The Dividend Cafe - The DC Today - Monday, April 15, 2024
Episode Date: April 15, 2024Today's Post - https://bahnsen.co/3Q2J5g8 Against Doomsdayism Where this Iran-Israel atrocity goes from here, what should and should not have been done, what and should not be done, what it will mean ...for markets and oil prices – all these things notwithstanding, the winner of the weekend appears to be anti-missile defense systems, first pursued by the Reagan administration in the 1980’s. The ability for this technology across multiple mediums to bat nearly a thousand in putting down missiles and drones coming in hot to do unspeakable damage is, well, vindicating. The specifics of the various technologies and strategies are fascinating, but for now, we celebrate those whose vision was to shoot down missiles and missiles, from ground and from air. Such military investment saves lives, and deserves our celebration. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com
Transcript
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Welcome to the DC Today, your daily market synopsis of the Dividend Cafe, brought to
you every Monday through Thursday to bring you up-to-date information and perspective
on financial markets.
Well, hello and welcome to a very special Monday edition of the DC Today.
And I say special because I actually kind of think this will end up being the last Monday
DC Today, but you won't notice any difference at all.
Other than that next Monday, we're going to do the exact same thing, but we're going to
be calling it Dividend Cafe and holding it at Dividend Cafe.
We're getting rid of the two different websites and brands and identities and whatever else
you want to call it.
And every Monday, I'm going to continue doing this longer form
of a daily market recap that includes the Fed and housing and energy
and public policy and all those things.
And we'll do it as a special Dividend Cafe post every Monday.
Not really a difference in what we're delivering to you,
but just kind of where we're delivering it and how we're packaging it.
So all that to say, it just kind of where we're delivering it and how we're packaging it. So all that to say,
it's still a big day and really much more so than our internal logistics is the fact that markets
are utterly crazy right now. The Dow opened up 350 points and closed down 250 at a 600 point swing
that began going to the downside after maybe 30 minutes or so of the markets open today.
And really the big news, of course, both in markets but also just kind of in the world around us,
is the events with Iran and Israel on Saturday, where Iran did launch an attack against Israel. And I don't mean with their proxies of Hamas or Hezbollah,
but with the actual nation state of Iran attacking the nation state of Israel with 185 drones,
110 surface missiles, and 36 cruise missiles. So essentially you're talking about something over 300 missiles, and 99% of them were shot down and defended against a combination of the Iron Dome technology that Israel uses and resources, equipment, and participation from the United States, United kingdom and apparently both jordan and saudi
arabia as well so it was all at once a huge geopolitical event but then how do you respond
to it as markets well initially this morning it looked like markets were responding to the upside
and then by you know a few hours into the opening there was more talk and chatter about what Israel's retaliation may be, heightened the geopolitical risk premium and added volatility to markets.
Stockets were going up when that was happening, even though normally stocks and bonds have been acting very correlated.
But then they reversed into their correlation, by which I mean bonds closed the day down and stocks closed the day down.
And bond yields going up like that, it's been kind of a mixed bag as of late. And so it's very difficult when there's two stories playing out at once.
bag as of late. And so it's very difficult when there's two stories playing out at once, the impact of higher bond yields into stocks, which I think has been the big market story,
and then the geopolitics. Now, one of the reasons that makes me question exactly what was moving
things today is you would think if there was a risk off in response to heightened concerns about Israel and their retaliation against Iran,
you would think bond yields would drop and there'd be a fight into that safety. But
there seemed to be both a fight out of safety, excuse me, out of risk and out of safety as bonds
sold off and stocks sold off, which may indicate it was more of a financial market story
than a geopolitical one, at least in the second half of the day today. So I know it's a lot to
chew on and it may seem kind of confusing, but I got to say it is confusing. So if it sounds
confusing, don't be confused by your confusion because it's a confusing situation. The oil price
is dead flat on the day. So again, I think that somewhat indicates some uncertainty or questioning about what exactly is to be expected out of this Middle Eastern commotion.
And really this outrageous attack by enemies of Israel and enemies of the United States and Iran against allies of the United States and Israel.
Bank earnings did kick off on Friday.
The market sold off so much, it's kind of hard to get a real accurate read as to what would have
happened on a more normal day. But a couple of banks looked pretty good and had a positive move
in the morning, but they sold off by the end of the day as the whole market was down so much.
positive move in the morning, but they sold off by the end of the day as the whole market was down so much. And then JP Morgan, the largest bank in America had sold off, but it's up so much
over the last year and year to date that a lot of it is just kind of taking some of the air
out of what had been such a robust rally. Apple saw a 10% decline in iPhone shipments in Q1, which is far greater than expected.
May have weighed on tech today because you noticed the technology was the worst performing
sector of the day, uh, dropping.
Where did this go?
I lost my ratings.
Uh, tech was down 2% on the day.
