The Dividend Cafe - Monday - May 4, 2026

Episode Date: May 4, 2026

Today's Post - https://bahnsen.co/42MhQwc David Bahnsen reviews a modest market pullback amid escalating Iran-related rhetoric and Strait of Hormuz risks: the Dow fell 557 points, the 10-year yield rose to 4.4%, and oil jumped above $105 while energy was the only S&P 500 sector up. He notes the unusually fast rebound from March volatility and points listeners to prior analysis on corrections vs bubbles and AI. In policy news, Spirit Airlines failed to secure a rescue and may face Chapter 7 liquidation. He discusses midterm dynamics favoring GOP Senate odds, very low initial jobless claims (190k), steady ISM manufacturing (52.7) with weaker employment, and travel-agency employment as a disruption case study for AI. CapEx is increasingly concentrated in large-cap tech/AI while small business investment plans hit a 2009-low. He covers administration frustration with Powell, futures implying little chance of cuts, and growing scrutiny of Fed independence. He cites Exxon on inventories masking supply stress and notes OPEC+ developments, midstream strength, and flat US rig counts. 00:00 Market Jitters and Iran 02:16 Correction Recovery Context 03:47 Sector Moves and Energy 04:04 Spirit Airlines Policy Fallout 04:56 Midterm Math and Senate Outlook 06:42 Jobs and Manufacturing Pulse 07:25 Travel Jobs and AI Disruption 08:55 CapEx Concentrated in AI 10:08 Fed Politics and Rate Path 11:46 Fed Independence and Swap Lines 13:02 Oil Inventories and Hormuz Impact 14:44 Energy Earnings and Rig Count 15:45 Wrap Up and Viewer Q&A 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. I'm your host, David Bonson, and there is a lot to cover today. It's kind of an exciting time across a multitude of categories. And today you had a little actual activity in the markets that a little bit, just a little bit, act. as if maybe the market's worried about not having an imminent and clean end in the Iranian endeavor. Now, when I say that, it's because bond rates, bonds were down as the 10-year yield was up, a whopping six basis points, but nevertheless, back to 4.4%. The Dow was down 557 points, which is just a little over 1%. but the S&P only down about 41 basis points to NASDAQ about 20. So not real significant market declines, but some nevertheless.

So oil prices, probably the bigger story, at $105 plus change, up over 3%. You could argue, and it's not a bad argument at all, that on the bullish side of things, This stock and bond action is not that severe relative to $105 oil, relative to basically Iran saying it attacked the United Arab Emirates today, the UAE saying that they intercepted missiles fired at it. Iran saying that they were not going to allow the president to see this operation take place where the U.S. would enable ships to enable ships to. to get through the Strait of Hormuz, President Trump saying that any Iranians firing upon U.S. activities in the strait to move ship safely through would result in, and I quote, Iran being wiped off the face of the earth, you could argue that what appears to be a bit of rhetorical escalation, there was a pretty benign response, but there wasn't no response.

And so I think that there is some questions as to whether or not this 10.4% rally in the month of April, in the S&P 500, where it took a whopping 11 market days for the S&P to recover its 10% drop that it happened through the Iranian volatility of March, which does more or less, I think, represent the quickest recovery from a 10% correction in January. history. In Friday's Dividing Cafe, I looked at 26, 10% plus market movements to the downside, all of which, obviously the market recovered from, but 11 days is pretty quick, particularly considering a still unresolved conflict. So a lot of interesting things taking place in markets, and we will see whether or not this is the beginning of things, worsening again, or whether or not this de-worsening that we've seen over the last month is actually the new and continued trend. I mentioned Friday's Dividy Cafe. I do want to point you to that analysis we did on the history of market corrections on what a market correction or drawdown is that is different

than a bubble bursting and how to identify and think about and navigate and avoid the reality of bubbles, and then we apply that whole discussion to the current AI moment. So let's see if there's anything else in markets. Basically, I mentioned the bond market today. The only positive sector today was energy, which was up 0.8%. 10 of the 11 sectors in the S&P 500 were down, the worst one being materials down just a bit over 1.5%. On the public policy front, and I'm going to be talking more about this in the Capital

Record podcast, so it'll go up tomorrow. But the Spirit Airlines issue did end up hitting the fan on Friday night into Saturday. Attempts at a government rescue did not come together despite the Commerce Department's attempts to affect a bailout of the beleaguered airline. And they now face a Chapter 7 liquidation bankruptcy. And so we will see what some of the byproduct of that ends up being. It does appear that Spirit Airlines will not be the newest company in the government's portfolio of equities. I want to finish up with Public Policy and move into economic data and then talk about the Fed.

18 of the last 20 midterm elections, the party of the president in the White House saw losses in the House of Representatives. So we're talking about 90% of the time in the last 40 years, you had an incumbent president's party lose seats in the House. The issue for a lot of reasons in the mood sentiment polling, approval ratings, you know, what have you of the House is pretty well set about what the problems the Republicans face and where that is anticipated to go. The Senate is the story, and I started the year believing Republicans at a 90% chance of holding the Senate. At one point, I got down to 70 or 75%. There are a lot of sentiment issues that have gone against the Republicans, but there's definitely a math issue that is very much problematic for the Democrats. I've talked about this in a couple Monday Dividend cafes already. What I would point out, though, is that Governor Mills in the great state of Maine,

removing herself from a potentially winnable seat in the governor's race does not mean that the Democrats will not take the seat back, but it does mean they'll have a harder time. And without flipping Maine, it becomes even harder. And therefore, I'm pretty sure at this point, even my 75% odds for the Republicans holding the Senate is too low. I would imagine that number is higher. But, of course, things could change. They've already changed in the first four months of the year, but we'll see where things go from here.

