The Dividend Cafe - Not Going Away in May

Episode Date: June 2, 2025

Today's Post - https://bahnsen.co/43GC76x Monday Market Insights and Major Developments: June 2nd Edition In this edition of Dividend Cafe, David begins by discussing significant market movements on June 2nd, including the DOW's recovery and the broader stock market performance. Key highlights include a major Ukrainian drone attack on Russian bombers, potential talks between Trump and President Xi, and a terror attack in Boulder, Colorado. The episode also covers market details like the performance of various sectors, trade tariff rulings, upcoming potential economic actions by The Fed, and recent Broadway financial successes. David concludes with a preview of an upcoming special edition addressing advice for new graduates, and a reflection on ideas to tackle national debt and deficit issues. 00:00 Introduction and Market Overview 01:01 Global News Highlights 02:43 Market Performance and Analysis 06:38 Trade Tariffs and Legal Rulings 09:20 Economic Data and Predictions 13:15 Energy Sector Insights 14:33 Conclusion and Upcoming Topics 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. Well, hello and welcome to the Monday edition of Dividend Cafe. We are not only kicking off a new week, but the new month of June. We're going to talk a little bit today about how the month of May was not exactly what many expected it to be. Interesting day here in markets, Monday, June 2nd, at one point the Dow was down over 400 points, closed the day up 35, really with not a specific catalyst to drive the reversal, leading me to believe the most basic conclusion as to that cause of reversal is markets just simply not believing some of the escalated tariff

and trade threat talks any longer. So we'll get into all of this here. I think today is a pretty standard Monday in the Dividing Cafe where we will cover just a little bit around our normal categories of markets and policy and the Fed and housing and all those things. Before I get into markets, the news issues, I think what could end up being an incredible movie made one day, took place over the weekend with the Ukraine drone attack in Russia deep into Russia by the way potentially taking out over 40 Russian

bomber planes over two billion dollars of damage estimated and a drone attack that Ukraine has apparently been working on for well over a year. Major story there. All the while, supposedly, they're working on some low-level peace talks in Turkey. So anyways, the Russia-Ukraine stuff continues to linger and a fascinating and really, frankly, a wonderful development over the weekend for Ukraine. My understanding, both from news reports, but also people I'm talking to, is that President Trump and President Xi will end up having a phone conversation this week. It is not confirmed as of me talking right now. A day time specifics have not yet been announced, but there is an indication that President

G and Trump will be conversing this week. And then I'd be remiss to not mention, by the way, a news story, even though not a major market event, the horrific terror attack in Boulder, Colorado yesterday, anti-Israel fanatic launching a flamethrower attack and apparently not killing anyone but eight severely wounded and Lord willing there will be all survivors. Just grotesque stuff. So outside the normal news cycle, in terms of markets, Dow up 35 points, just eight basis

points, barely positive territory. S&P up a little over 40 basis points and the NASDAQ up two-thirds of a percent. So positive day across markets, but as I mentioned, the market had opened down. It opened down about 100, 150 points, got down as much as 400 plus change in the first hour, and then rallied higher. As far as the month of May goes, the old expression sell in May and go away, it was the best month of May in 35 years.

And that of course comes off of that just highly volatile month of April, the beginning of April led by the post-liberation day, insanity in markets, and all of the up and downs that took place going into May, still no trade deals announced in any countries, on again, off again, tariff threats, on again, off again, concerns about what the economic damage has been. Really not a lot of news to drive a better outcome in May, but the fact of the matter is the markets are just simply saying, we don't believe that a re-escalation or a real trade war or real

imposition tariffs is going to happen, and markets doing a much better job at pricing out the left tail risk of this Trump tariff threat moment. So the S&P ended up being up over 6% in the month of May. And I think the entire thing indicates and reinforces the lack of wisdom or judgment in attempting to time one's way in and out of markets around presidential tweets and even policy announcements or reversals of announcements and all of that type of stuff. Overall, for those that want to get to some finality and conclusion, and Lord willing have it be positive finality conclusion in this trade tariff moment, May was a reasonably constructive month, but there is a lot of

