The Dividend Cafe - The DC Today - Thursday, January 4, 2024

Episode Date: January 4, 2024

Today's Post - https://bahnsen.co/3Oe52YT Generally positive markets this morning lost momentum throughout the trading day with the Dow closing completely flat and both the S&P 500 and Nasdaq down a pinch. Yields were up on the day, with the 10-year back to just under 4%, and Fed futures starting to show a little less conviction on a rate cut in March (albeit still at a 64% chance). We had some better-than-expected payroll numbers today, and with slightly lower new Job openings yesterday are slowly but surely seeing a supply imbalance normalization in employment. We have roughly 162MM people currently employed in this country, with another 8.8MM new job openings posted, so call about 171MM on the demand side. The current US labor force is roughly 168MM, so while not perfectly matched (still more demand), it is getting there and what the Fed wants to see. 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, January the 4th, and I'm pleased to present the first update of the year in 2024, albeit just barely. The Dow is up about 10 points on the day, which is 0.03%, basically flat. The NASDAQ and the S&P were both lower on the day, so I'm not really sure if that really counts. The 10-year today was up eight basis points,

so you get a little move up higher in interest rates. We closed just off 4%, little move up higher in interest rates. We closed just off 4%. So still hovering, still have a three handle, but 3.99% on 10s for the day. Fairly benign day of trading. There was ADP payroll numbers that came out today. They were better than expected. Decent amount better. We got 164 on new private payrolls versus 125,000 expected and 101, which was last month, November. So nice picture on employment on private payrolls, which is always good. Big needle mover inside of the number was hospitality, leisure and hospitality, which was up 59,000 of the 164, which just having traveled, I can definitely vouch for there. Initial jobless claims came out a little better than expected. They were 202 versus 216. So again, labor market hanging in there quite well. And those are good

things. We've got an actual non-farm payroll number tomorrow on Friday with an update to unemployment that we'll kind of focus on. But so far today, this was good. I wrote a little bit about just the state of the labor market in number terms in there as well. So the Fed, we sort of had an imbalance. We had 12 million as of 22 job openings posted. We now have about 8.8. So if you looked at total employment in the country of about 162 million people working and about 8.8, call it nine, we'll round up new openings. You've got about 171 million of demand on the labor force side with the current labor force at about 168 million. So they're almost perfectly matched, but not quite. There's still more demand than there is supply. I don't

know that that's necessarily a bad thing. I think it's not. I just think that the Fed wants to see normalization. I think they're getting that with this, and we've made a lot of headway here. So basically a good day on the data side for the most part. I put in there a little bit longer. I didn't mean it for it to be. It was an answer to a question that I had gotten on with rates being a little bit higher. Does that mean that equity returns will be lower? And I have an explanation there in the response of that question to this person. But just in a vacuum, yes. I mean, having higher interest rates typically means that the equity

risk premium would be lower. The demand for things like risk assets, like stocks and other things would be lower if you can get 4% or 5% in something that is risk less, you know, risk free. And there's different periods of time we had from say, you know, late 40s up until the peak of 82 and interest rates, the return on the S&P was only about 5.7%. But that's with rates going from, you know, essentially call it 2% after World War Two, to, you know, high teens in 82. So it's pretty significant. And then from 82 down to say the low of 2020, rates went nowhere but lower and the average return of the S&P was about 11.7%. So yes, big headwinds, big tailwinds. But I would push back on just saying that rates now being higher means that equity returns are going to be lower forever just because I don't think rates will stay higher forever.

I think they'll end up moving back lower. And I think a lot of that has to do with what we've written about quite a bit with global indebtedness and slower growth and just the need or the reality of a lot of debt, a little less growth and lower interest rate paradigm going forward. So the fact that rates went up in 2023 and are now coming down in 2024, likely and into the years in the future, I just think that gets averaged out and you end up with long-term average stock returns averaging somewhere around the mean, you know, they'll revert back to the mean. So in other words, I don't think that we're going back to 1982 on interest rates here. Frankly, I don't think we possibly could. So hopefully that's helpful for some of you. Tomorrow, like I said, we have non-farm payrolls out tomorrow in the economic calendar. We actually won't have Dividend Cafe in your inbox tomorrow. In lieu of that, we're going to have, or David will have, our annual white paper year ahead, year behind out for you, which will be really, really good.

And I know he's been working on it this entire week. So I'm looking forward to reading it myself. I haven't read it. But with those things, I'll send you off for the evening here, fairly benign trading day. So I'll let you go. I appreciate you listening. I appreciate your questions. Thanks and have a good night. 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

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