The Dividend Cafe - The DC Today - Monday, October 30, 2023

Episode Date: October 30, 2023

Today's Post - https://bahnsen.co/49hz1aU 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 the DC Today. We were all set in our studio to record. I'm here in the New York office and we had a little mechanical difficulty and the communications team made the call for us to record from my desk at my office instead of in our studio. So that explains the different backdrop and we should be back up and running in the studio

tomorrow. So kind of an adventurous weekend. We're very close here to the end of October. One trading day left tomorrow, the 31st, Halloween. But the market was up over 500 points today. zagging a little harder than normal right now, very much in line with something that we have been calling for for a long time, a directionless market, an enhanced volatility market around the uncertainty that the current monetary policy regime has created. In terms of just the basic highlights of the day, look, futures had opened down 30 points last night, excuse me, up 30 points last night, and then improved a little bit into the evening. But I awoke, excuse me, this morning to futures that were up 160 and the market itself opened about five hours later up 250. So the market opened on the upside and the futures overnight moved into a more positive environment. But then the market really just kind of stayed in a straight line up throughout the day. There were a couple little zigs and zags, but basically it got up near

that plus 500, almost 600 point range, closed up 511. It gave back a few points in the final 20 minutes. So that's one and a half percent plus change in the Dow. The S&P was up 1.2% and the NASDAQ also up almost 1.2. You had all 11 sectors in the market up on the day, and that includes the worst performing being real estate at up 31 basis points. Little rule of thumb, whenever the worst performing sector is up 31 basis points, it's probably a pretty good day. But you also had the communication services sector up over 2%. had the communication services sector up over 2%. One thing I noticed in a report I read over the weekend, that when the last time the Fed had a prolonged pause like this, where there was a decided action to stop hiking rates, and then they neither hiked nor cut for a prolonged period of

time, it was emerging markets equities that was the top performing asset class in the months that followed. Now, there are so many other factors that would have been affecting EM then and now that I don't feel comfortable at all believing that there's some sort of extraction or propensity for repeating that, but I wanted to share it. And I wouldn't bet against emerging markets being a winner in this environment, but I don't know that the 1995 incident gives us that assurance. I just wanted to share it anecdotally. I am surprised that the VIX has only stayed around the 20 mark, even through the big sell-off. It actually closed today below 20 after the markets rally.

We'll look at what the breadth in today's market action is tomorrow. I already know sector breadth at 11 out of 11 sectors were up, as I mentioned. But the amount of advancers to decliners out of the 500 companies in the S&P will tell us a little bit more. But again, I just think you're in a volatile period that is subject to big down days and big up days. volatile period that is subject to big down days and big up days. At the same time, there's a few other market things I want to go through. I think that the bond market volatility and particularly the heavy amount of buying still going on in long dated bonds, they continue to be bought and then yields have gone higher, which means bond prices have gone lower. So some people are surprised that people are buying the loser.

And I would be surprised at that in the sense that generally speaking, investors tend to sell the things that have just got done going down and buy things that just got done going up. And it doesn't look like people are doing that. People seem to be buying the long-dated bond ETFs. And so that's either a contrarian indicator that people are continuing to be wrong, or it may be an indicator that there's some sensible thought around what's happening. We shall see. I think a lot of people just have a hard time believing that yields will continue going higher, and you can include me in that list if you would like.

What else do I want to go through? I think that covers us on market action today. From a news standpoint, we know Israel is very much expanding the ground operation in preparation for a Gaza full-scale invasion. Gaza full-scale invasion. And we know on the U.S. political front, that Congressman Dean Phillips of Minnesota has entered the Democratic primary race. We know that former Vice President Mike Pence dropped out of the Republican primary race. And we know that the United Auto Workers reached a tentative deal, first with Stellantis, which controls Chrysler, Dodge, and Jeep, then with Ford late last week, and now this morning, after me typing into DC Today that the strike against General Motors continues,

