The Dividend Cafe - The DC Today - Monday, February 13, 2023

Episode Date: February 13, 2023

Today's Link: https://bahnsen.co/3HXUEAl A rally day in the markets, telling you exactly what the markets think about the theory of extra-terrestrial attacks from UFOs… More below! Dividend Cafe took a stab Friday at applying our present economic outlook (short-term and long-term) to the logic of dividend growth investing. Off we go … Market Action Futures opened down -70 points last night just as the Super Bowl was kicking off so I figure anyone trading futures at that time was a weirdo. By bedtime, they were down over a hundred points, and at wake-up, they were basically flat. The market opened up by +75 points and rallied higher throughout the day. The Dow closed up +377 points (+1.11%) with the S&P 500 up +1.14% and the Nasdaq up +1.48%. With almost 70% of the earnings season now complete we are tracking 5% year-over-year sales growth and a year-over-year earnings decline of -2.8%. Full-year earnings estimates continue to sit at $224/share from the S&P 500. An interesting summary from Strategas Research comparing both economic data and market data now to the same in September of last year (so five months ago). All market indices are higher. Gas prices are lower. Inflation is lower. Oil prices and long-term bond yields are essentially the same. Unemployment has stayed very low. S&P earnings estimates are lower and the fed funds terminal rate is higher. When you add it all up, markets do not believe the fed funds terminal rate and short-term upper range is going to hold. The ten-year bond yield closed today at 3.70%, down four basis points on the day. Top-performing sector for the day: Technology (+1.77%) Bottom-performing sector for the day: Energy (-0.60%) Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

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 the DC Today, Monday edition, back at it, day after the Super Bowl, congratulations to Kansas City Chiefs. Congratulations to the great Trojan wide receiver Juju Smith-Schuster. And today the market was up 377 points. The Dow had been, the futures last night during the Super Bowl were down about 70 points when they opened. And down about 100 points when I went to bed. Then this morning when I got up, they were flat and kind of moved higher throughout the morning. The market opened 75 points, went higher throughout the morning, and then here we are. Yeah, CPI comes out tomorrow morning. And so I do suspect some of it is short covering in advance of the concern that there will be a very disinflationary CPI report.

Perhaps it is disinflationary and markets sell off tomorrow because you get the kind of buy the rumor, sell the news dynamic. Perhaps it isn't all that disinflationary and there's some headline numbers that disappoint what people are expecting. Who knows? But my point is only that I am quite confident a lot of what happened today is some short-termism around what is going on tomorrow, and short-termism always has the potential to be either right or wrong. We're 70% of the way through earnings season, and we're now tracking to 5% year-over-year revenue growth

and a 2.8% year-over-year earnings contraction. So if the earnings season were done today, we would expect earnings to be down 2.8% from where they were a year ago, which is a tiny bit worse than expected. And revenue would be up about 5%, which is a tiny bit more than expected. A couple of interesting tidbits I want to share here. Strategas ran a little report over the weekend. If you go back to where we were five months ago in the markets, when markets were at their low, obviously the Dow, the S&P, the NASDAQ are all up significantly. The Fed funds rate is higher.

The Fed funds terminal rate, what it is targeted to be at its high point, is higher. The 10-year and 30-year are not much lower. Excuse me. They are a tiny bit lower, but not by much. And so I think overall, you don't have a lot that has changed in capital markets other than expectations that have allowed risk assets to forward price those things. And even oil prices are pretty much right where they were about five months ago. They've gone higher and lower, but they're at that same point now. Unemployment has stayed very low and and excuse me, earnings estimates are actually a little bit lower. So when you add it all together, the markets just don't believe that the very short term rate right now is going to hold in bond yields and that the terminal rate is going to end

up pushing up higher as far as where the Fed ends up going. If markets are wrong, they're wrong. But that's what all of this different pricing action in the rates market, the bond market, and the stock market seems to indicate. The 10-year close today at 3.7%. It was down four basis points on the day. And the top performing sector today was technology was up 1.77%. Most sectors were up around 1%. The only down sector was energy, which was down 0.6%. Obviously, in the news stories, we know about the Super Bowl, but there is a lot of talk, and the White House did a press conference today,

and there's all the things about these incidents of things getting shot out of the sky. We know what the first one was that has been confirmed. It was a Chinese spy balloon, and that was now, I think, nine days ago. And that was shot down over South Carolina, had been tracked over Montana. Since then, I don't believe they've confirmed what any of the objects are. And so you can assume it's not a big market story at the moment. I don't have a lot to add to it. If someone tweets that they know what's going on, they probably don't know. If I say something, I probably don't know. And I'm not saying it is a story or isn't a story.

I'm just saying there's no information. And you can be upset at the way the White House has handled it. I don't think this messaging has exactly been the A-team. But that's not really anything that tells you what's going on in terms of implications in foreign policy or geopolitics or the belief in extraterrestrial life coming to Earth. Economically, consumer confidence was up on Friday. I want to say it was 1.5 percent. Current conditions doing most of the lifting. So current environment is better than people have been expecting. I wanted to point out too, because I'm one who was really, really adamant during the

COVID moment that I did not believe the idea that airline passengers would never come back and that even if they did come back, it would never quite be the same. We are now looking at global air traffic being higher than it's been in five years, more flights taking place per day right now than took place in 2019, the pre-COVID year that was 2019. So whether it be 9-11 or COVID, various predictions about the end of business travel have not gone well. And I'm going to stick to that thesis if you don't mind. There's a chart in the D.C. today. For the first time in over 10 years, rents did not increase in the month of January. They were up 0.0 percent last year. In one month, they were up nearly 1 percent. They had been up

somewhere between 0.2 and 0.3 percent for almost every January going back for a dozen years. So you can do with that what you will. I believe the Fed is well aware of the downward pricing pressure in housing and what that means to the overall inflation number. And if the CPI doesn't capture it tomorrow, then all it means is we're another month closer to when it does start to capture it because of the lag effect of CPI measurement of shelter and how that pulls through to the services sector. Bank of Japan named a new,

what essentially would be their equivalent of Jerome Powell, the new chairman of the Bank of Japan. And I don't want to get the pronunciation wrong, but I believe it is Kazuo Ueda. And he is a former governor, a board member rather, but was not really one of the frontrunners for the position. And he holds a Ph.D. from MIT, which is a pretty common thing of people at our own Federal Reserves board. But he had been a professor at the University of Tokyo for a good portion of his career. He's quite an anti-deflation, dovish type guy from what we've seen, what I studied over the weekend. And speaking of dovishness and anti-deflation, they purchased another $482 billion of Japanese debt in a Japanese version of quantitative easing over the last 90 days.

That's a record high when many were saying that yield curve control and quantitative easing were over and that there would be this sort of tightening effect in global markets out of Japan. And it's not it's not happening. OK, there is a ask David question about my disdain for the belief that jobs are inflationary and why I'm opposed to a Phillips curve approach to monetary policy. The big news tomorrow will be CPI coming out on Tuesday, Consumer Price Index. That's it for now. I went quickly through a lot of things just because I'm running to another meeting myself. But thank you for listening to, watching, and reading the DC Today.

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