The Dividend Cafe - The DC Today - Thursday, July 27, 2023

Episode Date: July 27, 2023

Today's Post - https://bahnsen.co/4563eH1 As balanced as Jay Powell’s comments were yesterday in the presser following the latest and potentially last 25 bps rate hike of 2023, markets opened in rally mode taking comfort in his ‘data dependency’ rate path commitment over what could have been otherwise hawkish comments. We then got an entire slew of strong economic data around 830AM EST with durable goods orders, jobless claims, home sales, and most notably Q2 GDP coming in ahead of expectations that brought back the ole ‘good news is bad’ jitters into markets and we reversed course. Bonds sold off across the curve, but more longer than short and the yield curve steepened to -92 bps in 2/10’s. So, while stocks did put an end to a 13 day consecutive advance and the 10 YR is now flirting again with 4%, what we really saw was more support for the soft landing narrative and candidly, if this is what a recession looks like, I’ll take it. All discussed in more depth in the video podcast below, as well as a twofer in Ask David today as an added bonus. Enjoy and reach out with questions. 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. It is Thursday, July 27th. Yesterday we had a Fed policy meeting end and lo lo and behold, they raised rates 25 basis points, which was largely kind of known. The comments yesterday were perceived to be more benign. It was basically just sort of punting on whether they were going to raise rates next quarter, or in September, sorry, or not, and just saying they were debt independent. So through the night and into this morning, as that feeling of comfort was kind of felt in markets a little bit more, markets were actually up this morning. We're up over 100 points

to start the day, the narrative just being more of a dovish feeling out of the Fed versus hawkish. And then about 8.30 Eastern, we had a whole slew of different economic data come out. We had GDP numbers come in better than expected. We had jobless claims coming better than expected. We had durable goods orders better than expected. And we had some pending home sales better than expected, which you would think would be good. I do. We want good economic numbers, but markets tended to kind of price in the old, good news is bad. And maybe that means the Fed is going to raise rates again in September versus yesterday. We thought they weren't. So the Fed expectations, the futures are now sitting at about a 65-35. 65 meaning that they don't raise rates in September. Again, that's two months away.

35 that they will. And I think it was more like 75-25 yesterday. We have more data coming out the next couple of days. There's a piece of ePrint tomorrow, which I think markets will pay attention to quite a bit. Headline is seen moving down from 4.6 to 4.2. So we'll check that out tomorrow. closed at 2.4% up on the quarter, we were expecting something like 1.5, 1.8, something like that in consensus estimates. So quite a bit better than expected. The main culprit was still the consumer. We have a strong consumer, a healthy balance sheet. We all like to spend, and so that's easy. But we all have money to spend it, or the data suggests that we all have money to spend it, or most people do at least. So a strong consumer and across the board, services, goods, pretty much everything. Real estate was a small detractor at negative two-tenths of a percent, but the consumer was 1.1 of the 2.4, so almost half. So good news on GDP. We had a Fed that basically

said data dependency as of yesterday. So we were looking at more of a, if we're not at peak rates on Fed funds, we're close to it. And then an expanding economy. I wrote this, but I mean, if this is what some are viewing as a potential recession, I guess I'll take it. We had durable goods came in far ahead of expectations. We were looking at a 0.7% print. We got a 4.7% print and I'd note what was noteworthy, but it was pretty broad based. So across the board, we had jobless claims came in at 221 versus 235. So less people filing for unemployment and existing claims were also lower. I think it was 1690 versus 1750. So an employment labor market that's still very healthy or too healthy,

I guess. Too many people are looking for not enough jobs that are open. Again, that's not necessarily the worst thing, other than it is technically inflationary, depending. And so that's the concern there. Pending home sales were up on the month, which was better than expected. So that's another kind of positive sort of resiliency we're seeing in real estate prices, believe it or not. So like I said, pretty much across the board, we got an A report card. There really wasn't a lot of negative in data. The negative on the day was that stocks were down 237 points, although they've been up now for 13 days in a row so i i don't even necessarily look at

that as bad i think it's healthy to have markets not go in a straight line and have you know some some good with the bad along the way bonds today sold off actually early this morning meaning before the market opened i was looking at rates to have bonds were rallying i was looking for rates to come quite a bit down on the day. It went the other way. And mostly in the mid and sort of belly of the yield curve, call it like five year to five to 10 year maturities, bonds sold off. So yields went higher. So the yield curve actually steepened a little on the day. We've been over or well over 100 basis points inverted on twos, tens for quite a while, kind of flirting with that. And we un-inverted a little bit today. Twos were up, I think,

10 basis points. Tens were up 15 in yield. So you have a little steepening in yield curve there, although still inverted, 92 basis points. There is several. I think Gunlock was on TV yesterday talking about the fact that historically with an inverted yield curve, as you get into a recession or really close to a recession, it tends to un-invert. So that happened a little today, but I wanted to point out that usually when that happens, it's because short-term rates are going up much higher than long-term rates. So you have, I'm sorry, short-term rates are coming down faster than longer-term rates. So you sort of have a steepening yield curve because it's perceived that the Fed is going to start slashing interest rates because the economy is in recession. That's not what we're seeing here.

It's the opposite of that. Short-term rates were not down today. They were up, and they were just up less than long-term rates. And that's not necessarily a bad thing. That's actually a good thing. You're looking at strong economic data, which is less than long-term rates. And that's not necessarily a bad thing. That's actually a good thing. You're looking at strong economic data, which is pricing in longer-term inflation expectations being a little bit higher. And it's perceived to be a growth-oriented stature. All that to say, I just wouldn't read into too much what some of these folks are drawing to conclusion on the media sometimes. are drawing to conclusion on the media sometimes. We have, like I said, PCE tomorrow with another CPI or actually two more CPI prints before the next meeting in September. A lot can change, but for now, we'll take some of the good economic data for the day. Let's see, we'll have Dividend

Cafe in your inbox tomorrow. As always, we're around for any questions. I know David has a nice couple of Q&A answered in today's Ask David section. But with that, I'll let you go in the evening. As always, thanks for listening. I feel pretty good about the economy technically at this stage. We'll see how things shake out over time. But for now, mostly positive things to report, at least in the economic data. So I'll let you go for the evening. Thanks for listening, and we'll see you soon. 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.

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