The Dividend Cafe - Monday - May 18, 2026

Episode Date: May 18, 2026

Today's Post - https://bahnsen.co/4nErXgi David Bahnsen records Monday’s Dividend Cafe from Miami, noting a prior deep dive on U.S. national debt and then reviewing markets after an S&P 500 “melt up” led by semiconductors, the Mag Seven, and AI, followed by a pullback tied to sharply rising bond yields, with the 10-year near 4.6% and higher yields a potential catalyst for equity weakness. He flags poor market breadth, mentions a $67B Dominion–NextEra utility merger connected to data-center power demand, and highlights AI’s dominance in new high-yield, investment-grade, and venture funding plus global index concentration in semiconductors. He also covers U.S.–China announcements (Boeing planes, agricultural purchases, tariff oversight), Iran uncertainty, industrial production gains, weak homebuilder sentiment, incoming Fed chair Kevin Warsh amid no-cut expectations, and oil near $106 with limited rig-count response. 00:00 Miami Intro and Debt Recap 00:55 Market Pullback and Yield Spike 03:52 Breadth Warning and Utility Merger 05:04 AI Concentration and Momentum Risk 07:43 US China Summit and Iran Tensions 09:47 Economic Data and Fed Outlook 11:46 Oil Surge and Rig Count Reality 12:55 Ask TBG and Sign Off Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividing 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 Dividing Cafe where I am recording from Miami, Florida. I just arrived a few moments ago. I got to write a lot of today's Dividendon Cafe on the plane today. And I'm not sure that I've ever recorded a Dividing Cafe from Miami. I will be here for a few days. I'll be back in New York City Thursday night and we'll bring you the Friday Dividing Cafe from New York on Friday. In the meantime, last Friday's Dividy Cafe. I very much want to call it to your attention. And so we're getting an awful lot of feedback about it. But we did a rather deep dive into the state of the U.S. national debt. And there's been recent headlines about the debt crossing that 100% debt, public debt to GDP ratio. And I believe this is a Divenna Cafe worth your time. So check that out at divinycafe.com.

Let me get into the action for today. We have just sort of a little bit to cover on every topic. I think it goes without saying that the market has been mostly since, let's call it, mid-ish April, been in a real melt-up mode, a very, very rapid increase in the semiconductor space, in Mag 7 in AI, AI adjacent, and of course all that carrying SMP 500. It sold off quite a bit on Friday and then was down a little today. The NASDAQ down more.

The S&P was only down seven basis points, although at one point it had been down a lot more. All three market indices rallied in the last hour and a half. NASDAQ was still down a little over half percent because technology was down one percent today was the worst performing sector. But the Dow ended up being up 160 points and it opened down 60. A lot of this action in the market Friday almost entirely and hangover into today. Passed through bond yields have really risen quite a bit. And so the bond market falling off, bond yields going higher, puts downward pressure on risk asset

valuations. The 10-year closed today, just a little south of 4.6%. But to give you a little context on that, one month ago, the tenure was at 4.29. At the beginning of the Iran War, it was at 4%. And maybe just a couple basis points above 4%. So those are not moves we see very often. Now, we're still kind of roughly in that 4.5ish range, even though we're now about 9 bips ahead of that.

The notion of like this thing running away, getting up to 5, breaking out higher that a lot of people talked about it. They've talked about it for a few years. It hasn't happened. It stayed in a very tight range, somewhere around four to four and a half percent. We're still somewhere around four to four and a percent, but that represents a major issue. And if someone were to say, what could be a catalyst for finally breaking this market? I think bond yields moving much higher from here could be that catalyst. I'm not sure that they will because most of it seems to be temperamental around oil prices and expectations in Iran. And to the degree, if that's the case that bond yields are higher because of an oil supply shock,

and that's as simple as Strait of Hormuz getting open, I don't think it's open in two days or four days, but I do think there's some geopolitical path, which I have no interest in predicting, that gets it open, and therefore that's different than a kind of embedded and structural issue in financial markets that drives the bond yields higher and keep some higher. And then all that downward pressure comes. If you were looking for a reason to be concerned in equities, you can say the current action in bond yields is one of them, but that may be a more short term. But I cannot believe that we are looking at an S&P that melted up the way it did, and only

50% of the stocks inside the S&P 500 are in an upward trend. That is, it's happened before, like in March of 2000, but you're talking about really, bad breadth, that the participation in this has been so narrow, I think that represents a vulnerability right now to broad market holders. But just anecdotally, a $67 billion utility mega merger. There's a link in dividend cafe.com was announced this morning between Dominion and Next Era. You're talking about battery storage. You're talking about renewables. You're talking about a combination around the data center story that I think is, you know, the electricity demand for data center. This is a big story. The top performing sector day was energy up a stunning 1.81 percent.

