The Dividend Cafe - The DC Today - Monday, March 11, 2024

Episode Date: March 11, 2024

Today's Post - https://bahnsen.co/43bfaYw Futures opened last night pretty flat and slightly improved into the evening, but this morning, futures pointed to a down -130 point open pre-market. The market opened down 100 points and got down -230 points before rebounding about +300 from there. The Dow closed up 47 points (+0.12%), with the S&P 500 down -0.11% and the Nasdaq down -0.41%. 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 another edition of the DC Today, the Monday edition. We are in for some fun here. There is a lot to go through. And I think it's just kind of a coincidence that the Monday edition ended up today with a lot on public policy, a lot of central bank updates. You had the jobs report Friday. So there's a lot in the economic data. But, you know, really, there is just sort of need to kind of cover all these things. And if it piled on, then that's too bad. Let's get into it. First of all, just today in the market, it was one of those days where markets started

off down and then did kind of come back. And most of that comeback was in the first hour and a half of the day. Futures were pretty flattish last night, and then it ended up being down about 130 very, very early this morning, and the market opened down 100. And it got down as much as I think 220 or 230 at one point, and then closed up almost 50 points. So you had a nearly 300-point comeback within the market. Now, the S&P closed down 11 basis points, so barely down. The Nasdaq was down 40 basis points, not much. But the worst performing sector of the day was industrials, which was down half a percent. But you had both materials and

energy up over one percent. So it was a little mixed bag, but not too bad. The bond market was pretty flat. The 10-year was up one basis point. Oil was real flat today, closed at 78 plus change. So not a lot of market movement throughout the start and ending points, but some intraday volatility for sure. I have a chart in the dctoday.com where one of our themes on the year in the white paper we wrote at the beginning of the year was that there was going to be a broadening out of market leadership, that even if the market was down on the year, if the market was up on the year, either way, you weren't going to see all of the movement being held and concentrated at the top, big cap names and the so-called Magnificent Seven. One of the things we do is we go through and show that so far in the year,

you have two names in the MAG-7 that are up huge. You have two names that are down double digits. You have one name that's down a little bit. Then you have one or two names that are up kind of a little bit, that are up in line with the market, let's say. So it's very divergent within Magnificent Seven, unlike last year where they all kind of went up together in a very similar direction and a similar magnitude as well. similar direction and a similar magnitude as well. And so I think that the Magnificent 7 is largely diverging from one another. And by the way, things like NVIDIA being down 10% on Friday

and yet still being 90% above its 200-day moving average, there's a lot of vulnerability in where some of these big performing names could go as well. You saw the Nikkei last night. The Japanese stock market was down almost 1,000 points, down over 2%. You have the yen rallying against the dollar, which is obviously putting downward pressure on a stock market that wants a weaker currency due to their status as an export-driven public market. The market basically right now is just dealing with the fact that everything's gone up quite a bit.

And I don't really know what else to say, honestly. The Fed isn't going to say something that could make it go up a lot more. There's not a lot I expect they would say that could make it go down a lot. There are things they could say make it go down a lot, but not that I'm expecting. You're just dealing with kind of buying time to the next earnings season and seeing if the market is going to live up to the rather robust earnings expectations it has and maintain a valuation that seems rather rich. But the fact that the even weight or equal weight S&P 500 has now hit a new all-time high does reflect the fact that it's been about four months now, late October, early November, all the way through late February, early March, that there has been a lot of

broadening out of the market. And it's still top heavy with some of those MAG7 names. And there's still a big disconnect between the capitalization of the top three, four, five names and their contribution to earnings. But it's much better than it was in terms of broader market participation. better than it was in terms of broader market participation. So on the public policy front, the White House released just moments ago, and it's one of the reasons I was a little late getting all this out because I needed to go through and kind of see if there was any surprise in what they actually released versus what they previewed and what President Biden teased up at the State of the Union Thursday night. And lo and behold, there was not. There are no surprises. But nevertheless, they're putting forward a fiscal year 2025 budget. I want to remind everyone this isn't going to happen.

They can put this forward, but they're aware that the Republicans in the House, this isn't going to go through. Why put it out at all then? Because they want to show their agenda, their priorities. And in an election year, it becomes a bit of a declaration of what some of the campaign priorities will be as well. But $7.3 trillion of spending against $5.5 trillion of revenue, and that's with the revenue they would anticipate getting from some of the tax increases they want to put through, and they're still planning on a $1.8 trillion deficit. They want to raise the corporate tax rate from 21% to 28%. They want to have a minimum corporate tax that even after deductions, like for things such as CapEx, you'd still be paying a minimum 21% rate.

Right now that minimum is 15%. And then there are a host of different housing policies, some of which were teased up Thursday night, some of which I'm going to talk about here in a moment. $100 billion of spending for things like Ukraine, Israel, border. And then again, as he stated on Thursday night, a 25% minimum tax on billionaires. So be that as it may, it doesn't make a big difference when obviously the divided government means a lot of those things won't happen, but it's on the table. It becomes some of the points that there will be a debate about, a discussion about

throughout the election year. Speaking of the election, I just want to make sure everybody understands that we are basically talking about six states that will matter for the outcome of the election. And this is a byproduct of my takeaways from some of the people I consider to be by far the smartest electoral, political, both pundits and analysts in the country. I think it's kind of consensus, but even if it's not, this I think is the right analysis. The six states I'm referring to that are closest could be now, they're going to stay closest could be. I don't think we're going to know the outcome until the election. I don't know if we're going to know the outcome the night of the election. Those six states are Michigan, Pennsylvania, Wisconsin, Georgia, Nevada, Arizona. Three of

them are the famous Rust Belt states that helped President Trump win the election in 2016. Ohio's not on that list because it's presumed to be a reliably red state now. Some could say, well, you know, Ohio and Florida, what if they go the other way? Well, that's fine. If Ohio and Florida don't go red, which they both very likely will, then this is obviously the election's over. It doesn't matter what happens in the United States. And then some will say, well, you know, I think President Trump could compete in, let's say, Minnesota. What's another example?