Okay, so 190,000 initial jobless claims last Thursday, very, very low number. Most interesting data point out there, the best thing I can say, because there's still lots of data suggesting that job hirings are very, very subdued, but job firings are also very subdued, perhaps even more so. ISM manufacturing did not change in April. It was 52.7, which is still in expansion mode. It had been 52.7 in March, repeated that in April. The downside is that employment in manufacturing fell again, but new orders, production, both increased. An interesting data point. I have a link to it in Dividy Cafe today regarding employment in the travel agency space, Torson, Slocke, of Apollo had a chart and some data. That online booking obviously changed the travel space significantly over the last, let's call it 15 to 20 years. And yet, cheaper travel booking enhanced demand led to increased hiring, particularly for more complex, luxury travel oriented, by the way, also corporate and group travel.

The end result is that there's been a shift in composition, but there's a change. but there's basically right now the same amount of people working in travel agency, the subsector of that in employment now as there was 15 to 20 years ago, despite a really significant disruption that took place around online travel. I have many, many other examples of the same effect, and it speaks to a higher level principle. I've talked about a lot regarding the way we're thinking about AI disruption and a shifting jobs scene.

but that Torsten brought that up in one of his Apollo notes over the weekend caused me to want to reiterate it here in Dividing Cafe as perhaps an indicator of a broader economic reality of the way that things sometimes shift in composition changes. Okay, what else? The BIS, the Cappex thing, I got to quickly cover the fact that our Cappex has just been entirely taken over by technology spend. particularly AI data center. Mega large cap companies, their CAPX is up over 20% year over a year. Small and mid-sized public companies, there's been no increase. Outside of public equities, the data is negative, particularly for companies with less than 500 and less than 250 employees. The NFIB, which measures a lot of data and survey data around small businesses,

says only 16% of small businesses plan any capital expenditures at all in the next six months. It's the lowest level we've seen since 2009. Right now, 50% of the capital expenditures inside S&P 500 companies, 50% are in the technology sector. It's been somewhere between 20 and 30% for most of the last 40 years. So this ongoing economic theme of there being. cap-ex, but it being entirely related only to AI is something we have to continue to monitor. On the Fed side, a lot of frustration in the administration about Chairman Powell's surprise announcement.

I wrote a piece about this in our daily recap on Thursday. I have talked to a couple of people in the administration over the weekend that despite their surprise and even disappointment are reasonably confident that the current chairman will end up leaving that he's using final levels of cards and leverage to get fully on the other side of some of the threats that have happened. Either way, it certainly increases some of the vulnerability and risk there. The fact that a few Fed governors voted against any cut and the possibility of a rate hike in the future, there is a pretty difficult math to overcome for Chairman Warsh coming in if he were to want to cut rates from here.

Now, that said, there's a 13% chance now back into the Fed Fund's futures market in terms of implied probability of a rate hike between now and the end of the year. Now, it's only 13%, but the odds of either that a 13% hike or the 77, 78%, 78% assumption of no change at all, you're talking about a 92% likelihood, something thereabouts in the futures market, that there will not be another cut this year. I think that speaks to the market's belief that it may very well be that the chairman decides he wants to see a cut, but he's going to have a very hard time getting the votes. We'll see what happens.

A lot of discussion right now about Fed independence and using the illustration of swap lines with foreign governments, whether or not providing a currency swap to provide dollar liquidity to other central banks and sovereign wealth has anything to do with Federal Reserve independence. It's interesting because historically, the Treasury Department may desire this as some part of their own policy aims and some accord could take place between the Fed and the Treasury and the way it got accommodated. It hasn't historically been thought of as something that the Fed would push back against, it's now being presented as a question mark around Fed, Treasury, independence. I think what this means is not so much that a lot of people now care about

currency swap lines, but that there are going to be a host of ways in which people want to start to look further at Fed independence. Congressional and media interest in this, I guess it seems it came out of nowhere, but I would just. just simply say that it might seem that way because it certainly wasn't there in the past on issues like this. So I mentioned WTI crude closing in $105. I want to read a line that I found very interesting from the CEO of Exxon and their quarterly results that were released on Friday because it speaks to the context as to why the straight of Hormuz's closing has not made things even worse yet. And I quote, I think we all know there was a lot of oil in transit on the water

before all this started, a lot of inventory in the water that has been deployed in the first month of the conflict. Strategic petroleum reserves have been released. Commercial inventories have been drawn down. And so we've seen that play itself out and mitigate the impact as we move through March and then through April. But as you get to kind of minimum working levels of inventory on the commercial side, you're going to lose one of these sources of supply. And so we anticipate, as that happens, and the straight remains closed, that we will continue to see increased prices in the marketplace. What he's getting at there is something I don't think a lot of people thought about is you can look at what happened in the price level in the first month, but there was a lot of

mitigating circumstances in the impact on supply that could very well mean as those things roll off that various price dynamics worsen. So it is worth understanding it in a bigger picture. The UAE, of course, last week announcing that they had left OPEC Plus. I think it's a net positive to the U.S. geopolitically, it frees up the UAE to take a more independent position on Yemen without its interplay into OPEC membership. We will see. Now, oil last week was up 11.3%. As I mentioned, it was up another the 3% plus change today. We midstream had rallied over 4% last week. And of course, the whole energy complex was largely up.

You had about 10 midstream companies report earnings results last week that I studied and analyzed. And it really does appear that U.S. energy companies are seeing massive supply disruptions from Hormuz's closure more than is being understood and substantially enhancing demand for U.S. produced domestically sourced energy products, but as the Exxon CEO's comments indicate, it may take a little longer for some of those things to shake through. The U.S. oil rig count, by the way, was 407 before the Iranian operation began. It's 408 now. So you do not see U.S. oil producers bring in rigs online to take advantage of higher price dynamics. I'm going to leave

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