The Dividend Cafe - Monday - October 20, 2025

Episode Date: October 20, 2025

Today's Post - https://bahnsen.co/4htuMxK 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 edition of the Dividing Cafe. I am here at the Bonson Group's office in beautiful Nashville, Tennessee. Wonderful weekend here in Nashville and a couple days working at this office. And we had a big rally day in markets today. A little volatility here so far into fourth quarter, some down times and now some uptimes. And today's up day catalyzed by a few different things, some optimism around where this flexing and barking with U.S.-China trade is going.

Early reports of good sales and news for the new Apple iPhone. I think it is Model 17. and, you know, a few other sentiment-oriented things. But nevertheless, it put the Dow up 516 points today, which is 1.1%. The S&P was only a little bit lower than that, up 1.07%. So right in the same range, and the NASDAQ a tad higher at 1.3%. I do want to direct you if you didn't catch the Friday Dividendin Cafe to our Friday Edition Dividendon Cafe about AI and the impact that I expect it to have on the labor market.

Assessing the lay of the land in that space is the topic that comes up all the time, I think, is tremendously important in terms of the macroeconomic picture. And it has been a wonderful weekend of feedback about that particular Dividendon Cafe. So if you did miss that, I'd love to direct you either to that podcast, episode, video, or the Dividendon Cafe.com article. A few things I want to say quickly on the investment front, in addition to where the major market indices went today, all in rally mode, all basically somewhere above 1% on the day. The 10-year bond yield closed today at 3.98%, so it's below 4%.

It's been teetering right at that 4% range for a while, and the yield was down 2.7 basis points today. So you continue to get a rally in the long end of the curve in bonds. I would argue that a lot of the distress that was upsetting markets last week in the regional bank sector seems to have sort of gone away. And I mean by that that credit spreads have not really widened that you know, the majority of the S&P 500 still sits above its own 50-day moving average, and I can assure you that number will be even higher tomorrow morning after today's price action. I couldn't care less about 50-day moving averages or 20-day moving averages and short-term market technical indicators. I share it just to say that what I said at the beginning of this

podcast about kind of Q4 volatility is quite enhanced because on one hand, We have had more distress and downward gyrations, in particular that one Friday, where the Dow was down almost a thousand points and the NASDAQ and S&P on a percentage basis were down a lot more. But on the other hand, there hasn't been a lot of deterioration of markets. And in fact, now there's been, you know, pretty significant recovery. The top performing sector day was communication services. Interestingly, for a day as robust in its rally as today was, we didn't get 11 out of 11. sectors in the green because consumer staples were down a whopping 10 basis points and utilities were down six basis points. So you just had a tiny bit of defensives down that caused

us to avoid a clean sweep of positive performing sectors. Speaking of positive performing, the Japanese Niki, kind of their equivalent of RS&P, is at new highs. It's a genuine bullmark And I also would point out that India and their market has had quite a rally, despite the lack of a bilateral trade deal since Liberation Day, that many have expected and many have feared if it didn't come would be real damaging to India. And they keep plugging along. Then the other thing I want to point out in markets is that the Russell 2000, and this is just crazy. It's, you know, the small cap index is substantially underperform the S&P for four or five years now. It has finally rallied and had quite a big move here in the last few months to the point where the Russell 2000 has gotten up to a new high. Now, its percentage gain over the last several years is very small, particularly compared to other big cap indexes.

But what's most interesting is that you have a substantially higher performance for all the companies in the Russell, thousand that lose money, and there are plenty, versus those in the Russell 2000 that make money. So it is a low quality rally, and just historically speaking, I'd be careful about the fact when low quality is doing so much better and high quality. On the public policy front, I believe President Trump stating last week that he did believe that they were going to get to to a trade deal with China was a big factor in rallying markets. But more interesting to me was the fact that he said, these tariffs I've threatened on China are not sustainable.

