The Dividend Cafe - The DC Today - Thursday, February 1, 2024

Episode Date: February 1, 2024

Today's Post - https://bahnsen.co/3SoXYtv Welcome to the first day of February, and a 29 day leap year one at that. The Dow completely rebounded from yesterdays sell off in stocks, and the bond market has now had two big day of gains in a row with rates moving significantly lower across the curve. The Fed holding rates unchanged yesterday was expected, but the comments of a March rate cut not being the Feds base case until they see more supportive data is what moved markets. Two quick points: The dot plots of where the FOMC sees rates by year end was unchanged following the meeting and 2-Yr treasury yields moving lower by 17 basis points in two days rather than higher isn’t a vote of confidence from the bond market its buying it at all. The reality is that economic data continues to be stronger than expected which is allowing them to take their time on easing policy, but markets are pricing it in advance anyway (as they always do). Speaking of stronger than expected economic data, there was a fair amount today with both productivity and ISM manufacturing data both beating expectations 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. Brian Saitel with you. It is Thursday, February 1st, first day of February, kicking off this leap year month. We got a nice rally in stocks, actually. And the Dow actually was up 369 points, which is more than yesterday. It dropped 317 points.

The Nasdaq still lower by about 1% from yesterday. So yesterday's sell off was mostly undone, but not completely across every part of the market. But yeah, I mean, the big news has been the Fed and the end of its meeting yesterday and keeping rates the same, which everybody knew, of course, would be the case. But then kind of walking back, the March rate cut, taking that off of the table was new news. And for a moment, stocks didn't like it yesterday. And then they seemed to turn around today. The bond market was unfaded. It rallied yesterday with yields going lower. And then it rallied again today with yields going lower again. The 10-year was down another nine basis points. So look, if you read into this, the bond market isn't buying what the Fed just said,

essentially, because you've got two-year rates that are down 17 basis points in two days. So two-year rates are short-term treasury rates. They're closest that's tied to Fed funds. And you've got a two-year treasury to Fed funds rate inverted by over 115 basis points now. So look, I think the market is pricing in what is inevitable, which is that it's either March or it's May, but it's probably not any farther than that. And since this is February, what are we really talking about here? 60 to 90 days. And so markets tend to move in advance. And that's what we're seeing. Interesting that the NASDAQ wasn't up more just because it is more rate sensitive. And I think that narrative evaluation is just coming to play inside of

markets. And you're seeing that with the Dow go up more than it went down yesterday and things like high duration stocks not recover quite as much. So the Fed futures for a March cut yesterday were at 35%, and they're up today to 55%. So again, markets aren't really buying that marches off of the table. We have a good amount of data. In fact, we have non-farm payrolls out tomorrow. But we'll have two more readings on inflation and then more jobs data before that meeting. And so we'll see. Either way, bond market's pricing in advance,

as frankly it should. But it's interesting. There's the fact that this rate tightening cycle has affected consumers a little less. Isn't that shocking? We had a good economy going into it, number one. We had this phenomenon of excess transfer payments from COVID hit everyone's

accounts and store up a cash cushion. But also we have 89% of consumer debt that is termed out. Most of that is in mortgages, but that's very different than the U.S. government, which has a whole lot of debt rolling over the next year and two years. And so interest rates are important, especially when you're already running deficits at full employment. And so interest rates are important, especially when you're already running deficits at full employment. We also had today some good data on the economic front. Again, this is a theme that has been ongoing where economic data continues to be strong. ISM manufacturing numbers out today were 49 versus 47 expected.

That's better than expected, but also below 50. So it's not quite expanding, but still better than expected. And then productivity today was up three and a half percent, sorry, 3.2% versus two and a half. So good economic numbers is the way I would sum that up in the economy. And then I'd also say on top of that being good news being good, which it is, you did have a little bit of cooling in the labor market. And so jobless claims came in at 224 versus 214. It's a little bit lower on jobless claims, continuing claims. I'm sorry, a little higher on jobless claims, meaning more unemployment. And then continuing claims were also a little higher. So good economic data, followed by a little cooling of the labor market, and then inflation that is running right around

where the Fed wants it to be. And a light at the end of the tunnel on when things were going to start going the other way, I think is what markets are looking at. And so you have a good day today to start off February. And again, I guess the one thing that would worry me a little bit is just that there's a lot of stars aligning right now that all look pretty good, really. I don't have a lot of negative to say other than just, I suppose if one thing concerns me, it's that there's a whole lot of people in the soft landing camp and the data is supporting the narrative. And so the contrarian that are skeptic inside of me just wonders what I'm missing. Speaking of which, today there was more stress in the banking system. New York City

Bank, which is a very old bank in the city and commercial real estate lender was off 35% yesterday. So big sell-off. They cut the dividend. They're trying to hoard cash and it's a further stress in that commercial real estate part of the market. And then today they were down 11%. And so what I wrote is that I don't know if it's weeks that we're going to find either that settling out or some other outcome. I think it's more like days than weeks. So we'll see. I think it's more like days than weeks. So we'll see. But for what it's worth, the Bonson Group is supporting New York City office real estate because as of today, we just signed our new office lease at 1336 that we're very excited about. So it'll take probably eight, nine months for a build out, but we're excited about that.

So hopefully our contribution is helping the commercial real estate market in the city a little bit, at least. contribution is helping the commercial real estate market in the city a little bit, at least. I did have a note from a question in there on the Ask Brian section about India. We are investors in the emerging markets at the Bonson Group. The question was, it's done well, and do you guys invest in that market? And of course, the answer is yes. We don't invest directly because frankly, it'd be foolish to. Trading Indian stocks on local exchanges in rupee and not having boots on the ground or real expertise into the nuances of a very, very intricate market would not be something very useful of our time. And so we have an outside partner that we utilize for it,

but we do have exposure there. And we look at it in a similar fashion as in the US, as we do most investments or all investments, which is, we look at bottom-up fundamentals. What are the numbers saying about a company? So it's less about trying to pick, will Vietnam outperform India, will outperform Brazil or China, and more about where are we finding good value in which parts of the world in the emerging market world, if that's the subsector. And sure enough, we do have a larger exposure inside of India, inside of that one growth sleeve in our portfolio, which is only owned by some clients that need an extra growth component in their portfolio. But I wanted to answer that for anybody interested.

Tomorrow, like I said, we have non-farm payrolls out, which markets will be paying attention to. I'm expecting more of the same, which is just slight cooling in that employment picture. That's what we've seen after several months. We'll have Dividend Cafe in the inbox tomorrow as well. And as always, I wish you a lovely evening and reach out with any questions. 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 Thank you. 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 Thank you. 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.