The Dividend Cafe - Monday - September 22, 2025

Episode Date: September 22, 2025

Today's Post - https://bahnsen.co/4n9Rw7O Market Recap and Policy Insights: Navigating Nuances in the Economy In this episode of the Monday Dividend Cafe, host David Bahnsen provides a detailed analysis of the market activities and public policy updates. Broadcasting from Newport Beach, David discusses his recent travels and highlights from Dividend Cafe's special issue on The Fed. The episode delves into market movements, noting a tech sector surge led by Nvidia and the rare divergence of communication services. Other topics include a notable drop in rent prices, impacts of new tariffs on American businesses, and updates on public policy announcements such as the H1B visa fee and the U.S.-China TikTok deal. David also covers the anticipated government shutdown and its potential market implications, along with other significant economic indicators like oil prices and bond yields. The show wraps up with insights on the intertwining of monetary policy and government debt. 00:00 Introduction and Recent Travels 00:42 Market Recap: A Mixed Monday 01:54 Technology and Communication Services Performance 03:42 Small Cap vs. Large Cap Earnings Growth 06:12 Public Policy Updates: H1B Visas and TikTok Deal 09:10 Government Shutdown and Tariff Revenue 11:08 Housing Market Insights and Fed Policy 14:52 Conclusion and Upcoming Events 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 Dividend Cafe. I am your host, David Bonson. I am sitting in our studio in our beautiful Newport Beach headquarters, where I came back over the weekend after being in, where have I been over the last weekend? New York City, Houston, Nashville, Washington, D.C., New York again, and now here back in Southern California for a few days before returning to New York in a few more days. And so there is a lot that I want to

go through today. It's not an excessively busy Monday, but it's not a dead Monday either. There's a little bit more of a focus today and some of the public policy stuff. Let's go through the market recap. Before I get there, as always, I just want to remind to everyone, our main dividend cafe that comes out every single Friday. I want to point you to this last Friday's dividend cafe that was a kind of special issue on the Fed. A lot of questions are out there right now about our projections on what the Fed's doing, what we believe it means in terms of what the Fed has already done, how we're thinking about it in terms of investment policy. And I think I answered all of those things in one sort of omnibus Fed dividend Cafe on Friday.

check that out. The market had opened down about 300 points today on the Dow. Futures were down last night as I was going to bed. They were down this morning when I was up. And then the market spent almost the whole day just sort of recovering. And ultimately the Dow closed up 66 points. The S&P was up 0.4%. The NASDAQ was up. 0.7%. Lots of names were down. I didn't look at the advanced decline line today. I imagine when I see it in the morning, it'll be negative on the day. I don't think there was great breadth on the day, but I think a couple names pulled the market in positive territory. It's odd, though. I talk so much about technology as a sector, and then its cousin is communication services. That communication services, when I first

entered the business didn't exist. It was sort of part of the technology sector, and they did a spin-off sector and it has maintained adjacents. Today is one of these rare days. I think I've seen, it maybe twice or other times total. I mean, I'm talking about over many, many years of looking at this every single day of my life. The technology was the top performing sector today. It was up big, one in three quarters percent. That was largely from a big move in Nvidia.

And communication services was the worst performing sector today, down 1%. Generally, and this is true today as well, there is actually just sort of an outlier of a given large name pulling one up and another large name pulling one down. That's what happened today as well, but just thought I'd point out because of the novelty of it. So just again, speaking of novelty, I've known, because I've said it so many times I lost count over the years, that back in March of 2009, when the market hit its bottom in the post-financial crisis violence in markets, the S&P 500s low. was 666. And there's sort of a lot of reasons why that number is easy to remember for some

folks. And Peter Bukvar pointed out that on Friday, the S&P 500 hit 6666. So there you go, a rather fun numerical encapsulation of what has been a post-financial crisis rally for the ages. I do think it's interesting to see that earnings growth right now for what is expected in small cap is significantly bigger going into 2026 than large cap. Now, that's not because the earnings picture is bad for large cap. It's very good. And it's also not because the earnings picture is great for small cap. It's, again, a reference to what we call base effect.

