The Dividend Cafe - The DC Today - Thursday, January 18, 2024

Episode Date: January 18, 2024

Today's Post - https://bahnsen.co/3vIRb6n A positive morning of trading in markets gave way to losses mid-day, only to gain it all back and then some as we headed towards the close, ending up 200 points. Interestingly, the correlation between rates and stocks today actually moved together with both rising, where the opposite has been the case much of this year. 10’s are moving further into four handle territory up to 4.14% as rates crept back up today with a stronger jobless claim number. We are at about a 54% chance on futures for a March rate cut at this point. We are still early in earnings season, but it has been notable that while 92% of companies reported thus far have exceeded expectations, 58% of them have actually traded lower on the news. A combination of some exuberance over lower rates this year coming out of markets and just some general consolidation after the year-end run-up seems to be at play. I find this consolidation healthy, and with an advance decline ratio only back to -3:1, I doubt we have seen the last of it. More in the link below. 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 Thursday, and it's good to be with you all here today in the Newport Beach office. And we've had a lovely week of many client meetings and gatherings and a lot of different TPG employees from other offices in the office. So it's been a good week, a lot of energy. But I've got a few data points for you today. We can kind of go through the market actually opened up on the day, which was nice. We actually traded lower about midday or so. And part of that, I believe, was interest rates moving up a little bit through the day. We actually got a little better than expected jobless claims number in there. And so we ended up closing higher on the

day nicely. It was up 201 points on the Dow. So we'll take that. 10s traded up a bit on the day. We were up about four basis points. We closed at 414 on the 10-year treasury. So rates are handily in the 4% range at this point. And some of those expectations on Fed funds futures, where they're going to either lower rates in March or do the first rate cut or potentially it'll be sometime in June, keep sort of sliding a little bit lower. So we were 75%, we're at about 54% as of today on whether they'll cut rates in March. And honestly, whether they cut rates in March or whether they wait till June, what's priced in for most of 2024 is assuredly lower. And I think that's a good thing.

And we've spoken about that quite a bit. So, yeah, I mean, there's been some consolidation in markets. We're down slightly on the year, not a lot. You know, 1% on the Dow, a little bit more than that, but not a lot. And so we're still right there. We've got early innings of earnings season right now to report, but what has been reported about 90%, 92% actually of companies so far have exceeded expectations. So that's a good thing. It's interesting though, 58% of companies that have reported actually traded lower.

So of the companies that beat expectations, they're largely mixed, some of them going higher, but over half, 58%, almost 60% of them are actually trading lower. And I think some of that is just some consolidation in markets. And frankly, I think it's healthy. We had quite the run-up into year end and we can call it a Santa Claus rally, but it was really interest rate driven with rates coming off, closing the year on the 10-year about 385, something like that. So we've been a little bit higher in rates. Some of that exuberance is coming out. That's consolidation. We're now at about a three to one decline to advance ratio, which isn't really that oversold.

Only about 36% or so of companies are trading below their 20 day. So usually it's north of 50 before you get a little bit more of a washout and then you sort of get a bottom in there. Again, some of these numbers really just change with what's going on in the macro environment. On the economic calendar for the day, we had Philly Fed come out a little worse than expected. We were expecting a negative number, but we got a little deeper one. So we were at negative 10.6. We were thinking it would be somewhere in the negative seven and a half range. So negative on Philly Fed. I i mean generally speaking in the country manufacturing has started to tick higher in the month of january so i i still think it's a positive not a negative but you get numbers like the new york empire number that was heavily negative on tuesday and then a

philly number like today a little negative and there's just some regional pockets of give or take so sort of a mixed bag but generally um, I'd say I'm more optimistic on where manufacturing goes in this country. And part of that is this phenomenon of deglobalization and nearshoring and reshoring, some of the capital expenditure that goes into that at play. But it certainly won't happen in a play, but it certainly won't happen in a month and it certainly won't happen in every single place. So you get some of these numbers that oscillate a little bit. Jobless claims came in good. I mean, we were 187,000 versus a 205,000 expectation. So these numbers are best that we've seen in over a year. So the labor market is still hanging in there, still trucking along. It's kind of like a Teflon labor market here where we've got plenty of jobs. which we'll take that over on, you know, people getting let go any day. So unemployment is hanging in there. You know, for some, I think, you know, maybe you want to see unemployment

go higher so that the Fed feels like the labor market is balanced. I'm not a fan of that. I think we can accomplish keeping full employment here and having the economy cool down. keeping full employment here and having the economy cool down. And so on we go. The housing starts today for the month of December were better than expected. And actually permits were better than expected. And I look at that as more forward-looking in housing. Permits were up 1.7% month over month. Those are good things. We want good housing markets. Obviously, affordability is extremely stretched in this country. And rates in the sevens and high prices means that a lot of people can't afford to buy a new home. And then also people that own homes

aren't going to sell them because their interest rate is locked in at 3%. So why would they trade up for a higher cost at a higher interest rate? They're not going to. And so supply is limited and transactions are limited. And that's kind of where we're stuck here in housing. But it's nice to see permits going up because we've under built in this country for a generation, basically. And so having animal spirits in the sector to build new houses, I think is a good thing, regardless of short-term things like interest rates. Technically, the mortgage rate today came out lower, at least for the week. 30-year unfounding maze terms was 6.6%. So below the sevens,

but still obviously higher than what we experienced the last 20 years. But with lower interest rates, I'm hoping that you get a little unfreezing of housing. You know, some people more willing to sell and move, get some price discovery in there. I suspect prices might be a little softer than people guess, but hanging in there. All that to say, I appreciate listening. Tomorrow is Friday, so we'll have Dividend Cafe out in your inbox tomorrow. And then I know we've got some existing home sales and consumer sentiment tomorrow, which other than that, it's fairly quiet. In fact, the economic calendar is quiet through most of the weekend into Monday and Tuesday. So really Wednesday, I'll be back with you and there

should be some more to talk about at that point in the economic calendar, at least. But thank you for listening. For any of you that still have an NFL team actually in the divisional round, I wish you the best of luck. My chargers are long from that. So I guess I'll think I'm going for the bills. Anyways, thanks for listening. Talk to you soon. 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 guarantee. The investment opportunities referenced herein may not be suitable for all investors. All data and information referenced herein are from sources believed to be reliable.

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