The Dividend Cafe - The DC Today - Thursday, June 15, 2023

Episode Date: June 15, 2023

Today's Post - https://bahnsen.co/42KWXyW Markets rallied some more today as bond yields dropped further even though the curve inverted more (as long-dated yields dropped more than short-dated). The odds for a hike at the next meeting (which is six weeks away, I should point out) moved to 67% for a 25-basis point hike and 33% for no move again. Odds are evenly split that by the end of the year we will either be at the current level or lower, versus a further hike. 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. Well, hello and welcome to the DC Today Thursday edition day after Fed Day apparently is the best day. Dow rallying 428 points, up 1.25%. The S&P up nearly 1.25%. The NASDAQ up just a little less than 1.25%. So very comparable returns across all three market indices. And one of those very rare days where all 11 sectors are in the green. The worst performing sector was real estate, and it was up 0.34%. Healthcare was the leading performing sector and it was up over 1.5%. You had bonds rallying significantly. The 10-year was down eight basis points in a yield to 372. So you had a big rally in bonds across the curve. Oil was up almost 3.5% back to 70.55%. So whether you're talking about equities, bonds, commodities,

you pretty much had a risk on day across the board. Why would that happen? Well, I think it's interesting divergence why would that happen well i think it's interesting divergence because the fed funds futures are still pricing a 63 to 67 percent chance of a rate hike next month i don't believe it will happen but i have certainly been wrong about it before as have many others and i most certainly don't care if it happens, but I wouldn't care to defend the position that it won't. I am sensitive to the fact that I, like anyone, am guilty of confusing what I think ought to be with what I think will. But if someone were to say to me to place a bet with USC's football season success on the line this coming fall, I would be betting that they're done. And so I am trying to intellectually separate what I think they

ought to do, which is be done, from what I think they will do, which is be done. But of course, there is a greater chance in the futures market that I'm wrong than otherwise. Why do I say done? I think that the Fed, for all my disagreements with them, I don't think they're dumb. But of course, you know, smart people make mistakes all the time, including the smart people of the Fed. But there's no question that the two most glaring facts here are known to the Fed, which is that inflation is well under control and that by being done, excuse me, hiking, they still maintain a tightening posture. That just by pausing, just by standing still, there is a really significant amount of credit that resets at higher rates. And so it has the effect of being ongoing or perpetual tightening for a time, even as they're not actively hiking rates. The Fed knows this. The Fed knows the inflation numbers have moved

where they want to go, that the PPI number is back to pre-COVID levels. The CPI number is more than half reduced. And if you were to accurately portray the shelter number is itself in a two handle inflation, Fed knows this. And I think as you get closer to what will really count as election season, I think there's political ramifications at varying degrees of relevance. I'm not going to get into all of it. I don't, it's not conspiratorial. It's not corruption. It's just reality, okay? I don't believe that it's popular for them to be breaking something as we go into what counts of an election season,

and I am skeptical that they will. And yet, that's what I think seems to have been the policy this far. And where would you say things are broken, David? It would be obviously in a freeze up of available commercial credit. So I would be sensitive to that, that commercial credit will still be tightening even if they stop raising rates. And that could end up becoming recessionary. It could not. It could be very mild recessionary. We don't know. There are some data points today. Industrial production was down 0.2%, not by a lot. And most of the downside, I think about 2% to the downside was utilities output, which is very weather volatile. And so that 0 point two, maybe the market shrugged off, but you also add weekly jobless claims up to 262,000 for the second week in a row. One week doesn't a trend make two starts to raise eyebrows three weeks, four weeks, you're talking about a trend. And then all of a sudden that starts looking like the employment story is worsening to some degree. So that, that data point, um, the, the more benign inflation, both in CPI and PPI,

and then the realities, talking about commercial credit, I just think that they're headed to, they're posturing about still looking at next month, but it's six weeks away, gives them plenty of time to change the narrative and use the forward guidance, which these days means talking to a reporter at the Wall Street Journal in advance of that meeting. So that's my take. And ask David today in the DC Today, there is a question about China suffering a deflationary burst and looking to export their deflation or lower price goods to the rest of the world. Do I think it's happening? What do I think it means? Read the dctoday.com for my answer to that very thoughtful question and enjoy your evening. So one day rally day, you're not supposed to be upset when one day

is a sell-off and you're certainly not supposed to be upset when one day is a rally, but I'm here to talk about it, explain it, give our perspective. And tomorrow I'm going to do more of that in the Dividend Cafe as I talk about housing and what has gone on in the culture with housing prices that I think will be worth your read. So Dividend Cafe coming to you tomorrow. Monday is a market holiday, bank holiday. So there'll be no DC Today behind that closure on Monday. And in the meantime, thank you for reading, watching, and listening to the DC Today.

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