The Dividend Cafe - The DC Today - Thursday, August 31, 2023

Episode Date: August 31, 2023

Today's Post - https://bahnsen.co/47WCxH3 I arrived back in California late last evening with Hurricane Franklin having cancelled our previously mentioned trip out of the country. Joleen and I replaced it with a couple days away at our place in the Hamptons, not exactly unplugged, but not exactly fully working. Maybe the notion of a true work-free unplugged trip will happen some day, but I have to say, so far, a pretty comical list of sincere attempts to see it happen have been tried and failed. I am very grateful to Brian Szytel for the last three days of DC Todays and I am back in the California office today and happy to be back with you. We are up to an 89% chance in the futures market of a rate hike at the next Fed meeting in late September, and a 54% chance of no hike at the meeting after that in November. The five-year inflation breakeven priced in the TIPS market is 2.16%. Atlanta Fed President, Raphael Bostic, cautioned against the Fed over-tightening and said current Fed policy was “appropriately restrictive.” 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 not only the Thursday edition of the DC Today, but it is the close of August. So we have one more day left in the week tomorrow, but that is the first day of September as we get ready to go into the Labor Day weekend. So I am back here in the Newport office for about a week. I'll be back in New York City middle or late part of next week. Very long story short, this trip and aspiration for unplugged time away was taken out by Hurricane Franklin, which has kind of ravaged Bermuda. It's a different hurricane than the one that is now hitting Florida. So rough times down there in that part of the world with hurricane season. So people have much bigger problems than us having a trip canceled,

but it all kind of worked out. Grateful to Brian Saitel, filled in great, doing the DC today last couple of days. And I think that really the story of the market for August is an interesting one because you've had markets rally over this last week. Today is a little bit of an exception. I'll explain in a moment. But you really had a downward pressure on markets throughout the month, and it doesn't actually end up looking that bad as the calendar month goes just because of this late month rally. The things I guess I want to share before I go into the numbers are Fed governor, he's the Atlanta president, Atlanta Fed president, Rafael Bostic. I believe he's out of the country when he made this speech, but I read the transcript this morning and it was by far the most dovish.

And it seems to me the first kind of real explicit permission structure from a Fed governor. And these guys have been using the media to do forward guidance for a long time and throughout this whole kind of tightening period. And Bostick said, you know, we risk over tightening now and we really need to allow these higher rates to play out and see the impact it has. And I think that that is as explicit of ruling as you'll see a month before an FOMC meeting about their intention to not act. Now, the futures are up to 88% now, saying that they're not going to raise rates next month. And I think it's 54%.

And I looked at that about 4 o'clock this morning. So if it's updated since, I just happen to have not looked at it in the last 12 hours or whatever it is. But 54% that they won't raise at the November meeting. So let's just boil that down. Pretty much right now with a month to go, markets are saying they're not going to be a rate hike at the late September FOMC meeting. And then a month later, it's a jump ball.

It's about 50-50. That sounds all right. In terms of the issues with the Dow, the Dow got up about 200 points. ASDAQ was up quite a bit. S&P was up. And then it reversed over 350 points intraday. And just kind of after making a high of the day, you know, an hour, hour and a half into trading, just slowly but surely fell throughout the rest of the day. And I just want to be clear.

One particular name was down three and a.5%, a big health insurer. And so that accounted, let's see, on a percentage basis, the Dow was down 0.5%. That accounted for almost all of that attribution in the Dow. And then the S&P was just down 16 basis points. The NASDAQ was up 11 basis points. The NASDAQ was up 11 basis points. So you kind of, apart from this one down name, basically ended up with flat performance in all the market indices. And yet what's interesting is that all the defensives were down. Healthcare was down over 1%, but you were down with utilities, down with real estate, down with consumer staples. And then consumer discretionary and technology were both up and as was energy. So some of the more high beta and some of the kind of more cyclical sectors were higher,

but it was an odd day to close out the month, no doubt. Oil was up 2.4% on the day, closing at 83.58 a barrel. I believe that is the high level we've seen this year. 10-year treasury closed at 4.1%. So you had a tough month for bonds as yields moved a lot higher. 10 years, definitely 20 basis points off of the high it had hit. So treasuries have done a lot better in the final week, but again, still up 30 something basis points from where they had been earlier, okay, about late July, let's say. On the economic front, personal income was up 0.2% on the month and had been expected to be up 0.3%. This is about a one month lag from getting the July data. Initial jobless claims came in a little bit better than expected, 228,000 for the week, 235 have been expected. The number I think is more meaningful in a longer term basis is the savings rate was down to 3.5%. And it would have been about 4.2,

I think, the month prior. This 3.5 is the lowest in 10 months, okay? But it's down about almost 50% from its 20-year average, which was 6%. And that 20-year average of 6% was itself quite a move down from what we're used to and what I think is a healthier societal savings rate. So I don't know how to spin that one. I think we'll have to wait and see if this 3.5 holds or if it moves back into the fours. There could be some lumpiness around it. I know people make arguments about it doesn't reflect the equity in people's homes

and some of the 401k stuff, but I don't care. That's been baked in for 20, 30 years. It still gives you a general idea of what amount of people's paychecks they need to live. And at three and a half percent savings, you do seem to me to have an undersaved society. But we'll get more data as things go. There is an Ask David in the D.C. today explaining why nominal GDP growth matters as we go forward and what the challenges have been in getting real GDP growth when we've had such low inflation for 15, 20 years until the last couple of years. And the reason being nominal GDP growth was so low, what that means going forward.

This delta between nominal and real, that is inflation, the distinction between the two, and what it means to real economic prosperity is important. And I think I answered it in a clear manner in the DC Today today. So I'll let you look at that. And then tomorrow's Dividend Cafe is entirely devoted to different questions people had on all sorts of different topics. So I'm really looking forward to presenting that to you tomorrow as well. In the meantime, there won't be a DC Today until Tuesday because of the Labor Day holiday, but the Tuesday edition will be the Monday format, long form. And I'm looking forward to being back with you in the DC Today on Tuesday next week,

live here from Newport. Thank you for listening. Thank you for watching. Thank 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 of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors. All data and information referenced herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary and does not constitute investment advice. The Bonser Group and Hightower shall not in any way be liable for claims and make no express 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.