The Dividend Cafe - The DC Today - Monday, March 18, 2024

Episode Date: March 18, 2024

Today's Post - https://bahnsen.co/3x6BWVi Ask David “Are tech stocks likely not going to be good dividend growth stocks for the foreseeable future? Given their reliance on good and expensive R&D to keep market share? Seems to be a no-brainer to me. Dividends and more meaningful dividend growth is seemingly better in other sectors. Or am I just underestimating the time it takes for dividends to grow? What will happen to tech stocks if they have poor dividends and stock price growth flattens out? Where would the value for shareholders come from? Or am I missing something or am I just worrying unnecessarily?” ~ Nathan Some tech companies will not pay a dividend, some will, some will grow it, and some will not. Technology is way too broad of a sector to answer in the context of monolithic treatment of dividends. What is constant where there are technology companies that pay consistent and growing dividends is that the company is mature, has recurring cash flows, and management that has exited the ego phase of corporate oversight. Value does not come from dividends – it comes from profits. The value of those profits is realized in dividends. If profits are not returned to shareholders but used to create more profits, that is where value creation could come from. Or, that is where value could be destroyed. 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 special Monday edition of DC Today. The market is closed. I am here in New York City and I am going to walk through with you as much as I can from today's written DC Today. We'll see what time allows, but it was kind of a long one. I had a lot to say, and I'm kind of happy with how it turned out, and there you go.

So, first of all, check out Dividend Cafe from Friday if you missed it. I love these dividend cafes that talk about dividends. And obviously there's the video, the podcast and the written version. In the DC Today, today, we have the links for a couple of the latest media clips and things like that. You know, that's, we always try to keep those things updated. We put them on our YouTube page. like that. We always try to keep those things updated. We put them on our YouTube page. So just want to keep you abreast of all of the different things going on. In terms of market action today, after kind of a flat open in futures last night and then a rally pre-market this morning, the market opened 100 points, got up as much as about 200, and then

zigged and zagged down throughout the day. It ended up closing up 75, 76 points. So off of its highs, but still in positive territory. S&P was up 63 basis points. The NASDAQ was up 82 basis points. So ongoing movement higher, even as bonds sold off a little bit now, not a ton, but the 10 year yield was up 2.8 basis points. So you got the yield going up to 4.33%. Remember, yields going higher means bond prices going lower. And that would indicate to me that we're getting pretty close to the territory where I have to think that the bond yields start to cut into equity prices. I am surprised it hasn't already. Frankly, I would have thought holding it here over four and a quarter would be enough.

But maybe it's got to get up to four and a half till it makes a difference. But we shall see. difference, but we shall see. In the meantime, the technology sector has really seen its breadth weaken significantly, but not its total return. And so what I mean by breadth weakening is that right now there's 61% of companies that are above their 50-day moving average, so close to, but not quite, half or below their 50-day average. That number had been 95% a couple of months ago. So there isn't as much broad participation in the good things going on on the tech side. It's more a couple of particular companies. I think you know who those are. And yet the overall market's hung in there. I've been talking about it's improving breadth. It's improving off of almost complete and total lack of breadth.

It isn't like this market has broadened out a ton, but relative to where it was, it has. But what I would point out is that copper is breaking out to new highs, which I think speaks to some internal strength in industrials, cyclicals, some of the CapEx oriented type companies, as you see copper moving to new highs. Today, top performing sector by a wide margin was communication services. Healthcare and real estate were each down two basis points. So basically flat. Everything else was up. Right behind communication services, which was pretty much carried by one stock. You had consumer staples, which was up almost 1%.

So interesting day there. OK, what else? There's a chart in D.C. today showing how much as of late, let's say since the Fed started hiking rates, that the appetite for treasury bonds has increased and improved from households and from what we would call real economic actors, such as banks and insurance companies, and how much corporate type buyers, and how much it's dropped from what we'd consider non-rate sensitive actors like the Fed, from what we'd consider non-rate sensitive actors like the Fed and like foreign sovereign wealth, like foreign governments, basically, their own sovereign capital. Their appetite has declined and appetite for individuals and corporate buyers has increased, which is what you'd expect in higher