wood to chop as we say. Ten-year bond yield today closed at 4.44%, so up two basis points on the day. Energy was the top performing sector, up over 1.1%. Industrials were the worst performing, and they were the only negative performing. So it's interesting to have 10 out of 11 sectors up today in a day that the market was barely up and yet, industrials were down a quarter of a percent. The hype about what's happening in the long bond of Japan, the yields of Japan had spiked up for a couple of days last week. They are now lower than they were before that spike. They had gone from 3.3 to 3.65% and now are back below 3.2%. So this hype around brief financial events is not something the United States has a monopoly

on and it's played out over a couple of days in Japan. As far as reality goes in financial metrics in the United States, credit spreads are very, very tight, and that is indication of broad optimism going forward in the economy. It's most certainly not recessionary. One of the metrics you could use, you always have high yield spreads over treasuries. You also have triple Bs over double Bs, which is basically the lowest quality investment grade over the highest quality junk.

And we look at both metrics. But on that ladder, the spread between triple and double Bs is 90 basis points, really the tightest we've seen. So the exact opposite of concern being foreshadowed in the credit markets. By way of public policy, the big noise last Wednesday evening was that the Court of International Trade had unanimously ruled that the tariffs implemented by the administration under the Emergency Economic Powers Act were not legal, that was not a tough ruling in my mind, it negates 220 of the $260 billion of tariffs.

Now, not really, because a lot of those tariffs have already been waived and exempted and delayed and everything anyways, and a federal appeals court has subsequently ruled that those tariffs will stay on, the ones that they have wanted to be on, while it is under appeal. It's being appealed to federal appeals court

and will end up in the Supreme Court in my mind. But in the meantime, the administration is indicating they'll move from one rationale to another. Some of the tariffs that are on are not under the Emergency Powers Act, they're under Section 232, which is a national security rationale So you're kind of picking and choosing which pretextual claim you want around these and either way Ultimately the administration's argument is we didn't want to get to a point of negotiation and announcing trade deals

So I don't think any of this stuff much matters other than if you got Supreme Court ruling all this off the table that certainly defangs some of the administration's leverage. So we'll see what the Supreme Court says in the end, but I don't think it matters as much which ruling, which legal justification they try to use, all of which are, like I said, pretextual by definition, as much as what ends up happening in the end with Supreme Court and then what deals they try to get announced before that. Speaking of deals getting announced, the Senate parliamentarian may be ruling this week on

the propriety of the budget reconciliation process, allowing a baseline of current tax policy versus the way the Trump tax cuts were going to reset as baseline to establish the 10-year amount. Why this matters is if the parliamentarian rules against the current policy baseline, then the Senate Republicans either have to do a roundabout by just simply putting the procedural matter to vote at the whole Senate, and that will pass. It will go through. But it does set a precedent with Democrats that they don't really want to for future.

And the other option would be the parliamentarian rules in their favor, or the other option would be that they don't rule in their favor and they don't do a roundabout, and then they allow these tax cuts to sunset in 10 years as well. I don't think there's any scenario where they're going to do that last one. So we'll see what the parliamentarian does if he makes Senate Majority Leader John Thune's job any easier or not. On the economic front, President Trump did say over the weekend he wants to go up to 50 percent tariffs on steel and aluminum.

I'd expect a pretty big impact in U.S. manufacturers, who we already got really bad news from them, for them today that the May ISM number dropped to 48.5, new orders are collapsing and led by export orders. Retaliatory tariffs take a toll on our ability to export, which hurts US manufacturers that are supposed to be being helped by tariffs. The steel and aluminum issue, one thing Peter Bookvar reminded, but I've been talking about this data for years,

we have 80 jobs in America where steel is an input for every one where we are manufacturing and producing steel. We have 177 jobs in America where aluminum is an input as opposed to one job where we're creating aluminum. So you have 80 to 1 and 177 to 1. This is really very bizarre and we'll see what happens of it. More than half of US aluminum demand is served by imports, most of which comes from Canada.

