The Dividend Cafe - The DC Today - Monday, November 14, 2022

Episode Date: November 15, 2022

Today’s DC Today is monstrous and requires you to listen to the whole thing. Election aftermath. Fed expectations. Inflation changes. Huge rally days. So much updating. 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 DC Today, our very special Monday extended version. And boy, is this one ever extended because a few things have happened in the world. Our team took off for Nashville, Tennessee. We had an absolutely splendid couple of days of meetings and so forth out there.

And in the meantime, we had a national election. We had a big CPI report. We had the biggest market day up in over two years. And then we go into a weekend. And so there's a lot to cover, and the DC Today written has a lot of charts and is long, covers a lot of ground. And so for those of you who always loved consuming it that way, this is a great day. But I'm going to walk through basically everything that's in the dc today.com uh right now

so those watching the video and those listening on the podcast can get the same kind of information um the first thing i want to do is just get today's market action out of the way and then there's some bigger picture stuff we'll we'll cover the uh market last night the futures were down about 75 points they They stayed down right in that range all evening, not much activity. And then even this morning at about 3.30 in the morning Pacific time, when I got up, they were only down 50. And so you didn't have a whole lot of movement, particularly considering the rally of last week and considering the huge instability going on right now in the cryptocurrency market and various concerns about contagion there, which I think are pretty poorly thought concerns.

But then the market opened about flat and then the Dow did recover. And you really saw a pretty healthy morning for markets, even though NASDAQ was staying down quite a bit. Even it went from down 1% to positive territory at some point, a couple, about two hours, two and a half hours for the close. And then, so at one point, the Dow ended up being up 211 points, and the Dow closed down 211 points. And let's see, was it exactly 10 minutes? It was about 15 minutes. When I look at the tick by tick action on the day, you really just saw the market take all of its leg down in the last 15 minutes of trading.

But nothing severe. Dow was down 0.6%. The S&P was down 0.9%. The NASDAQ was down 0.6%. The S&P was down 0.9%. The Nasdaq was down 1.1%. And so something like this, something which worsened this was probably expected after the big rally last week. Coming into today, 56%, and I don't imagine anything would have moved enough today to change here. 56% of the S&P 500 holdings were now above their 200-day moving average.

And so the August rally, where the markets had rallied quite a bit and then tanked in the second half of August and into September, that number got to 51% of the S&P. And we were as low as about, I think, 18%, 19%, 20% of the S&P just two weeks ago. It was above its 200-day moving average. So moving up to 56% is a big move very quickly. And it's much higher than you had. Not much higher, but noticeably higher than it was at the last big market rally in August. The reason I'm bringing this up is not because I think that is a sign that, therefore, we're all free and clear on markets, which is what a lot of technical analysts are looking to for breadth and depth. And it also isn't because I necessarily care, to be quite candid. I do find it very interesting that the breadth of the market is such that 56% of the holdings in the S&P are above their 200-day

moving average, yet none of the big tech names are. This, to me, is a sign of internal strength in the market decoupled from reliance on the past winners, from reliance on the strength at the top, the biggest market capitalization names that are not participating. It's very interesting. Now, where are we getting this kind of market rally? The dollar index is down 5.3% in the last couple of weeks. The 10-year bond yield today closed up to 3.86%, so up just three basis points on the day. But recall, it was down about 40 basis points last week. So you've had a huge rally in bonds. You've had a huge rally in stocks. But the dollar dropping and the bond yields dropping appear to be at the center of all

of it. But it's more than just bond yields. This was a huge theme when we got back from our New York trip. And that is the volatility of the bond index. We talk so much about volatility of equities. And when you look at the move index, which is sort of like a VIX that measures volatility of the S&P or fear around the S&P, the move index measuring kind of volatility levels around the bond index, the bond market has dropped substantially in just the last couple of weeks. So what will it hold there? Will it stabilize? I don't know. But I do know that less bond market volatility than we've been having is a prerequisite for more healthy and stable financial markets. So the top performing sector of the day was healthcare.

It was just up a few basis points. The bottom was real estate, got hammered down 2.65%. One of the things we did is add a video clip with me talking about Bitcoin and crypto. The only reason we've added it though is not because I was giving my most recent commentary from today or from last week, but it's commentary I gave two years ago. And it just seemed apropos to use it now.

This implosion of a $32 billion Bitcoin exchange company that really had become one of the prominent crypto companies as a custodian of digital coins, as a lender. They had a number of business models globally. And now this thing blowing up has really led to a lot of instability in the crypto world. And we'll see where it goes. But again, you're talking about over $2 trillion of value that has erupted, that has imploded. And there's charts to that effect. And then also charts around the kind of crypto-exposed basket of securities. Even beyond just the drop in value of various digital coins, you have an ecosystem that has really been built around the cryptocurrency world. And you see that basket of crypto related securities down 70% to 80%, sometimes more

related to exchanges and whatnot. So it's a very significant implosion. And my view continues to be that it will be bad. Perhaps it gets a lot worse. I wouldn't bet against that. I wouldn't bet for it. I just don't know what people think they know to be able to formulate an intelligent opinion on that. It's a lot of speculation.

However, what I would say is that the contagion effect, I think, is significantly overthought. I just simply believe there's individuals who are going to feel a lot of pain, but I don't believe it is contagious to the rest of the economy. As far as the earnings front, real quickly, as we get ready to kind of wrap up our last week of Q3 earnings reporting, we're already over 92% reported. Hotel, restaurant, leisure industry, their earnings are up 97% versus a year ago. A major story there and wonderful for hotel investors. All right. So just a couple of minor little news items that in the past would have become the entire subject of a D.C. Today. President Biden met with President Xi Jinping of China at the G20. It was a little sidebar meeting as the leaders at the G20 are convening.

