The Dividend Cafe - The DC Today - Thursday, December 8, 2022

Episode Date: December 8, 2022

Dow: Up +184 points (+0.55%) S&P: +0.75% Nasdaq: +1.13% 10-Year Treasury Yield: 3.48% (+7.9 basis points) Top-performing sector: Technology (+1.59%) Bottom-performing sector: Communication Services (-0.50%) WTI Crude Oil: $71.81/barrel (-0.28%) Key Economic Point of the Day: Initial jobless claims came in at 230k – right at expectations. Continuing claims have inched higher as well, all at once indicating some softening (high since February), but very little to write home about (not a big movement up). 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 Thursday DC Today. This was the final DC Today for the week, but the market is, of course, open tomorrow, Friday, where we always do our weekly dividend cafe. We have a fun one coming for you tomorrow where we're going to focus on a subject that all of a sudden has become huge in the media related to how private investments are being valued and what that means for all investors, all behavioral understanding, all application of risk and reward, managing liquidity. There's this big necessary takeaway from everything happening in this story, and it even connects to the FTX and crypto implosion.

So I really can't tell you how pertinent I think tomorrow's Dividend Cafe is and how pertinent it is to such a wide array of investors and categories of people. In terms of the DC today for Thursday, it was an up day in the market. And I'm going to just quickly give you a few takeaways and then a few other broader economic points. The Dow was up 184 points. It was, if you'll excuse me, so I can get these numbers right. It was up about half a percentage point. The S&P was up about three quarters of a percentage point. The NASDAQ was up about one percentage point. So you got kind of this layered upside on the more riskier market indices. The 10-year treasury yield was actually up 7.9 basis points, still down below 3.5% at 3.48%.

We're in divergence, though, because technology was the top performing sector today, up one and a half percent. And communication services were the worst performing, down half of a percent. And communication services was formerly part of the technology sector and they split it off. And that's when 10 S&P 500 sectors became 11. And so there must have been a particular name or issue within communications that just kind of had a disproportionate effect there. Because broadly speaking, the technology world was up today, as you can see, the NASDAQ was up over one itself. Oil barely moved, still sitting there about $72 a barrel. I do think it's, you know, of course, I write this this morning at four in the morning, and then the technology sector actually has a decent update, but doesn't change the point I'm about to make at all.

We've been talking a lot and there's been a lot of, you know, my diagnosis of what's plagued shiny objects and technology stocks and growth stocks and NASDAQ and these kinds of things, some of which are higher quality than others. But, you know, I'm more alluding to kind of the shinier object sides of the market. And the idea has been that for me, it was valuation driven. It was mania driven. It was kind of disconnected from reality. But there's been this sort of broad economic thought that like, well, you know, interest rates were low and as they're going higher, inflation was low. It's gone higher and the dollar was lower. And now it's strengthened. Those are the factors that are really kind of weighed on growth stocks and adjacent assets. And it's always difficult to tell anything in a six-week period.

But the fact of the matter is you've had a really monstrous change in a few different elements here in the last six weeks. The dollar has dropped quite a bit for a six-week period. The interest rates have dropped significantly. We talked about the bond market rally. I've been talking about it every day. Seeing the 10-year drop from 4.25 down to 3.5 and lower is just unbelievable. And certainly you see a lot of different signs of moderating and declining inflation. We've talked about used car prices down 16% year over year and other things like that. And yet in this period where it looks like there's this kind of correlative

alignment of declining rates, declining dollar, declining inflation, you actually see things like ARK and meme stocks and the kind of broad basket of recently IPO companies still really very near their low on a relative basis. The NASDAQ relative to S&P 500 on the year in the six-week period, it hasn't moved at all. And yet that's despite a lot of inflation cooling and certainly a weaker dollar and so forth. I think that any of this stuff can change at any time. I'm not trying to get cocky about it, but I do think that those waiting around for the 10-year to drop to a certain rate and then all of a sudden we're going to want to bid up a meme stock again

or some kind of return to the insanity, I don't think that's likely if history is a guide. I think some of these things may just stay on an ash heap and some of them may belong there. Okay, the Fed is still, in terms of the Fed funds futures market, still looking at 75% chance of a half point rate hike next week. That hasn't moved all week. 75% chance of a half point rate hike next week that hasn't moved all week. So I would kind of bank that. You're going to get a half a point rate hike. And then right now, the next Fed meeting after December the 14th is February 1.

So there'll be about a six week period to the next Fed meeting. And right now, the odds are evenly split between either a quarter point rate hike or a half point rate hike. And it's not 50-50, but it's even between those two options because there is a small number predicting no rate hike, small number predicting a higher rate hike. But the two lion's share of Fed funds futures pricings are in the quarter point and the half a point range. They're about evenly matched. And that would be on top of the half a point range that is being forecasted in the December meeting. groundwork of where things are in the Fed funds futures market and the yield curve that we can either move from or stand on going into next year. And then briefly on the economic front,

initial jobless claims came in at 230,000 this morning, which was exactly at expectation. Continuing claims have inched higher. And I thought this was a kind of good summary about where I believe we are on the jobs market. The numbers have worsened. They've just barely worsened. They've worsened so marginally that some view it as a bullish sign because it is sort of speaking to soft landing that a whole year after this Fed tightening or whatever, sort of speaking to soft landing that a whole year after this Fed tightening or whatever, the, you know, I mean, the drama of the Fed tightening, particularly over the last eight, seven or eight months, that the employment indicators so far haven't moved more.

So, you know, we're at a high in continuing jobless claims right now since February of this year. But when you look at the chart, the high we're at relative to February, it's not that much higher. And so there's a kind of mixed bag there. Again, Divinity Cafe coming tomorrow. And I will be on a plane tomorrow afternoon into the evening heading out to New York City. A lot of meetings actually over the weekend there, including full day meetings on Monday. And then I'll be back to California Monday night. So it's a pretty quick trip. We will have a long form DC today on Monday. It'll probably be even longer written than normal, which is generally the case when I'm sitting

somewhere in New York writing. It tends to be a weekend of, you know, elaboration, research, reading, and therefore I, I spill it all out onto you guys. I hope that'll be okay. So get ready for that on Monday. And then, um, just to briefly kind of set the table, I am very likely going to go ahead and put DC today on, uh, suspension throughout the holiday. Um, first of all, because the week after Christmas going into New Year's, I'm going to be very, very, very deeply into reading and writing and so forth, but it won't be on Daily DC Today writing. It will be on the annual white paper that we do, which can sometimes run 25 to 30 pages and is meant to be a very exhaustive summary of the year that just wrapped up and the year ahead.

And so really working in a focused manner the week after Christmas. And then the week of Christmas, I am going to be more focused on some family things, kid things, school things. And I think you are too. So if I thought you all were going to be reading and listening and watching, you know, I certainly really kind of don't stop to be honest, but I think that all things considered, it makes sense to take that week off the week of Christmas itself. So we got a week ahead still, and we'll pack a good punch next week. And of course it's Fed week. So the FOMC is meeting on Tuesday, announcing their stuff Wednesday. And that usually provides ample opportunity for people to do dumb things for me

to talk about. Thank you for listening. Thank you for watching. And thank you for reading the DC today. We'll see you in the Dividend Cafe tomorrow. 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 investment opportunities referenced herein will be profitable.

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