The Dividend Cafe - The DC Today - Monday, July 24, 2023

Episode Date: July 24, 2023

Today's Post - https://bahnsen.co/3O7FRWJ I am back in New York City after a few days working from my house in East Hampton and ready for a hot and humid week in the concrete jungle. Office needs and speaking engagements didn’t allow me too much time at our Hamptons home this summer but I do enjoy being here in the city even in my least favorite time of the year weather-wise (I will take the snow storm winters over the oppressive heat any day!). To see New York this crowded and normal after what I observed in the depths of COVID is a true blessing (I was here throughout summer of 2020 when it was a real ghost town). It will be a busy and lively week in our Manhattan office and I am excited. 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 Monday edition of DC Today. I am actually sitting in my office in New York City. And, you know, our studio here in the office is normally where I record. But we're kind of doing it here at my desk. For other reasons, I'll spare you the details on today. And I'm doing something I think I've done once, maybe twice ever before I'm recording a few minutes before the market is closed. And I hate doing that because I know one of these days, I'm going to say something. And then in the 10 minutes in between me saying it and the market closing, it'll become obsolete. But we have to take our chances today because I can't record right after the market because, candidly, they switched my hit time going on the Cutlow show at Fox Business. And so it's sort of screwing up our afternoon rhythm. So I'm recording for you

now. There's a very long and robust Monday edition of the DC Today that I really encourage you to read. And it'll have all the updated final numbers in it after the close by the time you're getting this. But for now, I'll just kind of give you the general direction of where we are. As is often our case on Mondays, we like to go through a number of other categories covering public policy, covering the Fed, covering the general news cycle, economic developments, etc. A little longer form version than what we do Tuesday, Wednesday, Thursday. And so there's a lot there this week. The market itself, first of all, the biggest story is, barring what could

be a 190-point drop in the next 10 minutes, the Dow is up 11 market days in a row. You can look up yourself when the last time that happened is, but an incredibly rare feat. Some of them were big days up. Some of them were very small, but nevertheless, 11 days of green in a row for the Dow. And as I'm sitting here recording, it's up close to 200 points. The thing I would say about the overall market is you have an S&P up 19% on the year when earnings are down 5% on the year. So how does that happen? Well, it's just very obvious. It's just math that the multiple has expanded by nearly 25 percent. The P.E. ratio for the S&P is about 20 times earnings right now. That is not a valuation I would have guessed earlier in the year and not a valuation anyone would have guessed given the continued move higher,

the trajectory of what the Fed has done with the discount rate. Now, as far as earnings season goes so far, only 89 out of 500 companies have released results. It's just too early to kind of get into it. It's definitely been a pleasant earnings season for us so far, but it's very early. And anything can happen not only within our core dividend portfolio, but anything can happen within the market at large. So we'll continue to let those things shake out. I do think that one of the arguments for the soft landing that is not persuasive, it's not conclusive, it's not dispositive. and combined with some of the other elements we talk about with the labor market and whatnot,

that earnings about early, late 21, early 22 had kind of hit a high level, both reported earnings, operating earnings, and then where the projected forward earnings expectations were, had kind of hit a high level. And at the fall into the November-ish time period, October into November of 22, those numbers all seemed to have bottomed, operating, reporting, and the forward projection. And since then has steadily, very slowly, but steadily moved higher. bottom in earnings that was that small of a move from the high at the beginning of 22 to the low in late 22, it's incredibly benign. And we'll see. Maybe that bottom doesn't hold. Maybe operating earnings drop, reported earnings drop a great deal. But the trajectory right now just seems to be very different. And that's a counterfactual to recessionary thesis. No matter how much, very essential bankers or politically motivated people may be rooting for a recession. In terms of the public policy side, I do think that the issue of a lot of the big tech

companies that have various avenues and entries into AI agreeing to with kind of an informal agreement with the White House on safeguards around artificial intelligence. You could look at it as newsworthy, but I would just view it as a classic case of people that have established a market presence, have established a technological and competitive advantage, and now they're very willing to have safeguards and regulatory burden in place, it to me is very likely to actually keep some of the smaller players from innovating and then protect some of the positions of larger players. But call me cynical and also call me anti-croniest. The chip makers, by the way, have asked the Biden administration to wait on further export restrictions, saying they need more time. They request time to see how the current export restrictions have played out.

