The Dividend Cafe - The DC Today - Monday, September 25, 2023

Episode Date: September 25, 2023

Today's Post - https://bahnsen.co/48qpYnM Status of the shutdown – Speaker McCarthy is trying to split enough of the far “right” (I hate that term applied here) to avoid a shutdown. He’s currently attempting to package several appropriations bills together and send them to the House for a vote. The votes appear to be questionable as to whether or not they will be there, and this does not avoid a shutdown. These bills, IF passed in the House, have no chance of passing in the Senate. There appear to be enough votes in the House against any form of continuing resolution whatsoever that keeping the government open past this weekend is highly unlikely. How it could play out: Option 1: The House passes a bill this week, the Senate amends it (to put it mildly), the House then rejects that, the government shuts down, a deal happens to end that, and Speaker McCarthy ends up removed from his post; OR, Option 2: No bill is passed out of the House, the Senate passes a bill, a deal is cut between House moderates and Democrats, and a shutdown is averted (with McCarthy likely removed shortly thereafter) I think Speaker McCarthy has moves to help avert a shutdown or, more likely, end one after it has started (see above). In both cases, I think he greatly improves his chance of being removed as Speaker. 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. Last week of September, last week of Q3, I am back in the Newport Beach office, got back in the middle of the night, and we have hit the ground running today. Had a big investment committee meeting this morning, big meeting with our whole advisory team, and a lot of things happening. There was a very active week for us in the markets last week, and now I have a lot to say to you here today. I can't today capture everything on the podcast and the video that I wrote about. Being in New York City over the weekend, having a long flight in the middle of the night gives me a lot of chance to read and write and make DC Today longer. And so there's just kind of more meat on the bone in the written DC Today today than I will have time to give you here on the podcast.

But by way of just market summary today, futures had opened last night 40 points to the upside and went a little higher into the evening. Then this morning we're down about 90 a few hours before market opened. And actually the market did open down about 100 points. It just sort of zigged and zagged throughout the day from there and then it actually closed rather to the upside but only 43 points. The Dow was down 1.7% last week. I think that was about 600, 650 points in the week and far worse with the S&P and the NASDAQ.

worse with the S&P and the NASDAQ. So you had a very difficult week last week, the third week of September. Markets are down in the month of September, down in the month of August. They had been up nicely in the month of July. So total Q3, we'll see. You only got four days left now, but it looks as if we'll finish this third quarter negative in the various stock markets. And most of that is really quite well correlated to bonds. And the bond market today, again, got hit. The long bond, again, down as the 10-year bond yield was up nine basis points, up to 4.53%. So you could say, well, you know, things have been going so well in the market. But this is a chart I put in DC Today that I just think tells the entire story. It is so incredibly important for people to understand.

You have an S&P 7, okay, let's call it 7 companies. And then you have 493 other companies. And for those that don't have a calculator handy, the 7 and the 493 together is the S&P 500. The S&P 7 is up 50% on the year. The S&P 493 is basically flat. Okay. So you can say, all right, well, why is that a problem? Why don't we just own those 7? all right, well, why is that a problem? Why don't we just own those seven? Or why don't we own everything with those seven? The problem is it is inherently unsustainable and violently so to where when that reversion happens for the seven, not only do the seven wipe away the gains they previously gave and sometimes then some, and sometimes faces get ripped off. But it speaks to

that lack of breadth, that severe lack of breadth, in this case, creating a lot of vulnerability for the rest of the overall market. And so right now, when seven companies are 34% of the index and are trading at a blended PE of 50 times earnings. Seven companies, 34 percent of the index, 50 times earnings. That's the reality. And so I think that a lot of what you're seeing in markets has to do with a lack of breadth and a probably bubble-like condition that had surfaced with some of these big names. And where we go from here is TBD. I do believe that within that 493, there are pockets that are a lot less vulnerable than within those seven. Okay. Now today, one day only, the top performing sector was energy. It was up 1.28%. But the bottom performing sector was consumer staples, which

is down 0.43. You had decent day in financials. You had more weakness in utilities. I think, you know, the shiny object space, I'm not referring to the big seven. I'm referring to even shinier stuff like IPOs, for example. You had a big run-up on the day in which they went public and two very large IPO companies in the last few weeks that are both giving back all of those gains back to their offering price from where they were on day one. You lured in a lot of speculative investors, and then they just got hammered immediately as things kind of resettled when the investment banks were done supporting that IPO.

Those are tricky conditions. I don't happen to believe it's true that you need all kinds of frothy, juicy, happy-go-lucky things happening in IPOs to feel like animal spirits come back to markets. I think markets trade off earnings, and I don't think any IPO craze, let alone IPO debacle, changes that. But nevertheless, those who have generally wanted to see IPO frenzy as a positive sign for markets, they must not be feeling like it's positive in markets right now. 56% of the names in the S&P 500 are currently below their 200-day moving average. So that's what I mean by lack of breadth. As we get ready to move past the markets conversation, final thing.

Chinese bond yields have moved higher, too. So you definitely have U.S. bond yields moving higher. Concerns about higher for longer from our central bank. You've seen it around the globe, Germany, Italy, Canada. But all of those central banks have been tightening and talking about staying tight, most notoriously the Fed. Not China. China's central bank is cutting rates and their bond yields have moved higher as well. So it behooves us to think about this in a little more sophisticated of a manner than just assuming that it's the central banks driving it. I think that there is a lot at play here involving currency,

Forex, and other countries taking their P's and Q's from our own central bank. To move into top news stories, I did wake up, if you want to call it that, after my flight home and a little rest into the morning, to the news that the writer's strike in Hollywood had come to an end and that the studio heads and writers had reached an agreement. Senator Bob Menendez of New Jersey in the U.S. Senate was indicted, federal charges on Friday around bribery and so forth, and he did announce today his intention to fight those charges and to not resign from his seat. The far bigger things people are focused on moving to public policy is the status of the shutdown.