And then the best performing sector was healthcare, which was
also down 0.19%. You hear me say this a lot. You know, it's a bad day when every sector is down.
You know, it's a big day when every sector is up. But today, the best performing sector,
healthcare was still negative by 19 basis points. So the 10-year bond deal did close up 11 basis
points at 4.61. We still have a ways to go to get back to that 5%
level, but we could very well get there. And I just don't see any way that stocks hold up
if you get all the way to five. It's been around the 4.5% level that I kind of thought
is where you'd start to see enhanced market downside. Indeed, it has played out almost exactly that way.
Why do I like dividend growth in times of geopolitical conflict? Well, let me first
make clear, as I always do, that I like dividend growth always. But in a moment of geopolitical
conflict, let's just be clear that energy is often a beneficiary in a time like this. If indeed the Middle Eastern geopolitical conflict
is leading to various problems with oil supply, oil production, you have a benefit coming to a
sector that happens to be usually pretty highly weighted in dividend growth portfolios because
of both the midstream and upstream exposures there being very conducive
to growing dividends, but also just the underlying outside of energy, the underlying defensiveness of
dividend growth where you have higher quality, you have more of a value orientation, and you
certainly have improved financial metrics, both in terms of debt ratios, lower PE ratios, and higher cash on balance sheet,
and a better debt profile, both in the amount of debt and the way the debt is generally structured.
That leads to dividend growth often doing quite well during periods of geopolitical tension,
at least on a relative basis. Now, the other thing I put in is a chart in the
written version today that looks at all kinds of metrics in the broad stock market using the S&P
500, not only the price to earnings, but the price to book, the price to sales, the trailing ratios, all kinds, looking at valuations being at nosebleed levels on almost
every way it's measured other than price to free cash flow.
So we continue to have the perspective we have about dividend growth relative to the
broader market and continue to believe there's a lot of uncertainty right now in the broad
market for reasons we've talked about. Economically, retail sales were up 0.7% in March, higher than expected,
but then the consumer confidence came in lower for the month of March from the report we got
Friday from University of Michigan. And so my question
is, are we really to believe that people are spending more and they're more nervous doing so?
And my line is that maybe consumers were feeling so nervous about shopping that they dealt with
their nervousness by shopping. I just can't tell you how stupid I think the consumer confidence number is as a
leading indicator of anything. The NAHB home builder sentiment, speaking of leading indicators,
did come out today right at the same place it was last month, barely above 50, but that is two
months in a row above 50, which hadn't happened in a long time. But the prospective buyers traffic is one of the inputs
in the home builder sentiment that has been atrocious and stayed that way as well.
Look, we're at 94% chance of no rate cut in May. It's not going to happen. 56% chance of no cut in
July. 81% chance of no cut in June. So you're really looking right now at a 64% chance of a
Fed rate cut in September that can has continued to get kicked out a little bit. So like I said,
oil down on the day, you have a chart of the daily level of production,
barrels of oil that are being produced by each country, United States
getting close to 13 million barrels a day. My against doomsdayism today, by the way, does deal
with the events of this weekend. I just think that when you're looking at not merely the Iron
Dome technologies in Israel, the Patriot missile action, which is now kind of antiquated, but what ended up becoming a
different both surface to air missile defense program and air to air, you have an absolutely
unbelievable improvement in our ability to defend against adversarial actors.
And what took place, really, this was kind of the intellectual contribution
of much of the foreign policy and Pentagon development in the Reagan administration in the 80s.
And to think, fast forward, you know, 40 years and see 300 missiles fired upon a country
who was an ally of ours and 300 of them shot down and defensed against. I think
it's hard not to take that for the optimistic measure that it is. There is an explanation in
Ask David today about the Fed's balance sheet and what that means. And I'll spare you some of those
details now around quantitative easing and so forth. But there's a good, helpful one paragraph explanation about QE and the Fed balance sheet
to be found in Ask David.
I'll leave it there.
I want to remind everyone that questions at thebonsongroup.com will continue to be a place
that you can send questions to us.
And with this new website at dividendcafe.com we're launching next week. We plan to have a daily Ask TBG where we'll be regularly updating it.
Even if it's not being blasted out by email, we're going to have the website as a continued source of where questions can get answered.
And those questions can be about markets and the economy, which is what I field every day and what Brian will field. But we're going to encourage you to ask questions as well about financial planning, policy, tax, risk, insurance,
other departments of the firm.
And we have all of our professionals and subject matter experts here in-house
that will address those questions as part of a regular feature of our website.
And we'll send an email blast out with all those questions and answers
every Wednesday. But then it'll be launched real time on the website as it comes in. So
questions at thebonsongroup.com. In the meantime, have a wonderful evening. Thanks for watching.
Thanks for listening. And thank you for reading. And we look forward to an active week ahead as
earnings season. Reporting Q1 here in Q2 is upon us. Thanks so much.
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