exclusion amount. So the Fed meets this week. The futures are telling us there's 0% chance of a rate cut this week, but we're up to 63% chance of a rate cut in September. By the way, at that link at Dividend Cafe with my appearance on Fox on Friday, there was a lot of talk about the Fed. So oil was up 3% on the day, the big European Union announcement. And I would just point out as we're getting into earnings season with all the midstream companies, we're looking at average year over year growth across the midstream space of 7% dividend growth year over year, and we're looking at a net debt to EBITDA of about three and a half times.

Now, that's a median number. It can be higher or lower for certain companies. The dividend growth can be much higher for some and lower for others. That's how averages are formed. But you got to remember that across the space, it was about five times debt to EBITDA less than 10 years ago. So you've seen really significant de-levering, earnings expansion, and healthier financial metrics, all the while creating opportunity for better dividend growth.

So I will leave it there and allow you to go to dividendcafe.com, go to the homepage to look at the Ask TBG where we post a lot of the questions and our answers. We'll be with you on our daily recap summarizing activity Tuesday, Wednesday, and Thursday this week. But in the meantime, I'm going to be pretty focused on this writing of Divinity Cafe for Friday because it's a big project for me to objectively and apolitically capture the but we have to wait for later. But I want to talk about that in this Friday's Dividend Cafe. In the meantime, I hope you have a wonderful Monday evening.

And if you're anywhere in one of the four cities in the country, I'm sure you'll find a lot of people who are going to be thinking about this. And I'm sure you'll be thinking about it. And I'm sure you'll be thinking about it. And I'm sure you'll be thinking about it. And I'm sure you have a wonderful Monday evening. And if you're anywhere in one of these places, like the concrete jungle of Midtown Manhattan, where you can't even walk down the street without walking through a movie set or walking through

95 degree sweat storm in a suit, I just say say I hope you have a wonderful air conditioned evening. Thanks for listening, watching and reading The Divening 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 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

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