The Dividend Cafe - Monday - October 6, 2025

Episode Date: October 6, 2025

Today's Post - https://bahnsen.co/4mVyUro Market Analysis and Economic Insights: The Monday Edition David Bahnsen, host from Newport Beach, California, presents the Monday edition of Dividend Cafe. He starts with a brief mention of sports events, then discusses market activity, noting minor changes in the DOW and gains in the S&P 500 and Nasdaq. David highlights the fifth consecutive month of market gains since September and evaluates historical performance of the S&P 500 after such streaks, concluding there's no clear prediction for the sixth month. He further examines market volatility in midterm election years, correlations with political events, and economic indicators like 10-year bond yields, ISM services sector performance, auto sales, and the Case Shiller home price index. David also reports on optimistic developments in Gaza and Japan's election of its first female Prime Minister. He concludes by touching on the impact of U.S. tariff decisions on the pharmaceutical sector, aid for soybean farmers, and anticipated actions from the Federal Reserve. 00:00 Introduction and Market Overview 01:26 Historical Market Trends and Midterm Election Insights 04:53 Sector Performance and Global News 08:54 Economic Indicators and Federal Reserve Updates 11:50 Conclusion and Final Thoughts 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. Hello and welcome to the Monday edition of Dividing Cafe. I'm your host, David Bonson, coming to you live from Newport Beach, California, one day after a wonderful Dallas Cowboy victory over the New York Jets and in a weekend where you have USC had no opportunity to lose the game because they didn't play one. The market today opened down, flat, kind of around the flat line, but down a tiny bit. And then within a few minutes was down about 300 points on the Dow while the S&P and NASDAQ were both up. About a half hour later, the Dow was back to even. S&P and NASDAQ were still up. And then from that point forward, all three indices just sort of stayed right around where they were, more or less, for the remaining four or five hours of trading. So the Dow did close down 63 points, which is just

14 basis points in percentage terms, and the S&P 500 was up, 36 basis points in percentage terms, and the NASDAQ up 71 basis points. So obviously a bit more tech heavy of a day, but it was actually consumer discretionary that was the leading performer today up a little over 1%. With real estate, the bottom performer, down 1%, everything else somewhere in between. September was the fifth month in a row that the market has been up. Now, this is a little data point from a research report I read over the weekend that you can do with it what you please, but there's a reason I'm sharing it. Out of the 11 times that the S&P 500 has... has been up five months in a row since 2009.

There were five times that it was positive in the six month and six times it was negative. So basically 50-50. So why am I sharing this factoid after five positive months? To share that what we know about the six month is nothing whatsoever and even the history of this bearing out with a literal 50-50 breakdown of what happens next.

Speaking of worthless historical factoid, this is, I share for historical anecdotal purposes and will quickly also explain why it is not remotely actionable. Midterm election years, which were now less than three months from getting into one, midterm election years have an average drawdown in the market in the middle of the year of 19% and the other 75% of years, the other three years that are not midterm election years, have an average market drawdown of 12%. The total, just for all year, average market drawdown, as I've discussed many times in the dividend cafe, is about 14%. So what you see here is that midterm election years have, on average, a higher downside volatility than non-midterm

election years, 19% versus 12%. Now, why is that not actionable? Because the way that 19% comes to be is with some years that the average drawdown is much more than the mean and others were as much less. And since we don't know what the actual year in question will prove to be, what the variance around the mean is is high, what the mean itself is doesn't necessarily tell us anything. Now, is there something intrinsic about midterm election years that does facilitate higher volatility? I would imagine there probably is, and there has been higher downside volatility. But that doesn't speak to what the total year does, what the total results are, and it doesn't tell you timing of any of these things. It just basically means midterm election years have something about them.

Now, I'm not necessarily providing what the causation may be so far just correlation. I suspect there is causation, by the way, but just out of certain elements of policy, expectation, of front running, of different components. But my anticipation of 2026 will be covered much more in the months ahead, and it isn't going to have anything to do with making portfolio allocation around certain historical averages. All right, what else do we want to cover here? The 10-year bond yield today was up four basis points to 4.16. percent. Sixty-eight percent of the S&B 500 is currently above its 200-day moving average.