Consumer staples were number two, up 1.34. I mentioned tech was the most down at one. This AI story, how much is it permeating risk assets? A Torsten Slocke and Apollo and his daily report highlighted that 38% of all new high-yield bond issuance has been in the AI space, 49% of investment-grade bond issuance, like higher-quality bonds. 49% have been AI-related. And then, of course, venture capital, 87% of new venture equity investments have been AI-related. That's not as much of surprise. Now, I talk so much about the concentration issues in equity markets here, like, for

example, the S&P 500, we are active managers in the emerging market space. And so the index of emerging has never really mattered a lot to us, but a lot of people that are invested in international emerging type markets are using an index. This blew me away. I did not know it, but until reading it over the weekend, 25% of the emerging markets index. Over 25% of the whole index is three companies that are all. semiconductor. One sector, three companies making up over a quarter of that index. So this tech AI concentration story and cap-weighted indices is not merely a U.S. one, but a global one, and that concentration risk is greater than ever. I want to put a chart up on the screen right now,

just simply because I want to move out of markets and into some other things that I think are important for us today. But before I do, the momentum issue that has happened to give you historical context for how much the momentum issue has moved relative to markets and trendline growth. When you look at the market index here in this last month, it's a five standard deviation event. Now, you saw out in early 21 that happened. You saw in March of 2000, you had a big move higher in the momentum jump. You can use history as a guide if you want.

It is true that what we're highlighting here. these did proceed eventual market drops that were quite violent in 22, in obviously 08, which had a lot of other factors going on, but certainly in March 2000. This momentum thing feels great when it's happening, but I've always said if what you want is for high-risk stocks to just grow and grow and grow and grow forever, you're better off with them growing at a little more reasonable, sober pace than this kind of spike, at least according to history. Maybe this won't be different. All right, top news stories. President G. and President Trump obviously spent a couple of days together last year. I don't think we got a ton of

information out of it. It all seemed to be benign. It was certainly celebrated by the White House. In fairness, most of what was announced in the White House, which was light on details, were reasonably reaffirmed, confirmed by Chinese authorities in their own bulletins and public pronouncements as well. They agreed to buy 200 Boeing airplanes. The market had expected more. They are agreeing to buy another $10 billion of U.S. agricultural products, primarily soybeans, on top of what had been agreed to do before. They are talking about a board of trade to help over see a tariff reduction on up to $30 billion of goods. I would love to see that. And there were not a lot of details about discussions between the U.S. and China on AI or on Iran or on rare earth minerals,

which I think are three of the more important topics. I think that what the president's doing is waiting until the summit in September here in the United States for those things to dig deeper. As far as Pakistani mediation goes of U.S. Iran conflict, he doesn't appear to be gone great, but I'm not getting a prediction business of whether or not things are going to go or not go after market closed today. And as I was getting set in the hotel and getting ready to record, President Trump announced that he had an attack planned on Iran tomorrow, but he's going to put that off because of some further developments.

So take that as you will. Senator Bill Cassidy of the great state of Louisiana lost in his primary. he's an incumbent senator finishing his second term in the United States Senate who will not be getting a third term. And so you can say, wow, an incumbent Republican losing may be an issue here as it pertains to the general election. But this is not a state in which Republicans are going to lose in a general, but it does speak to the environment right now in primaries. And there could be more to come in that front. On the economic front, industrial production increased 0.7% in April. Utilities output jumped 1.9% on the month.

Manufacturing increase was 0.6%. The auto sector enjoyed a nice rebound. So there were some good green shoots in there, but overall still pretty muted environment for industrial production. Speaking muted environment, the NHB Builder Sentiment Index, it's not good. It was still way into the negative. It picked up a little bit from how negative it had been in the prior month, but prospective buyers traffic continues to really weigh on home builder sentiment

and sales incentives continue to increase to generate even the very muted sales we are seeing in new homes. So Chairman DeB, Kevin Warsh, is going to get installed, sworn in as the new chairman of the Federal Reserve this coming Friday. He will inherit a Fed Fund's futures market. The right now is a 50% chance being priced in of a rate hike by the end of the year and zero chance of a rate cut anytime between now at the end of the year. I do not believe there will be a rate hike, but it is a little contrary to my nature to be taking a view opposite of what the futures market is saying because it has been a very good indicator of where policy's gone.

But we'll get Chairman Warsh in there and see what happens. But even if hike does not happen, because 50% is 50%, not 100%, But the idea of a cut happening right now seems very unlikely. Like I mentioned before, though, the basis for the high end of the curve, the high end of the bond market, moving higher and yields, and then now higher expectations in the Fed funds rate is largely related to the price pressures, upward price pressures we're seeing from oil supply shock. And should that oil supply disruption come to an end, a lot of things could shake out. Speaking of oil, closed at $106.43. Today up. Another 1% oil was up about 10% last week.

The midstream energy sector, by the way, was up 6% last week and is now up almost 30% on the year. A lot of talk about rig counts. It is true that the rig counts picked up by five recently, but you're still talking about the 415 being the 9%. number for active U.S. oil rigs. It was 465 a year ago. So when oil was $70 a year ago, we had 50 less active rigs. Two years ago, there were 497. So there's not a big appetite for producers to be activating more rigs. They're getting very, very high production out of the rigs they have, which makes the comparisons to pass rig count numbers, apples to oranges. And right

now, I think that the market continues to price itself off of what it expects oil to be in the first quarter of next year, not the middle of this year. All right. There's a great question. I'll let you check out on the homepage of dividentcafe.com, our AskTBG section, where Cameron wanted to know what the difference between industrials and materials are and why they don't trade together. And I give a thorough answer to that, actually a very fair question.

Other than that, we'll have a weekly portfolio holdings report as we do each and every Wednesday morning for clients, and I will be with you in the Dividing Cafe on Friday. And I very much hope that when I get back in the city on Thursday night, that the New York Knicks will be up to O'O in their series against Cleveland Cavaliers. But to all of our clients in Ohio or the Ohio area, I say best of luck. And it should be a fun series. With that said, thanks for listening. Thanks for watching.

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