I think you're well above 80, 90 percent chance even that that shutdown will happen going into next week. I think Speaker McCarthy is going to try to push forward a package of various appropriations bills this week, send him to the House for a vote. I don't know if he has the votes there or not, and it's totally irrelevant if he does from a shutdown standpoint because there'll certainly be dead getting to the Senate. But more or less, he could pass a bill this week, and the Senate could amend it, and by amend it, you know, completely tear it up. The House would reject their amendment. The government would then shut down. He may not get a bill passed at all. There may just be a

series of appropriation bills. Either way, the idea of the Senate and House being on the same page by five days from now strikes me as highly unlikely. And so if the government does shut down and a deal were to happen after that, I think that's very likely. And I think it would probably end up resulting in Speaker McCarthy being removed. It's also possible no bill is passed at all out of the House. The Senate passes their bill and then some deal is reached between House moderates and Democrats to get it passed and a shutdown is averted. I don't think that will happen. But even then, I think that would remove Speaker McCarthy. So I can't figure out a path here on how he comes out of this OK. And I don't blame him for that. I'm just simply stating the cards he's been dealt

and I think it's all very unfortunate. The White House has said, oh, I love this. I forgot I did this. I think this is pretty funny. The White House has said that President Biden is going to Detroit tomorrow to join union workers on the picket line. And there's a picture of my interpretation in the dctoday.com.

Economically, S&P manufacturing came in flat on the month. No big surprise there. 39,000 bankruptcy cases were filed in August. That is an 18% increase from last year. When I've talked before about bankruptcy cases picking up, I have really wanted everyone to understand the base effect by which they were picking up from very, very, very, very, very, very low numbers. Now, if bankruptcies continue to escalate and it is off of more normalized numbers, you start looking at a real escalation. So I'm keeping my eyes on that. We're not seeing it at a real escalation. So I'm keeping my eyes on that. We're not seeing it at a severe level yet. And these are generally larger, smaller, and more individual bankruptcies, not a lot of credit impairment. Q3 real GDP is tracking to be quite robust. And again,

predictive GDP trackers, particularly the Atlanta Fed one that is quoted a lot, they are very volatile. They are unreliable in the sense that they can be off by a pretty fair amount up or down off. But nevertheless, there is some consensus view that you're going to have a pretty high number in GDP. And I only bring it up to just say that the recession predictors have continually had to punt out their prediction and maybe they end up being right but at this point if they end up being right they're going to be right a heck of a lot further out than when the predictions began which for some of us is

considered being wrong okay uh housing i did read the aei housing Center HPA index over the weekend. Kansas City, Grand Rapids, Columbus, Ohio, the three highest markets for year-over-year home price appreciation last month. The biggest drop in housing values came in Austin, Texas, a city called Deltona, Florida, and, of course, Phoenix, Arizona. of course, Phoenix, Arizona. And these three were all year after year after year at the top of the list for appreciation and just clearly had some form of kind of resettling with a little bit of froth in their housing markets. I did want to say, too, the New York return to office. I've been there for over three weeks and Manhattan is unbelievably busy right now. Now, of course, last week on the east side, it doesn't really count when you had the busyness of the United Nations General Assembly and the president coming to town and, you know, President Zelensky from Ukraine. I mean, you know, the east side was a mess last week because of all that. But no, just in general,

midtown Manhattan seems extremely crowded. But now there's a little data behind this that since Labor Day, there's a 17.6% increase in employees back to the office. And this is based on an imperfect metric called the Castle Systems data, where they're just literally measuring fob and key card use at 2,600 office buildings in 138 cities. So it's not perfect. They obviously don't have the key card fob systems for every office. But nevertheless, within the, you know, it's still apples to apples is looking at their month over month comparisons and year over year comparisons. Even San Jose, California, where I happen to know up in the Bay Area, there's still quite a bit of technology workers not having gone back to the office.

They saw an 11% increase there, but the city was up 18%. And I would point out, too, I can't remember. Oh, this was from LinkedIn, that job postings being advertised as remote are down to post pandemic lows. They're down 56 percent where remote work is listed as part part of the job feature. So you wanted to share that data right now. Futures show a 74 percent likelihood of the Fed not raising rates at the November meeting, a 55% chance of not raising rates at the December meeting. So all that to say, there's a lot of time between now and both November and December, a lot of data points

that will come in. I still think the proper bet is that they're done raising rates. The futures are backing that up, but they're not backing it up as conclusively as I would think. And it doesn't help when you have people like Boston Fed President Susan Collins over the weekend talking about, you know, you can't take further tightening off the table. Specifically saying, and this is in quotes, the stronger cash positions of businesses and consumers have hurt their ability for tight monetary policy to work its way through the economy. It's basically a veiled way of saying, you know, we would have been able to get more people to lose their jobs if businesses weren't holding on to so much cash.

I mean, it's, you know, a strange thing to say. Oil prices pretty much flat today, still right around $90. Interesting in the energy markets, it was pretty nasty week for markets last week, stocks down, bonds down, commodities down, utilities down, and yet midstream pipelines were up last week. So a little bit of bucking the trend there. Against doomsdayism and Ask David, I'm going to make you go to the dctoday.com. Plus, I already mentioned there's a picture there that might draw you in. So I'll let you go to the dctoday.com plus i already mentioned there's a picture there that might draw you in so i'll let you go to the website for that i thank you for listening to the podcast

watching the video reading listening watching uh the dc today every day is appreciated and look forward to being with you again tomorrow here at dc today the bonson group is a group of investment professionals registered with hightower securities llc member 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 Thank you. emissions 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.

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