The Dividend Cafe - The DC Today - Thursday, February 9, 2023

Episode Date: February 9, 2023

The DC Today - Thursday, Feb 9 - https://bahnsen.co/40IKvQA Ask Trevor “It doesn’t seem like stocks have a believable catalyst to go up from here, wouldn’t it be wise to sell stocks and buy a short term treasury for the guaranteed interest?” I can sympathize with the premise here – if earnings face some headwinds, and rising rates compress multiples, you want to know what drives stock prices higher from here. The real answer is I don’t know and this is the right answer because it is unknowable. Now, we could craft a reasonable narrative of what could happen, and how things might play out, but we’d never speculate on a hypothesis like this. For me, I like to approach portfolio construction by categorizing each dollar into one of two categories – money earmarked to be spent in the near future and money set aside to grow over the long run. With this framing in mind, a conversation about swapping stocks for treasuries is an apples-and-oranges discussion. Stocks will irritate you in the short run, and yet history has shown a reward for the patient long-term investor, we call this a risk premium. Portfolio design made simple is all about matching the appropriate investment based on a well-defined time horizon. If you ever find yourself trying to invest long-term monies in short-term solutions or vice versa, you are participating in some version of market timing. Based on my own experience, I know I can’t time the markets in a consistent or profitable manner. I also know I have never really met anyone who can. So, if it walks like market timing, talks like market timing, it’s probably market timing, and you can’t count me out. 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. Welcome to DC Today. David Bonson is in none other than Austin, Texas today. He's going to be speaking at an event sponsored by the University of Texas Law School. So he'll be there today and speaking, I believe, tomorrow. He'll be back tomorrow with the Long Form Dividend Cafe. Markets were interesting today. If you watch, markets started out strong.

And if you go to the written, you'll see it was basically just a mountain downhill. Nothing meaningful to the downside, but all the gains we opened with were absolutely given away. So the Dow Jones was down 248 points. That relates to being down 0.73%. S&P was down 0.88% and the NASDAQ was down 1.02%. The 10-year Treasury didn't move a ton to basis points. It went up to 3.66%. You will note, though, that that rate is a bit higher, right? We saw the 10-year Treasury floating for the last couple of weeks around 3.5%.

Some of the talks you heard yesterday from Fed representatives seeming a little bit more hawkish on what they might need to do with the Federal Reserve rate. And you're starting to see the impact that has on short term rates and then a little bit of a nudge it has on kind of that 10 year treasury. The top performing sector today was consumer discretionaries. They were negative. So every sector was down today. Consumer discretionaries were down about 0.2 percent, while communication services were down 2.8 percent. So fairly widespread from the best and worst. But all were negative. Oil was also down today about 1.06 percent. Oil is now at $77.64 a barrel. and 64 cents a barrel. I wish I had a lot of economic news to talk to you about today. Absolutely. Actually, I wish I could talk to you about NBA basketball and all the things that happened at the trade deadline. But I am guessing that 90% of the people that listen to this are not interested in NBA basketball like I am. Hopefully, a lot of you will celebrate Sunday with some friends watching the Super Bowl. Should be a good game between the Eagles and Chiefs.

One economic data point we did get today, we got the jobless claims, but nothing really exciting. Jobless claims came in at 196,000. That was on an estimate of 190,000. I filled in for David a couple times on Thursday, so I'm usually talking about jobless claims. This broke a six-week trend where those jobless claims. This broke a six week trend where those jobless claims were going down, but it's nothing meaningful. It's still representing a very strong and robust labor market. One thing you'll hear some pundits saying is that you're hearing a lot of announcements of job cuts from pretty large technology companies. And those aren't really captured in the numbers yet,

or at least that's kind of what's said. Because, you know, announcing a 20% cut or 5,000 jobs or things like that, it's not always immediate. And you don't see those jobless games spark up right away. Other than that, I think a lot of the focus from the news feed today was on a few of the Fed speakers yesterday, right? They spoke, and today was a lot of the focus from the news feed today was on a few of the Fed speakers yesterday, right? They spoke, and today was a kind of digesting of what they meant. It's kind of interesting. I don't know the exact date, but I'm thinking back. I believe it was something like December of 2018, where the Fed President Jerome Powell capitulated, right? They were trying to raise interest rates. Markets weren't participating.

