The Dividend Cafe - Tariffs are Back?

Episode Date: March 3, 2025

Today's Post - https://bahnsen.co/43msk74 Market Rundown and Tariff Impacts: Dividend Cafe Monday Edition In this Monday edition of the Dividend Cafe, the host provides a late recording with a detailed rundown of the day's market craziness and discusses specific topics that are significant for investors. The Dow dropped 650 points, mirroring a similar gain on Friday, largely due to President Trump's announcement of 25% tariffs on Canada and Mexico. Further discussion covers sector performance, with defensive sectors like consumer staples and healthcare performing well, while cyclicals and tech took a hit. The script also touches on Bitcoin's instability, recent bond market movements, and the geopolitical situation involving Ukraine and Russia. Additional news includes an announcement from the FDIC on big bank mergers and the confirmation of Trump's Labor Secretary nominee Lori Chavez DeRammer. The host emphasizes the importance of context and cautious analysis, especially involving economic policies like tax reform and tariffs. 00:00 Introduction and Market Overview 00:59 Tariff Turmoil and Market Reactions 03:40 Sector Performance and Bitcoin Instability 04:49 Treasury Bonds and Economic Indicators 05:32 Political Developments and Corporate Sentiment 07:38 Labor Market and Manufacturing Insights 08:25 Crude Oil Production and Closing Remarks 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 Dividend Cafe, our Monday edition. I'm recording quite a bit later than we normally do. First of all, it ended up just being a pretty crazy day in markets. So I'm just going to really give you the rundown on today, talk through some public policy issues. We're certainly talking about tariffs a bit. I will encourage you to go to dividendcafe.com for the whole rundown. And then I think some other

things are on my mind are going to end up being in the Tuesday, Wednesday, Thursday daily blurb that we do, the what's on David's mind, because there are more things on my mind than in Divinity Cafe today. And I suspect more questions will come as well that we want to address in the Ask TBG. Markets were down today, but I just want to be clear on context. Basically, the Dow was down about 650 points today, and it was up about 650 or so, maybe 620 on Friday. up about 650 or so, maybe 620 on Friday. So you just gave back today everything that markets had gained on Friday. That's more or less the way it played out. The tariff turmoil is here. The president announced this afternoon that no, these 25% tariffs on Canada and Mexico are going through. And I'm going to talk about that in a moment as we run down everything. There

is a link at dividendcafe.com. I was on Bloomberg this morning before markets opened and some comments on dividend growth, some comments on tariffs that are worthwhile there. You can get the link. And I want to go and direct you to the Dividend Cafe from Friday. It was a little bit longer. It was actually a lot longer of an issue than normal, but I believe there's these sort of five major categories of things happening right now in the markets and in the economy at large that are the primary themes. And I address each one of them in the context of where they matter and where they don't matter. And that is, of course, tariff talk, tax reform talk, AI, CapEx, the valuation issue, and the concentration,

particularly top heavy concentration issues in the market. Those five things I've talked about a lot. I'm going to continue talking about them. But Divinity Cafe, all in one issue Friday, tried to give you a rundown of some relevance around all of that.

So back to today, Dow down 650, that's one and a half percent, but the S&P was down over one and three quarter percent, and the NASDAQ was down over 2.6 percent, which I should point out moves the NASDAQ into negative territory on the year. The Dow was up a couple hundred points to the open and it had given that back by about the halfway point, but was reasonably flattish for about half the day. And then it dropped when President Trump made the tariff announcement. Then it accelerated selling near the end of the day. There's always a possibility some of that is ETF and algorithmic.

And a lot of it could have been fundamental, but then the market bounced back a couple hundred, about 250 points real quickly at the end of the day. So the high point to the low point was over a thousand points today. But again, we will see where things go tomorrow. I want to talk about what's behind all this. As I mentioned, the tariff announcement was the big catalyst. Canada and Mexico are working on their retaliatory tariff plans, and China is a little further along in their retaliatory tariff plans.