they reached a tentative deal with GM as well. What we know so far is that the 40% pay increase they were asking for was not agreed to, that a 25% pay increase was agreed to, but there seems to be different deal points with different unions and automakers, so I'll avoid unpacking all those details here. From a policy standpoint, the House is supposed to vote on a $14.5 billion Israel support package this week. That is not expected to be held in tandem with a Ukraine package. We'll see what happens there. White House a package of executive orders around artificial intelligence, some of which are just recommendations, some of which are binding at an executive or regulatory level but can be reversed at any time, none of which are legislative, but basically requiring AI products to confirm that they cannot be used to produce nuclear weapons, recommendations of a watermark to make clear when something is AI created versus authentic, directing all federal agencies to have a chief AI officer position,

directing agencies to guard against bias in artificial intelligence. So, you know, I think it's got mixed reviews, but it's not anything with a ton of teeth in it. But it is something. And it's, I think, the first round of governmental response to the new artificial intelligence reality. So late last week, the GDP numbers did come out. The U.S. economy grew at a 4.9 percent annualized pace, a little bit higher than the 4.7 that had been predicted. This is the highest quarter we've had since the initial COVID recovery. It was more than double the Q2 rate of 2.1%. Again, all those are annualized numbers.

It was almost entirely from a robust consumer, but there was also some impact from higher inventories. So that's subject to a reversal. There wasn't a contribution or positivity out of non-residential fixed investment, which is where actually construction and business investment being down, those are things that generally will lead to more sustainable number. On a trailing 12 basis though, real GDP is up 2.9%. So you've definitely gotten some, not only the very opposite of a recession, you've actually gotten some kicker likely from some of the infrastructure activity and whatnot, but very much a surprise to those who thought the monetary tightening would assure a recession. Durable goods, by the way, were up 4.7% in

September, well above the 1.9% consensus estimate. Commercial aircraft, machinery, fabricated metal products, all outperforming expectations in terms of new orders. And even when you strip out the transportation space, which does tend to be more volatile, it was a pretty encouraging month for new orders. No big surprise at September PCE, it came in 0.3% on the month. Core PCE had been 3.8% year over year in August. It came down to 3.7% year over year in September. At its peak, remember, it was at 5.6%. Personal spending was up 0.7 on the month. Personal income was up 0.3. But the most noteworthy of all these different data points was that the savings rate is down to 3.4%. It had been 4% in August. It had been over 5% in May. And prior to

COVID, it was almost near 8%, 7.7%. So a lot of people love this. High spending, low savings. We're not one of them. Treasury Department will be announcing new borrowing plans on Wednesday. It will reveal plans for what maturities the government plans to borrow at, issuing a bond debt in the near term. That could have an impact on the shape of the yield curve.

The ECB left their interest rate alone on Friday. That was, I think, the European Central Bank's first pause in 12 consecutive meetings. Our own FOMC, the Fed, meets Tuesday and Wednesday this week. They'll make their announcement Wednesday. Futures have 100% odds priced in of no rate hike and no rate cut. And we're up to a 79% implied probability in the futures market of no change in December as well. And then the Bank of Japan appears to be lifting its yield curve control, the yield cap at the 10-year, which had been set at 1%. They may lift that a bit. The announcement went out. And so I'm assuming that that is legit. We'll update you if there's any change there. Crude oil was down 3.5% today. It's been up and down between 82 and 86 multiple days in a row now.

And what else? That's it. That's a lot. A lot of economic data points today. There's against doomsdayism highlighting that our national high school graduation rate a bit over 100 years ago was 9%. National high school graduation rate. It went up to 52% by World War II, and it is over 83% today, essentially a 10 times jump in a little over a century in our high school graduation. And then someone asked a question and they asked David about M2 levels. And if I worry about

what that downward pressure on money supply growth means to the economy. I answer that there. So I'll leave it there. We have a big week ahead between the Fed and then the jobs number on Friday. And I hope you'll check out anything you may feel like you missed in the written DC Today. I do thank you for reading it. I thank you for watching this. I thank those of you who are listening to the podcast in the DC today, and I'll be back with you here again from New York tomorrow. Thanks again. Take care. 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

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