That's not bad breadth. It's not great. It's decent. So it isn't indicating a collapsing market breadth and internal strength, but nor is it indicating something particularly robust either. I would point out that on the defensive sector's front, when you look at your health care, consumer staples, utilities, reits, that health care is meaningfully moved higher or strengthened off of its technical weakening that we had seen much of this year. Consumer staples and wreaths, not so much. And utilities, I'm having a very hard time referring to as a defensive sector these days, given the really substantial correlation utilities have right now with the data center story,

causing them to oftentimes trade much more pro-cyclically than defensively. On the news front, we are optimistic of some sort of ceasefire arrangement. in Gaza with an Israeli hostage release. It's not a done deal, but there are certain things indicating that that is moving forward. I apologize in advance if the pronunciation is off, but Japan elected its first ever a woman prime minister this weekend, Sinai Takachi. And what I know about the new prime minister of Japan is that her hero was Margaret Thatcher, which tells me all I need to know and I mean it in the most positive way possible.

So the big rally in pharma that helped bring a lot of the health care sector off of its technical weakness was a byproduct of administration's decision last week to waive tariffs on the big drug makers for three years. By the way, we have a new election for president in three years, in case you were losing track of the election calendar. The companies being given waivers from the tariffs are going to participate in a government purchasing platform where they essentially will sell drugs at the Medicaid-level pricing at a discount there. So there's a lot of bells and whistles around it, and the market liked what this meant for the pharma sector. The Trump administration is moving forward to plans to try to provide up to $14 billion of foreign aid, not foreign aid, to soybean farmers in the United States.

They're getting hammered by the impact of the trade and tariff policy. that we expect that first tranche to come in the coming weeks. I would be willing to bet that that will not be the last tranche. A quick note, by the way, in the policy side, because this is not a midterm election year, yet there is a gubernatorial race in both Virginia and New Jersey. And the reason I bring those up is that I do not think that they actually speak too much of the national political landscape,

but I would be willing to be wrong about that. If the results of that election end up being somewhere in line with polling, somewhere in line with voter registration, somewhere in line with expectations, then it probably doesn't really tell us much of anything. If, however, there is some outlier, and this could be one way or the other, if you have a Republican victory in either of those blue states, let alone both, that might very well indicate a sort of national trend one way, if on the other hand you see a pretty outsized Democratic win above the polling where both Democrat candidates are. already expected to win. That might indicate a growing resistance to much of the results of 2024. I don't know that either thing is going to happen. I would actually, if I had to bet money, bet that neither will. But if one of those two things happened, as different as they are, that might indicate something about a national landscape or national mood going into 2026. But apart from that, I don't think that we have a real good indicator. And I think

2026 midterms are going to be interesting for a variety of reasons without a real clear indication of where the momentum lies going in. On the economic front, the ISM services sector declined to 50 in September, which is exactly the level of break-even, meaning no contraction and no expansion in non-manufacturing and services for the month. An expansion of 51.7 had been expected. New orders declined quite a bit. Supplier deliveries did pick up a tad, business activity fell. So the only other thing I'd point out, though, is that it was actually a mixed bag across a lot of different sectors, so quite divergent results there. Auto sales were at $16.4 million in September. That's obviously annualized, and that is higher

than it was a year ago. Electric vehicle sales accelerated in advance of, remember, the Big Beautiful Bill Act, taking away that $7,500 tax credit. So you saw a front run, of EV sales, but we are right now, even with that, a million cars per year below the sale volume that we saw in 2019, the last pre-COVID year. The K. Schiller Home Price Index was down month over month for the fifth month in a row. Year over year moves now is currently at just 1.7% higher, and that's with many of the more heated markets showing year over year declines. So you not only have really limited supply and volume decline to transactions, but price movements themselves have very, very much cooled, obviously all connected to the

affordability issue. On the Fed front, we got a 95% chance. They will be cutting rates a quarter point here at the end of the month, 84% chance of another cut at the December 10th meeting, which is six weeks later. WTI crude came back up a dollar over the week. weekend closed flat on the day, $61.72. Staying in the low 60s, the OPEC plus announcement of some production increases came in less than had been whispered. Still increased 137,000 barrels per day in their stated daily quotas, but there have been talk of them coming up as much as $500,000 per day. They didn't do anywhere near that. I do plan one of my daily blurbs this week to give some recap summary of our midstream manager meeting last week. And of course, there's very extensive

long-form notes available on that meeting for those who request that. There's a kind of long package of the long-form notes from my meetings in New York last week. I talked about this in the Dividy Cafe on Friday for those who are interested. Please do check out the AskTBG on the homepage at Dividendoncafe.com for a little bit of color as to how we think about declining stock. prices with growing dividends and what we what that means in terms of our process for evaluating the sustainability of ongoing dividends I'm gonna leave it there for the night I hope you have a wonderful Monday night reach out with any questions always and thank you for listening thank you for watching and

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