Things got a little bit ugly. And then they kind of backed off on raising rates. I think from that experience, market participants lost confidence in the Fed actually doing what they said they were going to do. Through the hikes of last year, I think people are starting to believe that their posture is the forecast of how they're going to behave. So yesterday, when you got some more hawkish feelings about the fact that inflation is coming down, but the job market being very strong, remember the Fed having that dual mandate, two parts, right? Stable prices and strong employment. So since they continue to feel that the employment's very, very strong, they're turning their eyes towards, hey, can we, and everybody's talking about soft landing, can we continue to gently push up that federal funds rate? So you saw it go from 75 basis

point hikes to 50 basis point hikes. Now this most recent hike was 25 basis points. And what the market really wants to know is when will they stop, right? Over the last decade or so, inflation has sat below 2%. So this hasn't been a problem. But we've also seen, it's been a speculative decade, right? We saw multiples come out pretty strong and higher interest rates have been the most damaging to some of those high duration type stocks. Who knows how it all play out? I'll end with this. We didn't have an Ask David today, so we instead had an Ask Trevor. And the question I put in there came from a client and they were basically saying they couldn't think of a narrative that would be believable for why

stocks should go up from here. And he was basically saying, hey, if earnings are going to have a strong headwind and if higher rates are going to compress multiples, what in the world could cause stocks to go up from here? And if I'm right in the way that I say that, shouldn't I sell my stocks and buy a one-year treasury or six-month treasury, which are nearing that 5% mark? And I unpacked it in the article, but I'll kind of try to do it here on the video as well. What I was trying to tell him is that from my framing, when it comes to building a portfolio, and I don't want to be stubborn in this, but this is absolutely how I see it. I take every dollar and I place it into one of two categories. Either that dollar is earmarked to be spent in the near-term future, or it's acting as reserves, emergency funds, or whatnot.

Or that dollar is set aside to grow and to compound and to accumulate wealth over time. Those two different buckets, that bifurcation of money, there's two very different investments, right? If something is short term, you need a guaranteed rate. You need to make sure that if you're funding college or a wedding or whatnot, that the money is worth the same value. So you'll take a lower fixed interest rate. On the other side, stocks and real estate and things of that nature can be appropriate. The problem I see with this question is I see it as an apples and oranges question. You're trying to take short-term investments and place them into long-term money and vice versa. And what I've said there is that is just another form of market timing. And I say it kind

of in jest, but if it walks like market timing and it talks like market timing, you can just count me out. In all the years I've worked in this industry, I personally have never been successful at trying to time markets. Haven't found it that I can do it consistently. Haven't found that I can do it profitably. On top of that, I've never met anybody that can. So my advice is simply, if it looks like it's market timing, you're going to have to fight that urge to try to create a hypothesis that you want to invest in and basically take action on the narrative you think that'll play out. So my encouragement is really talk to your advisor, look at your financial plan and see what makes most sense for your short-term money

and your long-term money, but don't mix the two. So with that said, like I mentioned, David will be back tomorrow with his long-form dividend cafe. So you'll enjoy that. He's got the Super Bowl on Sunday. You know, Brian Zytel filled in yesterday and he called the Eagles for the win.

I'll be rooting against the Eagles. So sorry for all my fans. I'm just a big Patrick Mahomes fan. So really like watching him play. And that is all I have for you today. So until next time, friends. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC, member FINRA and SIPC,

with Hightower Advisors 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. Past performance is not indicative of current or future performance and is not a Thank you. 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.

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