The Dividend Cafe - The DC Today - Thursday, August 17, 2023

Episode Date: August 17, 2023

Today's Post - https://bahnsen.co/3E5y8nq 10-year yields rose to 4.29% today on the way towards the October highs of last year at 4.34%, and the yield curve steepened with 2/10’s now at 65 bps. Today we saw jobless claims come in slightly better than expected and an upside surprise in the Philadelphia Manufacturing Survey data, both supporting higher growth expectations which is what moved rates on the long end for the day. Even though stocks and bonds sold off today, I am sticking with good economic news and still being good myself. For all the back and forth on where rates will go, what the Fed will do, and will those things need to get restrictive enough to break something in the economy, so far, it has yet to materialize meaningfully. Keep in mind also that 10 YR rates floating around the mid 4’s, are hardly anything new. The 1960s, 1990s and 2000s all averaged as much, with plenty of positive real growth in GDP. The difference now is we have a vastly expanded global indebtedness paradigm, so the sustainability of how long growth can last along with higher rates comes more into question, and I suspect both will come in as time goes on. 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. Hello and welcome to DC Today. It is Thursday, August 17th. Good to be with you all here again today. And actually, if you listened yesterday, today was a little bit of a groundhog day as far as how markets traded for the session. Stocks opened up about 100 points or so, a little more in the morning, and then sort of just drifted lower for the remainder of the day. And we ended up closing basically at the lows, at least in stocks. And Dow was down about 290 points on the day. The interest rates were up on the day, which I think was what really kind of caused some of the reason that stocks sold off.

You had interest rates pop above 430 on 10s today. And same as yesterday, interest rates have moved a little bit higher. They've moved higher because growth expectations are moving a little higher. We're essentially done with earnings season at this point, and it was a little better than expected. You have GDP forecast that has been slowly but surely being inched up across Wall Street a little bit. And then today we had some manufacturing data out of the Philly Fed survey come out far better than expected. It was a positive 12. Don't worry about the absolute numbers as much, but just relatively speaking, it was a positive 12 when a negative 10 was expected. So it's a pretty big outperformance in some manufacturing

data out of the country, which is good. And then we had some jobless claims that were a little better than expected. But again, rates being moving up, especially on the long end of the curve, following yesterday's Fed minutes being released and them talking about inflation still being their number one worry and that maybe they would need to ratchet rates up a little bit more. You've seen interest rates move up a little bit. The high in October on the 10-year yield was 434. So we're getting there. We're basically almost there. We were at 430 intramorning, 431, and closed at 429 on 10s. The yield curve steepened again a little bit today. Two's 10s are now at 65 basis points. I think they were 71

yesterday. So we're continuing on. And what I wrote basically was that I'll still be in the camp of good news being good news here. I understand the angst over interest rates and these things, but I do think with inflation now kind of meaningfully pulling back with the owner's equivalent rent number inside of inflation start to come out, which is a 12 month average. I think that number will give us what we need to get on interest rates. And so far, knocking on wood, you know, there hasn't been a real crack in the system and the financial system, at least in this country. I spoke yesterday a little bit about China and some things that they're dealing with and lowering interest rates and things. And the financial firm that I mentioned yesterday had some more issues today with some restructuring.

And so just sort of the saga goes on globally across different countries. The stock market, while it's been negative here for the month of August, we're down. Just keep in mind, we had a peak, at least in the Dow, of about $3,500, $3, 600 or so on August 1st, and we're roughly 34, 500 and change today. And so it's over a thousand points, but it isn't a thousand points isn't what it used to be 15 years ago. A thousand points is about three and a half percent. Maybe it's 1100 points, but three and a half percent. So August is negative, but a 3.5% pullback in markets is pretty run-of-the-mill, really. So I don't know if I'd read a ton into that. One thing I did want to point out was the difference now in one of the worries on interest rates is that while rates, say,

mid-fours on a 10-year treasury are higher for the past 15 years, we've all gotten used to interest rates on 10s or just in general being 2% to 3%, 3.5% at the most. And now they're a little higher. Just historically speaking, you had basically the entirety of the 60s, the 90s, the early 2000s, many periods of time where 10-year rates were in the mid-4s or above. And we still had positive GDP growth. In fact, if you think of those decades, a lot of positive things happened, like inventing the internet, landing on the moon, and all these pretty amazing accomplishments. So I just think there's just a lot of fear on interest rates

when maybe there shouldn't be. And all that to say, and I wrote this, you know, I mean, there's differences in all those periods of times and there's differences now, which is that the world, not just the U.S., but in other places, but we'll talk about the U.S., is just more indebted than it was back then. And so the fear, and it's rightfully so, the fear is that, you know, if interest rates are going to stay high, is that sustainable? Can we keep this growth going? Right now we see growth and that's good, but is that sustainable over time? I suspect it isn't. Okay. So I don't want to get over my skis with the comment to not worry about it. It's something to worry about. It's just, I don't know, day to day if it needs to be obsessed over as much. So all that to say, yeah, down day in markets,

both in stocks and bonds. But we'll come back at you next week. Tomorrow, not a lot in the economic calendar tomorrow. Frankly, there's not a lot in the economic calendar on Monday either. That doesn't mean there won't be a lot of news, but we'll have a nice dividend cafe for you on Friday and then be back with you on the long form at DC Today on Monday.

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