The Dividend Cafe - The DC Today - Thursday, January 11, 2024

Episode Date: January 11, 2024

Today's Post - https://bahnsen.co/3NYiJuG Volatility came down and markets were flat as a pancake as we got inflation numbers that were in line with Core CPI and then just barely above on Headline by a tenth for the month. Rates moved higher initially but came off during the day with 10’s down six basis points and the curve steepening a little.  I have more on CPI below and in the podcast, but markets feeling better or worse over a tenth different than expected on CPI each month is one thing but the trend is so blatantly going in the right direction with annualized CPI over the past three months now below the feds 2% target at 1.77%,  I just don’t think it’s material at this point.  Fed futures by the way agree and were unchanged on the day still at a 65% chance for a March rate cut. 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 here and it's Thursday, the 11th of 2024 and great to be with you. And it's Thursday, the 11th of 2024. And great to be with you. We had really a flat day in markets.

Futures were actually up. We had a CPI number coming out today. And I think in anticipation, markets were hoping it would be a certain way, come out weaker than expected. Markets sort of opened a little higher. And then we got numbers out. We had two things. We had jobless claims came out at 202 versus 210 expected. It's a little better than expected, fewer people filing for unemployment, which is good. And then we had the CPI number that came out. So the core number was 0.3% on the month. We were expecting, actually, core on inflation on CPI

was actually in line at 0.3. That's what we were expecting. It was headline that came out at 0.3. We were expecting a 0.2, so just a tenth higher than expected. Year over year on headline was 3.4 versus 3.2 expected. So in line, maybe a little bit higher on headline core year over year was 3.9 versus 3.8. I chalked most of this up to just in line and there's some variations with goods prices being flat and shelter adding a little bit to it. But all in all, markets sold off a little bit initially. Stock market was down a little bit and rates actually moved up. We had the 10-year rate over 4%. It was 4.06, if I recall, early this morning.

And then we ended up coming off and markets sort of regained some steam. And we ended up closing completely flat on the day with the 10-year coming back down to 397. It was down six basis points on the day. The yield curve steepened just a little bit on the day too. And my comment on inflation is that at this point, I get the month to month, whether it's 0.1% different than expected or better than expected, that markets care about it and that they move a little bit. But the truth of it is that if you annualize the last three months of where these numbers have come out, if you analyze that number, we're at 1.77% annualized inflation at this point on CPI. So it's below the Fed's 2% target, and that's including

a shelter cost number in there that's elevated still at this point. So I think we're there. that's elevated still at this point. So I think we're there. And I, I, I frankly, you know, I think it's a little bit of a moot point, whether we get a 0.1% beat or not be month to month. So again, the jobs number was good and that, that labor market continues to be quite resilient. And I think that's also a good thing um, uh, Fed president, um, Mester was out talking a little bit about while she thinks that, uh, it may be too early for a rate cut in March, um, that talks about the, uh, the balance sheet quantitative tightening, uh, should start sometime this year. Uh, she said they weren't imminent, but the point is just at some point they will they will start talking about that. And I really don't think another trillion is going to come off of that balance sheet. I think it'll be counterproductive to be reducing the balance

sheet at the same time they're reducing interest rates. So I believe they'll talk about that soon, could be the next meeting. The futures, by the way, didn't move at all on any of this inflation data on the day. So Fed futures are still at about a 65% chance for a March rate cut. So there you have it on the day. And again, flat as a pancake in stocks, the NASDAQ was completely unchanged at 0%. The Dow ended up closing about 15 points higher on the day. I did put a section in there, at least a question that I got in the Q&A on the Ask Brian section about some of the delineation between some of our labeled asset classes inside of TPG. And I thought it was a good enough question to add it in there for you all

today. But specific to income generation, it was with regard to the difference between our credit sleeve, our income enhancement sleeve, and our boring bond sleeve. And I've described in there that they're all income generative, of course, but they're all very different. The reason we broke down the difference between credit and what we've called boring bonds is that there's just completely different asset classes. Yeah, they're both bonds. It's fixed income. One of them has credit risk to it. Yeah, there's default risk. There's a chance that you could lend that money and not get it back. And the credit rating for that is below investment grade. A lot of that is in the high yield bond market. That is very different than going into the treasury bond market and getting,

I call it a 4% yield or so on 10s and having 0% of default risk because the government has a printing machine. They're going to give you your dollars back. You know, those two things act very differently in different markets. Big market dislocation, you know, you'll get credit that ends up going to a correlation of one with equities, meaning it's going to sell off a similar amount because of the default risk there. And you won't get that in what we've labeled boring bonds. And while we used to lump them together, we've removed that because it's important for clients to know the difference between those two things, even though they're both bonds. On the other side, we have for some people that need an income increase, maybe they're using it for living expenses. Maybe it's just part of their goal, but we need an income increase, maybe they're using it for living expenses.

Maybe it's just part of their goal. But we have an income enhancement sleeve, which isn't debt. It's equity, technically. Although I'm not opposed to having some debt in it at some point. But the point of it is just parts of the income market that we can get a high single digit or even low double digit type of income yields for people that need that cash flow. And so we have things in there like BDCs, business development companies with low double digit yields, mortgage REIT, again, low double digit yields, and things like preferred stocks, which have sort of that high single digit yield to it. So all very different, all income generative, but all act differently in different markets. And from largest to smallest in yield,

it'll be income enhancements followed by credit, followed by boring bonds. And it's the same order if you were to look at just overall risk in the paradigm. So all that to say, I appreciate you listening today on the market again, kind of a flat day here. So I don't have any,

a lot more information to give to you, at least on the intraday. Tomorrow, we do have some PPI data that's coming out and we have dividend cafe. That'll be in your inboxes as it usually is. And of course we have a Martin Luther King jr. Holiday on Monday. So with that, I'll let you go.

Wish you all a great evening and take care. 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. Advisory services are offered through Hightower Advisors LLC. This is not an offer to buy or sell securities.

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