They're able to make aluminum a lot cheaper than we are. The other menu, excuse me, economic data, not manufacturing, economic data I wanted to bring up because I followed it back since the COVID days and I think there is just a general national interest in data points like this even though they seem New York-centric, but they do have a way of being bellwethers to a lot of other things. The 2024-25 Broadway season in New York that just wrapped took in $1.9 billion across all productions, the highest in Broadway history, which surpassed the pre-COVID record of 2019. So you are now back to pre-COVID highs

for gross revenue on Broadway, up 23% over last year. So just a massive amount of increased foot traffic, attendance, ticket sales, and of course, ticket prices. New York was dead proclamation. I like to dunk on it a lot because it was so offensively stupid when it was happening in 21 and 22 and now with a gift of hindsight it's just nice to point out how stupid it was then. What isn't nice to point out is that the Knicks were unable to get through game six to force

the game seven and the possibility of the Knicks advancing to the finals. So while New York is not dead, unfortunately the Knicks season is and we move on to later in the week, the NBA championship starting with Oklahoma City and Indiana. Two cities that the Boston group does not have offices in right now. All right. Pending home sales collapsed in April, dropping 6.3% on the month. Again, tariff uncertainty, economic uncertainty, market uncertainty weighing on pending home

sales. As far as the Fed futures go, right now we're looking at the highest probability being the next rate cut in September. There is a very high probability two cuts between now and the end of the year. There's a 30% chance of three cuts. We'll see how those play out. And then all indications are, I still can't get clarity as to when exactly the official announcement will come, but both the Treasury and the Fed

are signing off on the supplementary leverage ratio being suspended in terms of its requirements for Treasuries counting against bank capital. In other words, they would be giving a dollar for dollar credit to bank capital for holdings of treasuries, I think it's utterly bizarre that this has ever not been this way, but it does theoretically promote greater bank ownership of treasuries than I am going to mark any level of risk capital against it even if before it was being credited 90, 93, 97 cents, 100 cents a dollar seems appropriate for a measurement of risk-weighted

capital. On the energy front, oil closed at $63.12, up almost 4% of the day. That came after announcement over the weekend from Mopec Plus that they were going forward with additional production hikes. So why higher supply would lead to oil going up 4% today? I think it was reasonably priced in, and I think that perhaps there's some concern of So why higher supply would lead to oil going up 4% today? I think it was reasonably priced in, and I think that perhaps there was some concern

of it being worse, not really so much that there was concern it'd be worse, as much as no one believes that Russia can really increase their production that much, given current state of affairs, their capacity for increased supply is skeptical. There's also other supply-related questions in current state of affairs, their capacity for increased supply is skeptical. There's also other supply-related questions in Libya, in Canada, and Iran.

Last week was not a great week in the midstream. I mean, it was up, but not as much as the market. Other than the LNG export names, that theme of liquefied natural gas export is really doing well. But MLPs, depending on what happens in the month of June, not the entire midstream sector, but about 30% of it is MLPs, master limited partnerships, they may end up having their first negative quarter in three years. So we'll see what happens in June. I will leave it there. Please always feel free to check out DividendCafe.com for the written

version, Ask TBG, all of that. We'll have our normal daily blurbs the next several days, and I'm looking forward to a special Dividend Cafe on Friday where I'm gonna be revisiting my advice to people graduating, whether it's high school, college graduates, young adults entering the world. We did one of these a couple of years ago, but the world's changed a bit.

There's some new things happening. There's new themes and whatnot to discuss. So I'm doing an updated Letter to Graduates this Friday in the Dividend Cafe. I'll look forward to that. I really appreciate all the feedback I got from last Friday's Dividend Cafe, where I laid out roughly about 10 ideas of mine, most of which are politically impossible as far as issues related to the national debt, how to decrease the annual budget deficit, how to promote and at least not jeopardize economic growth to improve our debt to GDP ratio. That Dividend Cafe, if you missed it Friday, please do check out.

It's certainly generating a lot of conversation. And with that, reach out with conversation of your own questions at thebonsongroup.com anytime. Thank you for watching. Thank you for listening. Thank you for reading The Dividend Cafe. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC, member FINRA and SIPC, with Hightower Advisors LLC member FINRA and SIPC with Hightower Advisors LLC a registered investment advisor with the SEC.

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