The Dividend Cafe - The DC Today - Thursday, January 26, 2023

Episode Date: January 26, 2023

Dow: +204.45 (+0.61%) S&P: +1.10% Nasdaq: +1.76% 10-Year Treasury Yield: 3.497% (+3 basis points) Top-performing sector: Energy (+3.32%) Bottom-performing sector: Consumer Staples (-0.28%) WTI Crude Oil: $81.04/barrel (+0.89%) Key Economic Point of the Day: Weekly jobless claims again reflected the strength of the labor markets with initial claims coming in at 186,000 versus a median forecast of 205,000 A reminder, all of this coming on the heels of daily reports of layoffs from some of the top employers in the country The 2022 4th quarter GDP number came in at 2.9%, slightly above the median forecast of 2.8%, and buoyed by continued solid consumer spending Durable goods orders came in at 5.6% compared to a 2.4% forecast, but a quick look behind the curtain shows that much of this was lifted by a 116% spike in aircraft orders ex-transportation new orders actually declined U.S. new home sales edged out the forecasted number, reporting 616,000 on a median forecast of 615,000, and marking a three-month trend of rising new home sales Note, the year-over-year figure here is still down nearly 27%, completely driven by higher borrowing. 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, I'm Trevor Cummings and I will be with you for DC Today, today. It's actually a fun day to be doing DC Today because markets were quite chipper. Obviously we know that markets are bipolar. Sometimes Mr. Market's really happy. Sometimes he's really sad. Today was a chipper day. The headline number we got today was fourth quarter GDP. That's fourth quarter 2022. Came in at 2.9% compared to a target at 2.8%. And every market participant is wondering, are we going to go into a recession? Will it be a soft landing? And what numbers are important to me? So first, let me run down markets and then we'll talk about some of that economic data. Dow Jones was up about 200 points to be specific, 204 points,

and that is 0.61% increase. S&P 500 was up 1.1% and the NASDAQ was up 1.76%. Important thing to remember about the NASDAQ, Tesla is a huge attribution. It's the fifth or sixth biggest holding in the NASDAQ and it had quite impressive results today backed by their earnings report. 10-year treasury really likes to sit around 3.5% right now. So we have a 3.497% 10-year treasury that was up three basis points. Leading sector for the day was the energy sector, up 3.32%. Some of the larger producers had some positive announcements yesterday about buybacks, dividend increases, and the such. We saw consumer staples negative on the day. And I think it was the only negative sector.

It was down 0.28% on the day. Oil was up. Oil was at $81.04 a barrel. That's up 0.89%. There was a lot of economic data today. I'm going to run through kind of four data points. Before I jump into it, though, these data points have become such an interest of investors. And what I was thinking about today is when I was a little boy, I remember being at stoplights, and my big brother would always predict when the stoplight would go from red to green. And I was so impressed because like, how in the world does this guy know when the light's

going to change? I got a little bit older and I realized if you just looked at the opposing light, you could make a pretty good guess when lights were going to change. So I want to say this for you. When I looked at that opposing light, it was a leading indicator that my light was going to change, right? That's what market participants are trying to do. They're trying to understand what is a leading indicator that tells me the health of the market and where the economy is going. Now, going back to my analogy, imagine if there's more lights, right?

There's pedestrians crossing. There's turns left and turns right, there's an added level of complexity. Now you could still solve that riddle, right, if you watched it long enough, but markets imagine thousands of lights, thousands of participants, all these different things going on at once. So all of us are trying to kind of peel back the curtain and say, hey, if this domino falls, how does it impact this or that? And that's where we stand today. So where I want to make this really simple for you, David Bonson has really pressed this, and I think it makes it very easy for investors to understand

what's going on in markets. If the labor market is strong, which it is, and if earnings are strong, which they have been, you're not going to go into a recession. What you're going to see is a softening in the labor market and a softening in earnings reports. So that can be a place that you dwell if you don't want to swim through all the data that we do on a daily basis.