Large cap year-over-year earnings growth next year coming off of what has been really good earnings growth this year, the year before, year before. small cap has had very, very tumultuous times, so a percentage growth year over a year off of a low base is going to have a different mathematical result. But the point is that there is for the first time in a while a bit of optimism about some fundamental improvement in the earnings growth environment, a small cap, some of which, not all, some of which is related to the lower interest rate environment and lower interest rate expect expectations that helps small cap more than large cap in terms of cost of capital, much more variable borrowing in small companies and more fixed borrowing and large. Ten-year bond yield today closed at 4.15 percent, kind of flat. I think it was up

one basis point in the 10-year yield. The consumer staple sector, its earnings ratio to the S&P 500, is now the lowest it has been since March of 2000. So we don't think of these things as tradable bottoms, but we do think of them as fundamentally interesting and pointing to, again, regardless of timing, just an entry point that we certainly feel really excited about. I would also point out Mag 7 kind of making new highs late last week, and then some of the names were up today, some were not. At the same time, the Russell 2000, the small cap index is making new highs, that has not

been the trend for several years. You've really had big weakness in the Russell and big strength in Mag 7. And now you see both really doing well at once. That is kind of, I think, getting down to the heart of matter of right now, there's a more indiscriminate risk on. And investors tend to love that. I tend to not love it, but I also tend to know it doesn't last as long as people wish it would. And speaking of things that aren't lasting, the highest performing factors as a way to bend momentum and beta, the more beta, the better, and that can last until it does. In terms of I mentioned public policy, there was a little hubbub, and I suspect it was part of the downturn in futures last night and into the morning about the White House's announcement

over the weekend of a new $100,000 fee for H-1B visas. Now, then part of the recovery may be that the more the White House elaborated, the less problematic it looked and much softer it looked than what they had originally flexed. This is a program whereby workers from overseas are able to get a work permit in the U.S. and is intended to recruit top talent from overseas. The administration did clarify this. It is only going to apply to new hires, not people already in the H-1B visa program. It will not be applied to renewals for those already in the program.

they won't have to start paying it in the future. They're grandfathered. And another announcement that came today, too, is they're going to have various exemptions, including apparently the talk from the White House is that doctors are going to be exempted entirely. And then the statute itself, the order itself specifically says

that anybody can be exempted at the discretion of the president. So it's a big announcement and has a possibility of impacting lower, and wage job growth, but I don't think that it proved to be quite as dramatic as had been threatened over the weekend. Speaking of other public policy announcements on the White House, I talked about this on Fox Business on Friday, the framework of a deal being announced with the White House and China about TikTok. And it's a complicated deal. I don't really want to get into it at great length right now, but essentially what we're being told is that the U.S.

will not be an equity stakeholder in it, but will have a board seat, the federal government. China will maintain 20 percent, bite dance, the Chinese-based company, will maintain a 20 percent ownership in the U.S. operations of TikTok, but that Oracle will end up being one of the lead investors and sort of in charge of the data and security provider overseeing the source code to the app and then they will retrain the algorithm and so forth. So it's not exactly a lot people wanted. I don't know what to say. I'm just reporting the news. But that is a more interesting announcement in the sense that first of all, there was a lot of constitutional and legal things that ran around it getting there. But then it does speak to, again, a pretty muscular view

of intervention and business from the administration. And I would say, not. not exactly solving what they originally intended, which was some sort of decoupling from China. This really represents a merger. So I would imagine that this deal will end up getting critiqued from a number of different sides. And then now on the policy side, there's a lot of talk that the government's going to shut down in a week. I think any of you have listened to or Red Dividing Cafe for any period of time know how I feel about this melodrama around shutdown that they never really happen. And when they do, they never last. and whether they do or don't, whether they last or don't, they don't have a market impact,

that it is just a real embarrassing part of American governmental life that we go through this charade. The only thing I would say is maybe a little different on this is it is the Republicans now saying, let's just sign as is stipulation to fund, and it's the Democrat saying, no, we want concessions before we go to a just full-blown extension. So in other words, the Democrats, if they want to shut down, would be the ones doing it. And on all sides of this stuff, the grandstanding and using it as a campaign thing, it's tricky politically, but I don't think it has a market impact, so I won't spend a lot of time on it. The annualized amount, which is not the same as what has been collected so far,