rates. So if we were to convert to more yield insensitive environment, it's a night and day situation in every aspect of the bond market. Okay, what else do we want to cover? Public policy. It looks like the White House and congressional Republicans are negotiating. It is not a done deal as of press time. For a full year spending bill for homeland security. This could stave off a kind of short term sequester situation or shut down. They had been talking about having

to do another continuing resolution, border policy issues, and then the funding around all this stuff is tricky because it's not only very amplified politically, but it's messy. And yet it's also amplified and messy to not get it done. And so we'll see kind of in the next 24 hours where this goes. But, you know, even if the White House and the House come to an agreement, it still has to have the Senate. And they can procedurally delay it here for at least a few days. The Department of Justice has begun what they're calling a preliminary scrutiny of the Nippon Steel acquisition of U.S. Steel. And, of course, their jurisdiction will be on antitrust grounds, which is just beyond my comprehension to even say.

It is such a stupid argument. But they are not in a full-blown opposition yet, so I should be somewhat charitable. And then where it will go next is CFIUS, which is the State Department, where they look for national security concerns. So, you know, people can say this stuff with a straight face. We'll see what happens with all of it.

Obviously, a very political situation. Industrial production came out on Friday. It was up 0.1% in February. No change had been expected. But underneath the headline, it was pretty good numbers. Manufacturing with auto and without auto picked up a bit. Utilities had fallen, but mining output increased. Another just anecdotal comment. US GDP expectations have been revised upward multiple times here

for full year 2024 for Q4, 3, 2, 1. In the meantime, I'm looking at European countries, particularly Germany, as their GDP expectations are being revised downwards. They were expected to be low and have been now presumed to be lower. The U.S. was expected to be a bit higher and has now been presumed to go even higher from there. So it's an interesting divergence in economic expectations in Europe. The NAHB homebuilder sentiment for March came out and it had moved back into positive territory. It's at the highest level it's been since July of last year, not exactly ancient history, but prospective buyer traffic is still very, very low. But there was pretty decent

improvement in current situation, present situation, they call it, and current expectations. situation, they call it, and current expectations. There was a pretty big announcement on Friday of settlement of a class action lawsuit involving the National Association of Realtors, whereby they're going to pay over $400 million of fines and standard commissions will not be tolerated or, excuse me, mandated. They're going to have more flexibility around residential real estate commission structure. We'll see what happens with that. So yeah, the Fed meets all day tomorrow. They'll announce obviously that they're not hiking rates or cutting rates on Wednesday. That's 100% priced into futures. But we'll see what the dot pot shows for their plans or expectations for the rest of the year.

And then I would point out that the Wall Street Journal ran a story saying that some of Trump's economic advisors are recommending either Kevin Marsh or Kevin Hassett to him to be the new Fed chair if President Trump is elected. Both of which, by the way, are people I know, Kevin Hassett, I know quite well and think very highly of. But whether or not President Trump has them on his list or he's just hearing those names and someone's leaking it to the journal, who knows? But that's interesting. We most certainly know President Trump would be seeking to replace Chairman Powell. But again, all that is just depending on what's going to happen at the election in November. A long way to go. Bank of Japan's policy decision will come out tomorrow. They may raise interest rates for the first time since before the iPhone was invented.

They have not raised rates since early 2007. That's crazy. What else? So futures are now indicating a Fed funds rate of four and a half percent at the end of the year. That is 75 to 100 basis points lower than it is now. At the beginning of the year, the futures curve, the forward was indicating 3.9%. So 60 basis points has come back into the curve, but this still represents 75 lower than where we are now. The U.S. produced 12.9 million barrels per day of oil last year. That is almost a third more than Russia. It is a third more than Saudi Arabia. Stunning statistic. And you can't really expect to hear about it because you have two political parties for totally different reasons that don't want to advertise it. Just

surreal. Oil, by the way, closed up over 2%. Now back firmly above $82 a barrel. A wonderful against doomsdayism today with a few different bullet points, I want you to check out at the dctoday.com. And a thoughtful question from Ask David based on last Friday's Dividend Cafe. But I have to, for time reasons, leave it there. So a full boat here today in the DC today. Appreciate you sticking with me. And I will be writing What's on David's Mind tomorrow. Brian will be with you recording. And we'll look forward to another day. Thanks so much for watching, listening and reading. Good to see you today.

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