Nothing noteworthy to report on it other than that it happened. And I'm quite confident that one of the analysts that we heavily rely upon is going to have quite a bit of great intelligence on this, and we're going to wait to see what comes out of that. A federal judge has indeed ruled President Biden's student loan forgiveness unconstitutional in order to block, which means it goes up to the next appeal. And I think it was a district court that has now done the block. I imagine it goes to federal appellate court and will very likely end up in the Supreme Court. But as of now, it's been invalidated, but it just now cycles through to the next phase. We are assuming at this point that the Democrats will take control of the Senate with the question

being or maintain control. And that's kind of the whole key phrase here. People talk about what's gone on in the midterms. There's been tight races. There's still some House seats not fully clarified. Some of the governor races were closer than people expected. And some Senate and governor races had different outcomes. But when all said and done, there wasn't much change. And in the Senate, there wasn't a single incumbent that's lost their job. The only reason why the Republicans could end up seeing the Democrats gain one seat in the Senate is because Pat Toomey in Pennsylvania did retire, therefore he wasn't reelected, and the Democrats flipped that seat. But no other flipping took place.

They did not flip Georgia unless they do so in a runoff. And even if they do do that, it won't be enough because they lost Pennsylvania, having not flipped either Arizona or Nevada. flipped either Arizona or Nevada. Nevada looking like Senator Adam Laxalt is going to end up coming up short by a very, very, very tight margin. And so that's the state of affairs there. And the House, it looks like you can look at the NBC, the Politico, the MSNBC, they all have different expectations.

I think it will be about seven to nine seats when all is said and done. It could be 12. It may even be as little as three to five. But I think if you meet in the middle there, there's a better case to be made. And so, you know, my take, by the way, I went back this weekend. I was reading some stuff I had written on all this over the summer. And it was not just that I would have been right on everything I said if I had not kind of gotten polled and swayed a bit in the last couple of weeks by the polls, by the apparent shift in national sentiment. But what I was saying in the summertime not only proved to be accurate,

it proved to be accurate for those reasons. And so certain candidate quality issues and really what voter theme priorities are proved to be much different than people expected. And the results are what they are. I don't think there's much to be said on the market front when gridlock means gridlock. And whether you have gridlock with seven votes or gridlock with 30 votes, and whether you move the Senate or failed to keep or didn't move it, regardless of what side we're talking about here, the Democrats didn't have a great run at getting some of the significant tax and spend legislation in after that initial COVID bill

with the majority position in the House. So now they had Senate before 50 or 51 and they keep it and yet they've lost the House. I don't think that there's a reason to believe that any market impacting legislation is coming. Some people could look at the state of Congress as an improvement. Some could look at it like it went the other way. Most probably look at it like it barely really moved much. But when all said and done, I don't think there's anything impactful here other than where it's going to bring us into 2023, 2024, the next election cycle. That's really where markets will start to look forward from here. Other policy issues real quick. China

has cut the quarantine period for inbound travelers. They scrapped much of their flight ban. Really just further evidence of how much they're softening on the futility of their COVID zero theory, COVID zero policy. So the CPI news on Thursday, biggest bond day rally I think I'd ever seen on Thursday, the 10-year falling 33 basis points. The headline rate for inflation in CPI, it was at 8.2%. It dropped to 7.7%. The core rate was at 6.3%. It had been 6.6%. And yet energy and food were both higher. And so when you see these overall levels coming down, even with some of the big contributors

going higher, you know that A, as I pointed out time and time again, a huge contribution to the high CPI number is what we call OER, owner's equivalent rent. It makes up about 30% of the 40% that is CPI in shelter. And I think most people are well aware that shelter is not really going up to the degree that their lagging indicator calculation indicates. And so the inflation direction seems to be appearing to be moving in the right direction. And that has totally changed Fed expectations, where you're now looking at 50 basis points almost assured in December instead of 75. basis points almost assured in December instead of 75. And then you're looking at a Fed funds terminal rate out to June of next year that has come down by about 20 basis points, 25. So big change in expectations. I would say that hearing Vice Chair Excuse me, Lail Brainard, talk about slowing down and pausing before their next meeting,

slowing the pace of rate hikes after the next meeting, that kind of stuff. You heard a European central bank member allude to this notion that they're basically within reach of peak inflation. This stuff sounds like central bank are starting to get dovish. All right, I'll wrap it up. There's an against doomsdayism talking about how we have to look at how much things are better

in the concept of how much time it takes to affect them, not just price. When you adjust for time, it's really quite amazing what kind of progress we've made in certain key areas. And there is a couple Ask David questions I lumped together to give you a better understanding of where I am and on what the Fed is doing and ought to be doing. Very brief, but hopefully helpful. I got to leave it there. We've covered a lot of ground.

There's some housing factoids you're going to want to grab out of the dctoday.com as well. So let me leave it there and come back to you tomorrow with our podcast, with our video, and with the short abridged market synopsis. But today you got plenty to chew on. There may be questions about the Fed, about crypto, about this implosion of the crypto company, about the election. You send those questions to us, we're going to answer them. Questions at thebonsongroup.com. Thank you for listening to and watching the DC Today. The Bonson Group 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. 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. The investment opportunities referenced herein may not be suitable for all investors. All data and information referenced herein are from sources Thank you. no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice.

This document was created for informational purposes only. The opinions expressed are solely those of the Bonson Group and do not represent those of Hightower Advisors LLC or any of its affiliates. Thank you.