And that's a quote, acknowledging the toll that they take on both economies. That's very different rhetoric from the president than we've heard in the past where he has asserted. And again, it may have been disingenuous before, but the bravado has been, these tariffs don't affect us. In fact, they make our country. rich to now saying, yeah, that even he doesn't believe it's sustainable with these

terror threats on China. So, again, markets have been slowly over the last 10 days or so adjusting to the belief that, you know, some compromise situations coming with China in the very near future. Speaking of which Secretary of Besson is in Malaysia this week, meeting with the vice premier of China, Heila Fing, who he's handling some of these negotiations with. And again, they're going into these meetings on both sides, stating that the goal is to de-escalate trade tensions. The other thing I want to point out in the U.S.-China trade negotiations is just that the

TikTok deal for the U.S., a framework has been announced. The long-form deal is not complete. And China is not only getting to hold their algorithm of the social media app in the deal, albeit with oracles kind of stamp of approval, and the way in which China gets paid is that they'll be licensing their algorithm to this sort of U.S. conglomerate, but that the algorithm is subject to export controls, which is also at the heart of this. kind of, shall we say, escalation over rare earth minerals in the last couple of weeks. That means Chinese regulators have to approve the license. And so there is, you know, another kind of, shall we say, Trump card that they're holding in these negotiations. And we're watching all of those different things.

And again, with our base case being that both sides are exerting the leverage they do have. I have no idea why anyone believe either side would do anything different. and that in the end, both sides are headed towards a deal that optimizes what they can after trying to use all the leverage that they can. Economically, the fiscal deficit, remember, our fiscal year as a country ends September 30th. So we're used to calendar years of 25 ending December 31, the calendar year 24 ending December 31, but the fiscal year just ended. and the deficit came in at $1.775 trillion for the year, and that is $41 billion less than it came

in the year prior, at $1.81 billion. This was a theme of mine in the white paper we wrote at the beginning of this year, and it was rooted not to the fact that there was going to be this great fiscal discipline or doge budget cuts, and in fact we have spent more money than had been projected. The reason the deficits come in is we collected more revenue earlier in the year as a result of greater income tax collection from the prior year with a particular focus in the capital gain tax revenue, all of which was specifically laid out in my projections or in the year. I don't think anyone should be celebrating all this, but I do want to mention it that the fiscal deficit is a disaster, the total national debt is a disaster, and yet for this particular calendar year, fiscal deficit didn't grow higher than the year prior and actually went a tiny bit lower. Wanted to give you that update. 96% chance of two rate cuts between now and the end of the year, 75% chance now of four

rate cuts before next summer into the middle of next summer, let's say. So we're watching those Fed Funds futures market closely. Oil flat on the day sitting, though, still at $57. $0.50. It's down substantially. About 12% crude oil is down in the last three weeks. Midstream was kind of a mixed bag last week around this negative oil sentiment. MLPs were actually up 1.8%, but Canadians and Sea Corps were down. The question for Ask TBG today was whether not, there were, they were hearing talk or thoughts about future political events in the U.S. and escalation, conflict, and we're wondering how likely I thought that is, and I say that I

believe it to be 100% likely, that there will be future political events and distress and this and that, and then what the investment advice would be around such things if there's some sort of safe haven, and my investment advice is to not change anything at all about. about the inevitability of that which has always been and always will be on the side of glory, which is future political and geopolitical and other distress events. They are not possible, they are assured

and in fact the right thing to do for a quote unquote safe haven around such rather than try to predict to them when they start, when they end and how they go, but is to have an investment plan that assumes they will happen and has some antifragility around that. I do recommend dividend growth.

I gotta leave it, there for this Monday evening. I hope you have a wonderful Monday night, reach out with any questions. I will be with you both today, excuse me, both tomorrow and Wednesday in the daily blurb with what's on my mind and answering your questions and all those good things. And in the meantime, I do want to thank you for listening to watching and reading the Dividing Cafe. The Bonson Group is a group of investment professionals registered with High Tower Securities LLC, member FINRA and SIPC with Hightower Advisors LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities LLC.

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