And we will watch that story carefully. coincide with some of the things I wrote about in Dividend Cafe on Friday regarding the changing nature of globalization and particularly on-shoring various manufacturing endeavors. Economically, I won't get too detailed here about the Barbie movie or the Oppenheimer movie, but $155 million in opening weekend for Barbie, $81 million for Oppenheimer. This is the highest weekend at the box office in four years, well before COVID. And it's double what the box office receipts were one year ago this weekend. Obviously, you have two strong blockbusters coming out the same weekend, but monumentally positive numbers at the movie theater. And a great data point, too too for those who still believe going to a movie is a good thing to do. The PMI composite which blends manufacturing and services

was down a bit yet the manufacturing number in there was up a bit and the total figure was still in expansion territory so kind of a mixed. Services down a little further than expected. Manufacturing up a little more than expected. I have quite a bit about housing in the D.C. today. Today, housing starts declining in the month of June by 8%. They had been showing signs of picking back up. And that seems to kind of reverse some of the momentum we were seeing a little earlier. New housing starts are down 8%, a little momentum we were seeing a little earlier. New housing starts

are down 8%, a little over 8% versus a year ago. And that's obviously related to the higher cost of capital. But again, that higher cost of capital, the average annual mortgage payment for a new purchase right now has reached a new all-time high with the combined headwinds of mortgage rates being around 7% and then sticker prices of a purchase being so high, house prices just haven't moved down enough yet to offset the impact of the higher mortgage rate. But it's also, as I've been saying over and over again, it's difficult to evaluate this data when there's such a minimal amount of transactions happening at all. There's a chart at the dcda.com of housing inventory that really tells the story of why I think housing prices seem to have a floor right now, because the supply is just so low,

existing inventory just flew higher during the great financial crisis and then just has steadily declined since. And we're at a very low level of inventory at a time of pretty robust demand. The Fed makes their FOMC, they have their FOMC meeting tomorrow, Federal Open Market Committee that sets rate policy. They meet all day Tuesday. They'll announce Wednesday what they're doing. It's basically 100% priced into futures that they'll raise rates a quarter of a point. It's about 85% priced into futures right now that they will not raise at the September meeting, which is two full months away. But those futures markets have not been a great predictor for some time.

And I freely admit that, where generally they have been in the past. been a great predictor for some time. And I freely admit that where generally they have been in the past. I think that, you know, the European Central Bank is also going to raise rates a quarter point this week, the Bank of Japan is going to meet this week and not do anything. And that's just sort of where monetary policy stands right now. Crude oil, continuing to move higher, getting very close to $80 range again. That's one thing that I still think could disrupt the headline inflation number, which has been going lower, lower, lower. Because oil prices are $10 a barrel higher now than they were a month ago. And even though the Fed says they look at core inflation, which strips out food and energy,

I think a lot of people tend to look at the inflation number, either core or headline, depending on which one better serves their agenda. And that's the one element where you could see some price inflation around energy prices, which are obviously not monetary connected, but do impact the price level when you're looking at it on a headline basis. I'll let you read the DCToday.com for the against doomsdayism, a contrarian take on crime. It's not even contrarian, it's just numbers. Crime murder rates are up in the last year or two, and they're down dramatically over the last 30 years. And so you could draw what conclusion you want from that reality. And then I do talk a bit in the acid David about

what I think the Fed is trying to do in this disinflation, why continue to treat an inflation problem with a disinflation diagnosis. So the the DC today.com if you want to read more, I hope you've gotten a lot of the podcasts in the video. Appreciate you watching. Appreciate you listening. And I always appreciate you reading. And I'll be back with you tomorrow in the DC today. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC, member FINRA and SIPC,

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