The Dividend Cafe - The DC Today - Thursday, June 22, 2023

Episode Date: June 22, 2023

Today's Post - https://bahnsen.co/3NqpaFA The Bank of England surprised markets by hiking rates a half point this morning (a quarter point had been expected). Chairman Powell did his very best in front of the House yesterday to basically swear they have more rate hikes left in them (all the while swearing they are data dependent, with the apparent contradiction between promising something six weeks in advance of the data coming in that you are promising to be led by never really being explained). But then … Atlanta Fed President, Raphael Bostic, came out and said he believes the Fed should hold rates where they are now for the rest of the year … So if you don’t know what the Fed will do next, join the club. The futures market is up to a 77% implied probability that the Fed will hike at the late July meeting. I remain skeptical but not adamant. And the Fed remains content with ambiguity and public mixed messaging, with “trial ballooning” apparently a new policy tool in the toolbox. 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 the Thursday edition of DC Today, my last day recording the DC Today from Grand Rapids, Michigan. We'll be on the plane back to New York City tomorrow, Friday. And again, kind of a boring day in markets. There was a bit of up and down movement along the way, but when all was said and done, the Dow closed down four points, not even one basis point. So flat day on the Dow. The S&P was up a tad, I think 30 basis points or so in the NASDAQ, up more as tech caught a little bit. And consumer discretionary has continued to do well. So you've definitely had a nice little junk rally in this period. The 10-year yield was up seven basis points.

Most of the shorter end of the curve was up around the same. Most of the shorter end of the curve was up around the same. So the curve itself has only inverted further or stayed around the same level. It is not tightened. And that inversion, you're talking about it being basically back to 1%. What I mean by that is that a two-year is paying 1% more. It's like 99 basis points more than a 10-year. That's not back to the high level inversion we had back in March. At one point we were 108 basis points inverted, but it had come

all the way down to 50 and stayed there most of March, April, May, or the mid-March to mid-May. And now it has widened back out a bit in this inversion. And so I want to remind people that that's unhealthy, it is not good, but it is not creating something that isn't good. It's signifying something that isn't good. And that's one of the things I think is most misunderstood when people, sometimes they're very ignorant and sometimes they're not so much ignorant as they are kind of making stuff up, talk about the yield curve, is that the yield curve being inverted is not creating bad news. It is signifying some form of instability or brokenness or dysfunction or something off the norm in financial markets. And in this particular case, it is certainly a reference to the belief that on the longer end, rates will come lower, but in the shorter end, Fed breaks something.

And then that 10-year being all the way down at 3.6, 3.7, I've spoken ad nauseum about what that signifies, low growth expectations in the future. So regardless, the inversion continues. What else do I want to highlight today? Consumer discretionary was top performer up over 1.5%. Real estate was the worst performer down almost one and a half percent. Oil got hit pretty good. It was down 4%, still at $69.44 per barrel. Now the weekly jobless claims came in for the third week in a row at 260,000. It's kind of a weird coincidence. It's within such a tight number of three consecutive weeks, but nevertheless, the four week average is now up to the highest

level it's been since November. So I don't know how anyone could really slice that as good news. There's no question those numbers have incrementally moved higher for jobless claims. moved higher for jobless claims. However, it is worth pointing out that this number that we're at now is what we were last at in November. And of course, it didn't prove to usher in a new wave of recessionary conditions after that. So I don't think that it's necessarily predictive of anything, but just fundamentally, three weeks in a row is a little more worthwhile than one or two potential outlier weeks. Existing home sales were 4.3 million. That was just a only tiny bit higher than what had been expected. And again, it's down over 20% year over year in terms of volume of housing sales. Nothing big to report there. I'm going to leave it there. Not a lot to report.

We're in the midst of this kind of central bank season. The Bank of England surprised markets by announcing a 50 basis point increase. 25 have been expected. The Fed has some governors saying, oh, we're going to stay high for longer. Other governors saying we're going to keep the pause on and not hike further. So they're throwing different trial balloons out there right now. And there is such a long period of time between now and the next meeting that I don't know which way you want to predict between my sort of gut feeling that they may end up being done and the futures market saying that there's 70, 75% chance that they're going to

hike at the next meeting, yet with a lot of data points on the way that may give them cover to not hike. So I think it's kind of immaterial one way or the other. I'd certainly believe that the predominant market impacting narrative will not be what if they hike or not further as much as how long they stay wherever they're going to be. And that continues to be a source of great controversy, debate and whatnot in financial markets. So that's the big story that a lot of folks are holding on to. Of course, our vantage point is different that company performance is going to ultimately drive things and you want companies that are as close to disconnected from this from the relevance

of short-term monetary policy as possible but be that as it may we will have a wonderful dividend cafe for you tomorrow I'm basically going to give, I've written a Dividend Cafe that is kind of capturing a lot of the sentiments of the speech I gave out here at the symposium this week. And there'll be quite a deck to go with it that may be of interest to you. A lot of charts, a lot of information. So we're doing our best to keep you informed,

give you our perspective. I hope you've gotten something out of today's DC Today. Thank you for reading. Thank you for watching. Thank you for listening. Reach out with questions anytime. Questions at thebonsongroup.com. The Bonson Group is a group of investment professionals registered with Hightower Securities

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