The Dividend Cafe - The DC Today - Thursday, April 18, 2024

Episode Date: April 18, 2024

Today's Post - https://bahnsen.co/3w8tK6R Somewhat of a repeat of yesterdays market action with a positive morning failing to hold momentum and falling off into the close in more consolidation in markets around rates. We did eek out a small gain on the Dow, but the SP500 closed slightly lower for the fifth session in a row. The 2-YR Treasury is back to YTD highs at just under 5% and 10-YR was up 5 bps today to 4.63%. For what was on the docket today in the economic calendar, mostly good news. Jobless claims, existing home sales and manufacturing data all modestly ahead of expectations, but it just wasn’t enough to keep the momentum on the day. There isn’t a lot of economic news for the remainder of this week, and most eyes will be on the PCE figures out next Friday. 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. Welcome to this Thursday's edition of DC Today. Today is April the 18th, and it's great to be with you. We had a positive or a slightly positive day on the Dow at least. We closed 24 points higher, but really the market was up much more in the morning and we kind of the same groundhog day as yesterday, which is we were up in the morning and then we sort of gave

way through most of the trading session. We did close off of the lows, but just eked out a tiny gain, basically fair value on the Dow. Both the S&P and NASDAQ were negative on the day. The S&P has been lower now five days in a row. So that's the longest of the year so far in 24. Although the down days really haven't been all that much either. So it's just sort of consolidating is what I've written about several days now. We had some initial jobless claims data out today, same as it's been for several months. It's a 212 versus 215 expected, so slightly better, but continued strength and

employment is a good thing, so we'll take that. The Philly Fed news or Philly Fed Manufacturing Index today came out much better than expected, actually. It was a positive 15 number. I don't expect you to really know necessarily what that means, but just understand that compared to a negative 0.5, which was what was expected, it was a much, much stronger than expected manufacturing data in that region. And those things are good. We're seeing strength in manufacturing, more or less, pretty much across the board, across the country. So these are good things in the economy. Existing home sales were slightly higher, which beat expectations a little bit, which will take it.

You know, housing has just been kind of stuck. It's the price part of it has been fine because there are no transactions happening or there are very few transactions. because there are no transactions happening or there are very few transactions. Inventories were actually up 4.7% on the month, which is good. It means at least there's some more listings out there. So maybe some more transactions can help some price discovery in the housing market. But it's still kind of a weird thing. And it's because mortgage rates have now crept back above the 7% handle.

So 30-year mortgage rates for Fannie Mae across the country are in the sevens now again. And so that's going to thaw things out a little bit, or sorry, freeze things up a little bit in housing. Applications to purchase a home were up on the week, but are still down about 10% year over year. So that's just going to 23, where things were already kind of slow there. There was a question in there about, actually it was a question, and then it related to a Wall Street Journal, sorry, a Bloomberg article, about is the benefit of higher interest income in the economy, meaning the interest rates have now increased. So people are earning more interest on their savings. They're earning more interest on their things like fixed income, their bonds, things like that. And those are good things.

That's cash flows that are going into people's pockets. So is that stimulative enough to offset the hurt or the downside of higher interest rate on borrowing costs and things like that? The article sort of took the stance that this higher interest income was this sort of little secret sauce in the economy that was really a good thing. And it was causing, that was sort of the reason why maybe the economy has held in there better. So my response is basically, so first, the short answer is I don't agree with the article. There's a lot of reasons for it. I mean, sure, there are some wealthy people that notice some higher interest income. Most people don't have a whole

bunch of savings and they don't have a whole lot of investments if you look at the average American. So what they get more sensitive to is higher credit card costs, higher mortgage rates, things that they have to deal with more on an everyday basis. And the consumer is two-thirds of the economy. So we've got to keep that part in mind. Yes, higher interest income for some is helpful. is helpful. And theoretically, they would spend some more, but also keep in mind the propensity of that kind of share class of person to spend more when they get a little bit more money is much lower than it is on the lower tiers of the economy. They're just more impacted one way or the other by it. The other thing I mentioned is just keep in mind there's a derivative effect of

having interest rates be, say, double inflation or considerably higher than inflation, which is where they are now. We're at five and a quarter to five and a half on rates. Inflation may be in the high twos, low threes. So it's a fairly restrictive policy. But you just got to think about what small businesses weren't able to be started, which leveraged buyouts weren't able to happen, which M&A activity didn't occur, which investments weren't made. Those things are bigger than some higher interest income that some might feel. The other thing in the article was it quoted things like the fact that the US government has $35 trillion in outstanding treasury debt now. So that must mean that since most Americans own it, that they're getting these higher

interest payments from it, and that must be a good thing. Again, it goes back to everything I just said. Who owns the debt? I mean, it's largely, the biggest holder is the Federal Reserve, first off. It was a $9 trillion balance sheet. Now it's down to a $7.5 trillion balance sheet. But all of those interest payments that are made are just recycled back into the government. They're not actually used to buy things and create velocity of money in the economy. So that's sort of a nothing burger, I'll call it, on those interest payments. And then you have most treasuries owned in the big banks and different things like that, which isn't necessarily going into benefit anyone other than the interest income of the bank. And that's fine. But, you know, in a higher rate environment, it's not like those banks

are able to really produce a whole bunch of loans to put that back into the economy. Again, we're looking at velocity of money. So I think are, are highly convicted in them. I think I'm, I think I'm right. I understand the article though. There's some, there's some logical sense to it. Um, it's just, it's not what's, uh, it's more of the tail that not, not wagging the whole dog type of thing. So I hope that's helpful and interesting. Um, it was a great question by the way. Um, the particular person who I asked these questions, I always enjoy getting them. So I encourage to keep them coming. They're always fun and happy to discuss any of this anytime with anyone. With that, I'm going to let you go in the evening, get into your Thursday

afternoons, hopefully with some evening plans or family plans and something fun. I hope you have a good weekend. If I don't talk to you, please do reach out with your questions. I hope you have a good weekend. If I don't talk to you, please do reach out with your questions. And tomorrow we'll have Dividend Cafe live in your inbox before the weekend. Take care, all. Thanks. 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. Thank you. in any way be liable for claims and make 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. Hightower Advisors do not provide tax or legal advice. This material was not intended or written to be used or presented to any entity as tax advice or tax information.

Tax laws vary based on the client's individual circumstances and can change at any time without notice. Clients are urged to consult their tax or legal advisor for any related questions.