There is a sense, I wrote about this the last time we had some tariff drama a few weeks back, kind of wonder if going through with a lot of this would be the best thing, in that I believe it would demonstrate some of the folly of what a lot of people think about all this quickly and maybe just accelerate the path to course correction that I do believe is somewhat inevitable. I will point out though, the defensive sectors were up today, consumer staples, real estate, utilities, healthcare. When people are asking why dividend growth is doing so well in this period, at least so far, its sector factor is a big part of that reason. But the cyclicals were still

down a lot. Financials were down a little, but energy was down quite a bit. But technology was down over 3.5% today. So a very divergent market where about half of these things are going up, half down, but the net result, obviously, quite negative for markets. I'm only throwing it out there just to produce a more important, tangible follow-up point on our issues with the inherent instability of Bitcoin. It is down now over 25% from its recent high. But what's more significant is that huge rally that happened It was down 9% today. It had been up 9% over the weekend. Again, I don't think a lot of people are calling this a beacon of stability. You can believe it's just going to run higher from here or run lower. I don't really care, but stability may not be the issue.

Now, speaking of stability, treasury bonds, US dollar denominated stuff, the tenure hit 4.1% in the last year. Now, speaking of stability, treasury bonds, US dollar denominated stuff, the tenure hit 4.16% today. So yeah, that flight to safety rallied government bonds, as it often will do. But more than that, I believe the tenure from 480 down to 4.16, so a huge rally in bonds in the last, let's call it five to six weeks, is really repricing nominal GDP growth to some degree. And those diminished expectations for growth, I think, are somewhat affiliated with current

assessment around both tariff policy and challenges foreseen in tax reform. That said, from a news story standpoint, I think everyone is aware of what took place Friday in the Oval Office with President Zelensky of Ukraine and the breakdown of talks around a rare earth minerals deal and a potential ceasefire. And where the Ukraine-Russia dynamic goes and the geopolitics around it, let's just say I have analysts who I respect a great deal who believe there's still a lot of back channel things going on, but obviously front channel things are not going on, and I'll leave that story there. What you've seen in terms of tariff talk last five or six weeks is that they were on, and then they were off, and then they

were delayed, and then they're going to be next month, and now they're going to be now. So I don't think that there's any surprise at all that markets were not really pricing much of it in until the last couple hours today. And I still don't know exactly where it's going to go or how long it's going to stay and what all will play out. But again, as I've written about in past human cafes, what I don't think there's ambiguity in is what it would mean negatively in terms of economic opportunity growth, opportunity development, all of those things, big picture, if they were to really happen and stay on for a while. But I just do not know how anyone could say with a high degree of conviction that they

believe they know what's going to happen. The FDIC put out an announcement about a much more approving environment for big bank mergers, part of our theme of financial deregulation this year. President Trump's nominee for Labor Secretary, Laurie Chavez-Dremmer, did get out a Senate committee with a positive confirmation, so now it will go full Senate, and it looks like she'll end up getting approved. I believe she'll get a lot of Democrat votes as well,

maybe would have got enough even apart from Republican votes based on some of her policy positions. The chart I put in DivinityCafe.com today is very important, understanding how much corporate capital expenditure plans have reversed in the month of February. They were well higher after the election, and we have a chart showing across five or six different sentiment readings, them going higher and then coming back the other way. And again, I think ambiguity over tax reform plans is a big part of that.

We do know the weekly jobless claims jumped to 242,000 on Thursday. I've said this a lot over the years. I want to reiterate it. We have to get three weeks in a row to feel that there's a great conviction as to what's really going on in the world. Estimates were for only for 225, that's been around the number they've been at for a very long time, median spot if you will. And the fact it moved higher indicates, okay, are we seeing a little softening in labor?

But I think you're going to want to see a few weeks to get a kind of running average and before those weekly data sets give me something I consider reliable. ISM Manufacturing today came in just barely positive territory, all the internal metrics coming backwards on the month, particularly new orders down. So I'm going to leave it there. Crude oil production is up a whopping 1% year over year in the first two months of the year. Many thought drill baby drill men would be up way, way more. But again, there's just market forces for that holding down the ability. Today we closed at 68 plus change. We've been right around the low 70s. I just don't believe the issue for getting more crude production going is regulatory. I think that those things are

important longer term, but right where we are right now, it's supply demand dynamics. 65 to 75 range still seems most realistic. Somebody asked me what news sources I watch and read, and so the Ask TBG today gives a little breakdown of some of my daily research feed and news feeds and things like that. I encourage you to check it out. Because of the late hour, I'm going to hit end here, allow the team to get this all curated up and distributed out to you before it becomes too late here on the East Coast. And then I'll be with you throughout the week as well. Reach out with any questions you have, any time. And thank you as always for listening, watching, reading The

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