The Dividend Cafe - The DC Today - Monday, May 15, 2023

Episode Date: May 15, 2023

Debt ceiling talk and other cool things today in the special Monday edition of DC Today … Today's Post - https://bahnsen.co/3o2Wdad 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, the midway point of the month. It's May the 15th, and there's a few things I want to go through today. A lot of conversation focused around the debtth. And there's a few things I want to go through today. A lot of conversation focused around the debt ceiling. I wrote a dividend cafe on Friday suggesting that the current lay of the land, that markets are more or less taking their P's and Q's from Fed-recession talk from debt ceiling volatility and debate around how that all plays out. And then the third piece being regional bank

vulnerability. The news did get better on the debt ceiling over the weekend. And futures were actually up very, very early this morning, up about 120 points. They had been down a little bit last night. And then the market opened up 50, zigged and zagged a little throughout the day, and closed up 50. Pretty much closed where it opened. And the NASDAQ was a little better. I think it was up 0.66%. The S&P was up about a third of a percent. And so more or less, the good news, if you will, is twofold. I'll first give the kind of explicit part, and then I'll tell you my kind of reading of it all, which I think is the better part. The explicit part is that they know that Speaker McCarthy and President Biden are set to meet tomorrow, and that there has been movement and behind the scenes chatter

and that both sides, the White House and the House Republican leadership, are getting together to see where things stand and that they are talking more optimistically. And that's all good. The part I guess is more interesting that isn't being discussed for what it is, is that the White House is explicitly saying now we are negotiating, except for they never explicitly said that they're now negotiating. They just started negotiating and everyone's acting like this was sort of not a new story. But this is after six months of saying that they won't negotiate.

So I don't know what to tell you. It's good news, though. I'll take it. And the president said that he doesn't like to talk about negotiations in the middle of a negotiation. That sounds to me like they're negotiating. Now, what I'm hearing is from good sources that the Democrats are willing, or at least enough of them are willing to bend on a work requirement for food stamps, and that enough Republicans are willing to bend on not having

a work requirement for Medicaid. If that is true, then I think they're going to get a deal. The stuff on energy permitting, that's pretty bipartisan or enough bipartisan anyways. Some of the other stuff is not really all that controversial. And if you take out what they want to cut on and you just put in the part about freezing the rate of growth of spending, I don't think the party wants to run against that. No, we demand. That's the funny thing about our country. It's the funny thing about the people in our country. Politically, it's very dangerous to say anything in particular you ever want to cut. But when you're not talking about anything in particular, you just say, we want to freeze spending to a certain level, then everyone

has to say they agree because everyone believes that they spend too much money and debt's too high and all that. The politics of this have changed a bit, but that's the news over the weekend. I'm going to keep you posted again tomorrow. I expect more and more going on. There's even a few bulletins that were coming as I was coming down the hall to my studio to record that I haven't had a chance to process yet. And so if I have more of an update, I'll do that on Tuesday. So anyways, the S&P is near its year-to-day high as an index, and yet half of the companies are below their 200-day moving average. It's not a lot of breadth. That normally is not a great sign

for sustainability and internal strength. 10-year bond yield sitting pretty at 3.5%. It was up four basis points on the day of the yield. Materials were the top performing sector, up almost 1%. Utilities were the worst, up down more than 1%. A little thing that caught my eyes this morning, Bloomberg, was that the CEO of the CME, the Chicago Mercantile Exchange, which has been there since 1898, it's the largest derivatives and commodities exchange in the country, that he expressed a very strong openness to pulling the Chicago Mercantile Exchange out of Chicago and stated

explicitly, and this is the CEO of a public company that they're watching for quality of life, for basically the safety and whatnot of being down there. It's the first time I've heard such an iconic company talk about the possibility of moving from one of these big cities that are having some of their challenges. So I'm going to keep my eyes on that. A theory I want to share with you right now on housing, I don't think it's much of a theory. It's sort of a pedestrian thing to say, frankly. We do know mortgage applications, by the way, were down to levels not seen since the 1990s last week. But as far as where things are in housing, I'm becoming more convinced it's

entirely possible that depending on the speed at which the rates do come lower, perhaps there's very low volumes does not have to lead to the price levels that they should have because of the low supply. I am really impressed with the resilience of sellers that do not want to sell at lower prices and are holding tight where they are well aware that they believe they'll get higher prices if they wait for lower rates. And inversely, buyers are pretty aware that their monthly payment could be lower if they wait for lower rates. And so I think that everyone's sitting around waiting for something to come, even though both sides give up something to have to wait.

It does seem to be holding together prices. And then you add that to what would a high part of the volume of transactions be right now, if we were not going through this experience, this period, this interest rate occurrence. Well, a lot of normal housing buys are people who are upgrading where they live. There's such and such a person who has such and such a house, and now they're in a position they want a bigger and better house. A lot of activity that happens in housing are these upsizings and upgrades. Yet, not necessarily for a first-time homebuyer, but someone who might be buying their second

home or their eighth home or whatever it is, there's a certain amount of people that are just moving up in the world buying. But if you got an interest rate two and a half years ago at 2.3% and now to go get a bigger, better home that you can't afford is going to require 6% or 7%, people are sort of stuck with the good mortgages they have in the inferior housing product. And Wall Street Journal ran a big article about it last week. But I think that's a huge part of what's holding volumes down right now as well. So we continue to monitor that and see where this goes. A lot of it will depend on the rapidity with which interest rates come lower.

Speaking of which, the futures market's gotten even funkier on the Fed funds rate. We're now looking at a 75% chance of them pausing at the next meeting. And it's up to 25% that they'll raise one more time. And yet, 60% I'm saying backwards, 27% chance of a rate cut by July from the current level, 60% chance by September, and a 99.1% chance by the end of the year. So there's a significant amount of pricing action suggesting that the Fed has tightened, might even tighten more, and yet has a very quick repeal of that tightening coming. Then finally, right as I was getting ready to record, Newswire hit,

which delayed my recording, that the Strategic Petroleum Reserve is buying back their first purchase back since the 180 million barrel release of they took out 180. They're buying back three. So far, first purchase, it's with oil here in the 71s. So we'll see how markets respond in the days ahead. There's a great Ask David question, a little update against doomsdayism in the written thedctoday.com. I will leave there and encourage you to uh check out each and every day the dctoday.com and each friday dividend cafe and of course to provide us a nice review or rating of your podcast or video or whatever you're watching and with that said thank you for reading thank you for watching and thank you for listening to the dc today the boston group is is a group of investment professionals registered with Hightower Securities LLC, member FINRA and SIPC, with Hightower Advisors LLC, a registered investment advisor with the SEC.

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