The Dividend Cafe - The DC Today - Monday, November 6, 2023

Episode Date: November 6, 2023

Today's Post - https://bahnsen.co/3SuN9Yy Nothing like the Monday edition of DC Today. I’ll get right into it. Dividend Cafe dealt with the subject of long term interest rates and what it all means for the economy and investors. I think it was a useful way to think about what the long term is supposed to measure, and what current Fed actions mean for that process. 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. There is a lot in the DC Today today, a lot of links, a lot of fun things. I'm going to quickly go through some of the highlights here for those of you listening to the podcast and watching the video. But you know how we do it on Monday, try to go through a lot of different sections. If you missed Dividend Cafe on Friday, I think it was an important one. I'm hoping that it was somewhat informative about how we want to think about long-term interest rates, how they come to be, what they mean, and how we want to invest around it. I was on Maria Bartiromo's Wall Street Week show over the weekend. We have a link to that in the DC Today as well as this morning.

I did the opening hour with Stuart Varney and Fox Business, and my team put together a little highlight reel there as well. So you got a couple links. As far as the market itself, futures had opened up about 30 points last night. The Dow closed up 35 points today. The market opened right around there. The futures stayed right around there. And the zigs and zags that took place in the market today were pretty insignificant. You could say, okay, so just kind of a nice, boring, unvolatile day in markets, which it was. But there's maybe a little more to that in the sense of after the biggest week of the year in markets in a 12 or 1300 point rally that we are coming

off of to have the market stay higher even in and, know hanging in there and even staying positive to some degree it's a little bit of a surprise bond yields to the 10 year moved up nine basis points today so you had bonds come down a little and although still at 4.65 percent on the 10 years so quite a bit below that five percent level and it hit a few weeks ago. But nevertheless, the way stocks and bonds have been trading together, seeing bonds come off a little bit today and stocks hang in there somewhat is surprising. We'll see where things go this week. A lot more earnings still to come. The S&P was up 18 basis points. The NASDAQ was up 30 basis points. So that was sort of the week, excuse me, the day that we just had in the market. As far as last

week goes in this big rally I talked about, I do want to mention that it's still only 44% of the constituents in the S&P 500 that are above their own 200-day moving average. So you have a little less than half of the index that's actually trading above its average price of the last 200 days. That's not a ton of internal strength. That number is higher than it had been before last week. Obviously, it came up quite a bit, but it doesn't exactly scream for a very strong market. Now, another thing I thought was interesting, and I'm definitely talking our own book as dividend growth investors here, but I never stop repeating the fact that we

don't share things because they're convenient to our conclusions. We have our conclusions because of the things that we share, right? Like the inputs and premises and arguments and data and analysis and so forth. Those things help to form the way we view about things. We don't form the way we view about things around convenience. And yet, I just want to say stock buybacks are about half, a little less than half of what they were across the S&P 500 for all of 2022 and also for all of 2021. So you've had two years in a row that have seen a certain buyback level, both 21 and 22 are pretty close to one another. And it appears we're going to end up being somewhere around half of

that for 2023. Now, you remember they added a small tax on stock buybacks. I got to think that's a part of it. But I also believe that stock buybacks are a very lumpy way to return capital shareholders and they do not historically contain the same consistency, dependability that dividends do. A sidebar note on foreign ownership of US Treasury bonds. It had been somewhere between 5% and 15% of Treasury bonds owned by foreign investors from 1970 until 1995, about 25 years it was in that range. And then the number went between 20% and 33% ever since. It's going back about 25 to 30

years. One of the big things that pushed that higher, by the way, is that global trade went a lot higher, which meant we were sending more dollars to countries and they were having to then put those into dollar denominated investments, treasury bonds being a very obvious choice. The number right now is at 23%. But you have to remember, too, that the Fed owns about 18% of all treasury debt, and they used to own about 4% of it. So some of the percentage dilution that you see in foreign ownership is a byproduct of our own central bank. But nevertheless, it has come from about 33% foreign owned to 23%. But even at 23, it's well above the 5% to 15% that we spent decades at. So both those things are true at once. Foreign ownership is off of highs,

but it's still well off of prior historical averages. I mentioned the 10-year bond. Today, technology was top performing sector up 78 basis points. Healthcare was second up 66. Real estate was the worst performer down 140 basis points. The dollar, which has been steadily climbing all year, as many of you know, particularly against the Chinese yuan, by the way, had a significant sell-off late last week, but it is still up 7.5% against the yuan on the year since the January low, I should say. But it did have an interesting little sell-off last week. All right, in terms of news updates, I think everyone by now knows that Sam Bankman Freed was convicted by a jury last week of all the fraud, the conspiracy charges brought against him.

He of the FTX crypto giant fame. His sentencing will take place in March, faces over 100 years in prison. We'll see. There is a Republican primary debate for those still paying attention in Miami this week. But let's move to the economic data where it was quite a handful on Friday. The jobs number did come in light. Unemployment number came up to 3.9%. It had been 3.5% earlier in the year. Jobs created were 150,000 and 180,000 had been projected. But more than that, 100,000 jobs were revised downwards from past months, meaning we created 100,000 less than previously been reported in the past two months. The major weakness was in the private sector. That was about 50,000 jobs below expectations on the month. Manufacturing in particular had a 35,000 job loss, but a

significant portion of that is likely associated with the way the strike data was reported out of United Auto Workers. The labor force shrunk by 200,000 people. That's the amount of people with a job combined with the amount of people that say they're looking for a job. I hate that number going down. The labor participation force sits at 62.7%, meaningfully lower than its past highs. The workweek hours came in at 34.3. That is the lowest

since April of 2020. And average hourly earnings didn't move on the month. So not a great jobs report. I don't want to be overly dramatic and refer to it as a disaster, but it was definitely on the soft side, even though we still sit in the midst of what is a pretty strong labor market overall. The Federal Reserve right now for their December meeting, the odds have gone up, implied probability in the futures market to over 90% chance that they will not do anything at the December meeting. We're up to a 24% chance of a rate cut in March. That's still pretty low, 24%, but it's not zero anymore either. Just anecdotally, because you know what a hobby horse this issue is for me and how strongly I feel, but 26% of households now have someone working remotely way, way down from about 40% lower than its prior high.

It's only seven states that currently have a number even above 33% of people with one member of the household working remotely some of the time. So we've definitely seen a lot of return to normalcy and let's just call it what it is, a return to work. Job postings, offering work from home or hybrid arrangements have dropped by 25% this year. I do have a chart at the dctoday.com in the oil realm that I really think you ought to look at showing the correlation between CapEx and the price of oil. And we definitely see that CapEx has moved higher in the last six months. Some could worry, like, are we getting back to the sector spending too much money and taking a big risk with the balance sheet? And we know what's happened in the past times they've done that.

And then you've had a big demand correction in 2020 with COVID or a supply correction in 2015, where there was a glut of oil. My own view is that oil prices, when we had the past CapEx explosion, were in the 50s, not in the 80s. And even then, CapEx is not even close to its 2019 level, let alone, you know, well below half of what it was in the 2014 level, which was admittedly cartoonish. So you're against doomsdayism and Ask David. I'll let you get off of the DC Today dot com. There's also a little snapshot from a picture and quote that I was very happy to see in the Wall Street Journal today, or at least I was flattered by it. happy to see in the Wall Street Journal today, or at least I was flattered by it. But, you know, if they're going to put a picture on me, it may as well be a cartoon drawing and not the real thing for very obvious reasons. I'm going to leave it there. Thanks for listening. Thanks for watching.

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