We'll start with the labor markets. Weekly jobless claims, just like last week, were strong. Estimate was that they were supposed to come in at about 205 and they came in at about 186. Now, this is a reminder. Headline news every day is not only tech companies, but some of the largest employers in the United States right now are going through layoffs. Those numbers are not reflecting in jobless claims. So we're still seeing a very strong labor market. And I'll go

backwards on a note there. If you're wondering, hey, what is the cause of why we'd be concerned about a recession or why that's going? It all comes down to inflation, right? The Federal Reserve has been determined to fight inflation, right? They have a dual mandate. They want full employment and they want stable prices. They haven't had stable prices. So they go into their tool belt and they make adjustments to things to try to stabilize prices. Now, we're not going to talk about whether they have the ability to or they can't or can or whatnot, but you've heard David say pushing on a string and he's referenced the last 10 years where they're trying to drive inflation. So you know our opinion there. But in reality, job market has been good. So they will continue to fight inflation by raising interest rates. And the impact that that has is that if

you are a business and it costs more to do business because the cost of borrowing, it's going to impact your behavior. So when you look at manufacturing data, you look up durable good orders or whatever it might be, those are going to have impacts. When we talk about this idea of soft landing, it's can the Fed figure out how to turn that dial back and forth to where they get that happy medium where you can get that soft landing. So on that note, we mentioned that the GDP number for fourth quarter was strong. It was 2.9% compared to 2.8% target. Much of that was driven by consumer spending. That has like a 70% attribution. So some economists will say, hey, if you and I and

all of our friends are willing to keep spending, that will help keep us out of a recession. Very much buoyed by consumer spending. If we look at our durable good orders for today, they were positive, plus 5.6%. You see a slowing trend there. But in reality, if you X transportation, it was negative, meaning most of the attribution on those goods orders, all I'm saying is things that last longer than three years, right? Computers, things of that nature. There was something like 250 orders of passenger planes from Boeing. It was 116% on spike in aircraft orders. So that was a big attribution there. New home sales. And again, I'm talking about new home sales, third month in a row where it was positive. So it was slightly above forecast, something like 616 homes on a target of 615. So again, a three-month trend of positivity. But let me give you the backdrop. That's year

over year, a negative 27%. So why would you see that? Again, cost of borrowing is driving a lot of that. I will encourage you to go to the written DC today, where David did the Ask David section. It's a question I really like because the person asking the question was very humble in their postures. Hey, you talk about credit spreads a lot. Help me understand what that actually means. And I love the question because there's so much vocabulary when it comes to finance that you do have to learn a new language to be able to keep up with the discussion. So David walks through the answer and says like, hey, there's not only credit spreads, there's just simply spreads, right? We can talk about the difference between the yield

or the interest rate on a two-year treasury and a 10-year treasury. We'd call that a spread, the difference between the two. Now, when we add that word credit spreads, we're now looking at two instruments that have different credit ratings. So we could go into junk bonds compared to treasury rates, and we could see the difference. Now, it might start to be intuitive. Why would you want to look at those differences? Well, if I have a junk bond, and I understand the risk of that,

that if you go through a recession, that that company could default on that debt, right? There's the risk. And then I look at a treasury, which I know is risk-free. Then I start to get this idea, oh, credit spreads are really talking about how interested are investors in taking risk. our investors in taking risk. So if credit spreads are tight, that means the risk-free rate and the risky rate, I'm making up that word, but that risky rate are pretty close to one another. That means consumers are very willing and have an appetite for risk. When the spreads widen, you're starting to see this distaste for risk. You're starting to see this concern about the future. So again, go to the written side and you can learn about spreads and credit spreads.

I encourage all of our listeners and all of our readers, when you go over the DC today, take notes, write down words you're unsure of, send questions. David absolutely loves to answer questions from our readers. And with that said, I will sign off. David will be back tomorrow with the long-form written Dividend Cafe. And that is all I have for you today. So this is Trevor Cummings with DC Today signing off. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC, member FINRA and SIPC, and 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.

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