The Dividend Cafe - The DC Today - Thursday, December 7, 2023

Episode Date: December 7, 2023

Today's Post - https://bahnsen.co/4abzegh The market opened up a handful of points this morning and slowly built on gains for most of the day. After a big move lower across the curve in yields this week we took a bit of a breather today with a flat 10YR up two basis points at 4.14%. Stay tuned for a three handle on 10’s. We are starting to see this market rally broaden out with the equal weight version of the SP500 breaking away from the market cap weighted index. This is showing the average stock starting to participate more in this rally outside of technology names, which I find constructive. Both large cap and regional banks by the way are back to where they were pre SVB failure earlier in the year. Part as a normalization of stress in the financials and part for a 2024 line up that could favor the banks if we get better net interest margins as the yield curve potentially normalizes with the short end moving down. This is something we have seen before; late cycle rally in financials as the Fed pauses and ultimately cuts the following year (95’/96′ comes to mind). Monthly financial obligations for consumers like auto payments and home payments, as a percentage of household cash, are on the rise and now at 16%. Interesting however that even with such a rise in rates these are still actually below pre-pandemic levels which was closer to 18%. Higher rates just haven’t bit as hard as years past with such a prolonged low rate refinancing period the years preceding it. 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, welcome to DC Today. It's good to be with you here this Thursday in our Newport Beach studio, and honestly, kind of a quiet day to be with you in markets today. The Dow ended up closing at up 62 points. It opened about the same, maybe 40 points,

and just sort of melted a little higher throughout the day, and then we kind of closed off the highs into the close. Also a quiet day in bond land as well. We had a 10-year yield at 414. It was up a couple basis points. That's after a massive rally in bond prices the last couple of weeks. So we just sort of took a little breather there and that's okay here on Thursday. At 414, where we've come, I mean 5% on 10s down to 414, I do think we'll see a

three-handle yield here sometime soon. So stay tuned for that. It's hard to say exactly when, but that seems to be the direction. Oil has also pulled back. We closed below 70 today, just high 69 and change on the price of oil per barrel. So a little lackluster there as well. Somewhat notable in markets, we've seen this year, I mean, obviously 2022 is a sort of really down year, and particularly in technology on the NASDAQ and a lot of the technology names, and then in 23, big recovery for those names. But the rest of the market was a little late to the party until November. And so in November, you really saw a broadening out of some of that rally into some of the other sectors in the market. And the average stock is now outperforming some of those tech names. And I actually think it's constructive. It's what you want to see. And it's a more normal kind of market environment as we head into 2024.

You've definitely seen a rotation. Financials have been up quite a bit lately, and it reminds me of past markets where you get a ramp up in interest rates. It kind of kills net interest margins for banks because the yield curve goes upside down. Short-term rates are higher than long-term rates. It's harder for those banks to make money. Then you get a pause into a declining, potentially declining rate cycle in the following year. And we've seen it in different periods before. 95, 96 is a period I would note where it looks a little similar with at least the financial sector. We'll see how that bodes in the next year. It is interesting with how high rates have gone, and we've talked about this before, with just how resilient the consumer's been,

because frankly, they're just not feeling it as much you know the the consumer is still very strong there's still cash savings while we have seen credit card you know debt go up and it is expanding and those interest rates are higher credit card interest rates have always been high even when rates were low so i don't know that that's a whole whole lot different there but if you look at the average expenditure amount as a percentage of cash that consumers have on things like auto payments and mortgage payments and property taxes and HOA and all these sort of normal monthly expenditures, it's at about 16% of what a consumer has on cash today. And that's up a little bit, but it's interesting that it's really, it's still below where it was pre-pandemic, which was, you know, 2019. So higher rates really have not affected the consumer's ability to spend and even to feel it, frankly, at this point, on average, that is. Initial jobless claims came

out today, right in line with expectations at 220,000. Ongoing claims, continuing claims were actually a little bit better than expected. Week to week, I wouldn't read a ton into those numbers other than just to say it's sort of the status quo. We've got a slightly weakened labor market, but not much at all. It still remains pretty robust into 2024. So, so far, you know, you've seen markets do pretty well, specifically in the fourth quarter of this year into next year. You have a big expectation the Fed is done with rates and then we'll start cutting rates. You still have an expectation for positive earnings growth next year at $246 a share in earnings on S&P. So I've said this before, but for all of those things to happen, I'd be a little surprised that there wasn't at least some more additional noise or some give back and part of that equation.

But as of right now, we're not seeing it. I had in there some news today. California had its budget estimate out with a small little hole of $68 billion coming into the new year. with a small little hole of $68 billion coming into the new year. So we went from a $100 billion surplus last year to a $68 billion deficit estimated for next year. And maybe you could take the chart of the NASDAQ against some of that stuff, the preceding year of how those tech stocks do, a lot of capital gain revenue for California. There was a big move, or I guess relatively big move in the yen today against the dollar. It was up about 2.5%. We closed below 144.

Notable, basically traders taking positions thinking that the BOJ is going to end the negative interest rate policy there. I'm not so convinced of that, but moving currencies nonetheless is worth noting on the day. I did have a note in there on tax loss harvesting, just because we're getting close to Christmas here and getting close to the year end and sort of how we think about it. And it definitely isn't something like a direct index or something that's an algorithm just trying to sell things any moment that they happen to be down just to harvest losses. I really do think that's sort of tax cart before the investment horse and counterproductive. But we do process some tax loss harvesting towards the end of the year occasionally,

and we'll do it real intentionally for specific clients, but then also broadly speaking. So I have a little note in there to answer someone's question that came in. Tomorrow really is the bigger news. We'll have non-fond payrolls coming out we're expecting a 190 print which would be up from the month prior at 150 and we're expecting unemployment rate to stay about the same which was 3.9 percent so we've got that for you uh tomorrow and then the CPI data will come out on Tuesday. So quiet day today. Happy to report, frankly. And thank you for listening very much.

David will have Dividend Cafe for you in your inbox tomorrow. And please reach out with your questions. As always, it's been good to be with you. Thank you. 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. No investment process is free of risk. There is no guarantee that the investment process or

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