but what is anticipated to be collected from new tariffs on an annual basis is over 350, billion dollars right now. And that could get close to 400. I do not expect at this point it will get over 400 billion. And I just want to point out that some continue to refer to this as revenue, revenue United States Treasury, which is certainly true. It is revenue to the Treasury. The same way the income taxes you and I pay is revenue to the Treasury and an expense to us. That's what the very nature of double entry accounting is. One person's credit is another person's debit. In this case, the credit to treasury of tariff revenue is a debit to American businesses. And the issue is really what the impact of that, $350 to $400 billion cost

American business will be. So that is not a one-week, one-month type story, as I've covered quite a bit over the last several months. Moving just real quickly to housing, I read a report this morning from First Trust, which is a firm whose research I read pretty regularly. And they talked about an 8.4% decline in rents in Q2, and that being the largest drop on record. And I hadn't read that anywhere, and I looked and looked, trying to find other sources or whatnot. And sure enough, what they're referring to is a 2.1% quarter over quarter drop in the BLS's new rent, new tenant rent index. So it's a more narrow subtext, but nevertheless, it is true. you take 2.1 and multiply it by four, then you get 8.4, but it's an awkward way to say it.

This is not a data point we're used to annulizing. And the 2.1, the idea that it would be sequentially followed by another 2.1, another 2.1, that's not necessarily. I'm one who's believed for some time that rent inflation is way overstated, but not even I believe it's anywhere near 8% deflation. Suffice it to say, though, that this is a point that. This is a point that some calling for dovishness from the Fed, including the new Fed Governor Steve Myron, whose speech at the Economic Club in New York I heard today is using this fact of expected softening in the way that we measure inflation out of shelter, particularly rents, in their modeling, push their expected inflation rate and necessary Fed funds rate lower.

So it's still, even if I think they're getting to their data point in a weird way, the directional point they're making, I happen to agree with. I laughed on Friday. The headlines coming across Japanese bond yields hit highest level since 2008. And then what they're referring to is that their 10-year is now. Their 10-year bond yield is now at 1.6%. So, yes, that is the highest in a while as it sits at 1.6. Oil was pretty much flat today, still just barely above $62 a barrel.

bad week for midstream last week. Actually, the Canadians were all up. The U.S. and MLPs were down, sort of a mixed story there. One person wrote in asking about my Friday Dividing Cafe on the Fed, if I thought part of what was at play was the Fed's need to keep rate borrowing cheaper, rates cheaper for the borrowing that the federal government does. And it is an issue that I've talked about a ton over the years. And particularly the way in which the monetary and fiscal Accord has strengthened over the years and not, I think, in a good way and where that ties into the Japanification narrative. It is something I should have addressed in Divida Cafe Friday, but I don't think it's related, though, to what the Fed's doing right now or what they're going to do

next quarter or the kind of more short-term relevant issues around their motives in the administration of monetary policy. I think this more speaks to a structural issue. of obviously very significant excessive government debt that does need the Fed to help be an accomplice in lowering that cost. I don't think that's a decision they're making right now, but I think in terms of the secular cycle that we're in, that there's no question to me that the monetary and fiscal accord is still on. So I appreciate Jeff writing in with that question, and I think it is very true. and it's something I've said quite a bit already.

I probably should have restated it and kind of reiterated that rationale in Friday's Dividing Cafe. I will go and leave it there. We do get, if they go ahead and release it, which is talk they may not, the August PCE data is supposed to come this week in terms of the newest inflation reading.

And other than that, we are definitely in that goal waiting for the Q3 to end and get into the earning season here in a few weeks. So reach out with any questions you have, and we will continue doing what we do here at the Bonson Group, and I'll continue trying to bring you good insights in the Dividing Cafe as often as we can. Thanks, as always, for watching, listening, and reading the Dividing Cafe. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC, member Finra and SIPC,

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