The Dividend Cafe - The DC Today - Monday, June 12, 2023

Episode Date: June 12, 2023

Today's Post - https://bahnsen.co/3N1hlWQ Futures opened flat last night and stayed flat throughout the night up until my early morning wake-up. They inched higher in the hours before the opening. The market opened up over +100 points and stayed up through most of the day, closing near a high The Dow closed up +190 points (+0.56%) with the S&P 500 up +0.94% and the Nasdaq +1.53%. There are now less than 3,000 companies active and trading in U.S. public markets, versus almost 10,000 that are backed by private equity, and nearly 40,000 backed by venture capital. There are 32 million small/mid/family businesses. Naturally, the 3,000 public companies are what the media focuses on as a bellwether of the U.S. economy. A great call we made in 2020 was a huge boom of M&A that would come out of the low-rate and post-COVID moment. Low rates were an economic argument; the post-COVID observation was sociological (many deals got done or accelerated behind newfound catalysts). That pushed up the values of investment banks, private equity shops, private lenders, and others in the advice chain of this financial ecosystem. Massive M&A peaked 18 months ago, re-pricings have taken place, and in the ebb and flow of the M&A world we would not be surprised to see a new era of financial activity take place on the other side of this. The ten-year bond yield closed today at 3.73%, down one basis point on the day Top-performing sector for the day: Technology (+2.07%) Bottom-performing sector for the day: Energy (-0.97%) 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. Hello and welcome to the Monday edition of DC Today. We are now into the middle of June. into the middle of June. And of course, the second quarter and first half of the year will wrap up as we complete these last few weeks. But it should be a little bit adventurous of a few weeks. We have the Fed meeting starting tomorrow, Tuesday the 13th. And then they will make their announcement on Wednesday, the 14th of what the FOMC, the Federal Open Market Committee, has decided to do for interest rates at this time. And we also will get on Wednesday, the month of May, a CPI, Consumer Price Index figure. And we really won't have much else by way of company earnings. So kind of Fed-oriented and inflation, maybe just macroeconomic data may drive where

things go. Now, when I say Fed, it's important to point out, and this is kind of the major comment I'll make today. I'll leave this one nice and short. The Fed is widely expected on Wednesday to pause, to not move rates, you know, something in the range of a 75% implied probability in the futures market of no action this Wednesday, and yet still over a 60% probability of raising rates again next month in July. So the Fed will say something one way or the other on Wednesday of this week that gives markets some feel for where they are. And I expect that's what they will do. Now, that's not the same thing as saying it's what they will end up doing, meaning I expect they will talk Wednesday of this week as if they're going to raise rates next month and then wait and see market response and wait and see if some of

the tightening gets done for them by jawboning, by utilizing forward guidance to try to affect a policy outcome. That's not to say that I think it will reverse and that they won't end up raising in July. I generally do favor an expectation aligned with what the futures market is pricing, but the futures market itself is all over the map these days because the futures are themselves reflecting what are changing circumstances and changing expectations. So I think that I would say that the majority view, but not overwhelming, is likely accurate, that they will not raise rates this week and that they will raise rates a quarter point next July.

But that will make for the third meeting in a row if they do. Well, not 30 in a row, but July with a pause in June with the May and April circumstances. Also, in my mind, indicating this of a rate hike against all evidence that that is the reasonable or appropriate thing to do. that that is the reasonable or appropriate thing to do. So we shall see how that goes and what ongoing inflation data and other economic particulars look like. The hard part of predicting it is I've been convinced for a very long time that they will go until they break something, and then when they break something, they will chicken out

and push us back to another extreme, that they are committed to be in a monetary policy of extremes. A lot of years of excessive looseness now leading to this excessive tightness, and that when the hangover comes of excessive tightness, it will lead to a ping pong back the other way, none of which I say complimentary. As far as markets today, the futures were pretty darn flat when they opened last night and stayed that way until my bedtime. And we're still pretty flat at my early wake up. But then a little bit before the market opened, they started moving higher and the market did open over 100 points to the upside.

And it stayed there most of the day. There was a little dip at one point, not long, but it closed near the high of the day up 190 points. So you got over half a percentage point to the upside of the Dow. You got almost 1% in the S&P and you got one and a half percent in the NASDAQ technology being the best performing sector today, up over 2%, energy being the worst, up down, excuse me, down nearly 1%. Bonds didn't move a lot. The 10-year was down one basis point on the day and it yielded, so prices just barely up. Two just quick kind of investment oriented comments. There are now less than 3,000 companies that are active and trading in U.S. public markets. There's still other public companies that aren't active, and there's still obviously a heck of a lot more globally. But U.S. active, you're talking about 10,000 companies now that are backed by private equity and a little less than 3,000 that are

actively traded in U.S. public markets. I think it's almost down by half, not quite. in U.S. public markets. I think it's almost down by half, not quite. And then you have 40,000 companies backed by venture capital. So you take all those numbers. Those are often sizable companies, impressive companies. And then you have 32 million small and mid-sized family businesses. That's really the predominant element of entrepreneurialism in the American economy. But for companies that have sized themselves and scaled, you are dealing with much less. But of course, the 3,000 public companies are often what the media will use as a bellwether of the U.S. economy. And there's some sense to it. They're larger. They employ a lot of people. But 32 million small businesses, I think if there were a way to index and aggregate data,

would be a much more accurate bellwether. But of course, there isn't. And the disparities that exist in aggregating data and business intelligence for those, that large dispersion makes it impossible. Hope that's of interest to you. The other thing I want to talk about was this theme about M&A. Mergers and acquisitions in the financial sector was a big theme of ours coming out of COVID. And we really got, I would say lucky, but we really had a lot of qualitative research that caused us to assess things that way. Low rate environment, the post-COVID moment. There had a lot of qualitative research that caused us to assess things that way, low rate environment, the post-COVID moment. There was a lot of aggregation, consolidation, transactions taking place. And I think some of it was even sociological coming out of the COVID moment, pushed up the values of investment banks that advise on these deals, of private equity

firms, a lot of the private lenders that had a significant amount of deal flow, capture a lot of spread in that environment. That was a good call on our part. Then you had in 22, interest rates go up a lot, a slowdown of that M&A activity. I believe we're probably at a point where now the M&A levels are about to bottom if they haven't already. And a new era of financial activity is worth paying attention to. up. Tech was the leader. Oil dropped over 4%. But I think that when you look at the rig count in the US, you have 63 less rigs operable right now than you did beginning of the year. Five weeks in a row now, soon to be six, it appears we've had a decline in operable rigs. That's the kind of thing that generally puts a bottom in place, unless you just get some real significant demand erosion as supply can't move all that much higher. So I'm going to leave it there. We have

Ask David and Against Doomsdayism in our Monday edition of the dctoday.com. Check that out if you're interested and I'll be back with you tomorrow. My partner Brian Saitel will be bringing you DC today on Wednesday as I'll be out with you tomorrow. My partner, Brian Seitel, will be bringing you DC today on Wednesday as I'll be out of the office that afternoon. And other than that, pretty normal week ahead. You can think about it now, but next Monday, the 19th, there will not be a DC Today

as markets are closed for what they call Juneteenth. So there you go. That's the scoop in the DC Today. Thanks for listening. Thanks for watching and thank you for reading. Securities are offered through Hightower Securities LLC. Advisory services are offered through Hightower Advisors LLC. This is not an offer to buy or sell securities. No investment process is free of risk. There is no guarantee that the investment process or investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee.

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