Let's say Virginia. And again, I don't think he will, but let's say he does. That just, believe me, if he's real competitive in Minnesota and Virginia, then he's won these other states. And so the election's over. Really, let's assume that some of the other states like that that are not likely to be close aren't close. These are the six states that matter. National polls are fine, but they're not going to tell you the electoral college. The six states that matter, Michigan, Pennsylvania, Wisconsin, Georgia, Nevada, Arizona. Okay. The other policy thing is you may be seeing the stories on this TikTok fight. I'd pay attention to that.

You have very strange alliances and sides and bedfellows and people that previously wanted to shut down TikTok that now don't and a whole host of things happening there, what Congress may or may not do, what the White House may or may not do. So yes, I mentioned the jobs report Friday. You did see a headline number 275,000 jobs created. That could have been enough to really blow out bond yields to the upside, but it did not, largely because the revisions for both December and January were so significant, 167,000 lower from the prior number. So when you netted the two out, you really just had kind of 100,000 net number. Private sector jobs were the entirety of the downward revisions from past months. The actual unemployment rate moved higher from 3.7% to 3.9%,

still very low. But this is just one of those classic months where people looking for some negative data had it, and people looking for positive data had it and both things are true at once, mixed bag. And those that want to be somewhat less objective and more partisan, they could find something in the data to match their priors. And those trying to do this a little more objectively and honestly have to point to both things because it's all there. Average hour learnings were up 4.3% versus a year ago. The quits rate is now back to lower. It's now lower than it was pre-COVID. So we had a very high quits rate. People voluntarily leaving their job. That's come way lower. That's usually a leading indicator. And then the other economic piece I want to throw in there, especially with the CPI number coming tomorrow, the used car index is down 13.1% year over year.

It dropped a little bit more last month. So you definitely continue to see car price deflation. As it pertains to housing, I am a contrarian of all things that relate to risk assets. I think the more sentiment piles one way, the further the outcome is likely to go the other way. I desire to see a solution to this housing affordability mess, and I don't see a lot of data points that give me a lot of hope. Yet, one that just came in is the highest expectations for home price appreciation right now since 2007. Why is that giving you hope if you want greater affordability?

I think all these people expecting it are generally wrong. I'm making a contrarian, not sarcastic, but yeah, I mean, a contrarian statement about how expectations normally go. You may recall 2007, that was the highest expectation for home price appreciation on a go forward five year basis ever. And I think you may know that it didn't go so well the next five years. So there's a, you know, a little bit of hope for some price moderating there, but it does continue to be a supply-related issue, in my opinion. And this brings me to my second point. The Biden administration is proposing a $10,000 tax credit that would be usable over two years for first-time homebuyers, also proposing a $25,000 down payment assistance for those who haven't owned homes

before. If my view is correct, that we have ample demand now for housing, and yet we don't have enough supply to get prices to a point that we can clear the market, both of these proposals do absolutely nothing for supply, and yet they both do stimulate demand. And stimulated demand, you may have heard, pushes prices higher, not lower. So I think these are classic cases of a counterproductive result coming from perhaps well-intentioned policies. intention policies. But solving for a supply shortage by stimulating already hot demand is not, I think, the way to go here. Now, as far as the Federal Reserve goes, I want to pivot out of our own central bank to the Bank of Japan. They are scheduled to meet on March 18th next week and perhaps for the first time in a while take off their stated policy

position of negative interest rates. So we're definitely watching that. And then I want to week, and perhaps for the first time in a while, take off their stated policy position of negative interest rates. So we're definitely watching that. And then I want to point out that the FDIC released its Q4 banking profile last week, and that the total year-over-year decline in net income was only down 2.3%. And that's despite what we know of deposit flight and most importantly, net interest margin pressures, as banks had to pay out way more in deposit interest to depositors. And yet net income only fell 2.3%. So when you hear all the commercial real estate angst,

the higher deposit rates, downward pressure on net interest margin, a lot of banks losing deposits, this seemed to me to be a surprise, and not to mention a few bank failures thrown in there. But then I saw that community banks saw their net income decline 10% on the year. So you may have got an aggregation of 2% net income decline, but community banks down 10%. Obviously, well, everyone else did a lot better than the community banks. Okay, I'm going to leave it there. We already talked about oil prices. And there is an Ask David that's similar to a question that came you look at things like the ADP number and the BLS,

the monthly jobs number, and people wondering, hey, are they cooking the books here? Some of this stuff doesn't really line up. It often hasn't lined up. And yet the one data point I got to say is the weekly jobless claims. If there really were a lot more people unemployed or entering unemployment, then the government was telling us you would be seeing it in weekly jobless claims. And you're just simply not. You have record low unemployment claims. So there's a sense in which all this data has to get confirmed by other data. And I watch for that quite carefully. I think that's it. We've covered a lot of ground. Please reach out with any questions. Brian will bring you the podcast tomorrow, Wednesday, Thursday. I'll bring you

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