The Dividend Cafe - The DC Today - Thursday, March 14, 2024

Episode Date: March 14, 2024

Today's Post - https://bahnsen.co/4cjgL2o Markets were lower on the day with some higher than expected Producer Price Index numbers for the month of February that were up .6% versus .3% expected. Keep in mind, the year over year number on that same headline gauge is only at 1.6%, albeit up from the 1% read the month prior. If we annualize the last three months that included some of the higher figures, we get to around 3% year over year. This may not be exactly where we want to be at this point, but as I have mentioned, the path towards our target was just never going to happen in a straight line either. Commercial real estate values have begun to show some recovery in the past few months. The chart below shows both the decline in values we just went through and the beginning of recovery, but more importantly, the 20%+ run up that preceded it. The protective equity during the recent decline in values was hugely inflated leading into it, so when we hear about a looming crisis in something like commercial office loans, from an LTV perspective there was already a larger cushion, and borrows make payments when there is equity. I am not saying there isn’t stress in non class-A office, but if prices are leveling I am not sure it will materialize into more at this point. 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's Thursday, March 14th. It's great to be with you on this Thursday here. The markets sold off a bit today. We actually closed more than 100 points off of the low on the Dow, but still closed around 137 points lower, which is about a third of

a percent pretty much across the board for the S&P and the NASDAQ as well. And the reason was that we got PPI numbers today. So these are the producer price index figures. It measures input costs into businesses and as one measurement of input inflation, essentially, which, of course, will ultimately work its way through to prices outside of inputs. outside of inputs. The PPI number was 0.6% for the month. It was supposed to be around 0.3%. So it's quite a bit higher on headline from expectations, although we saw both the CPI numbers also a little higher. So I think it was somewhat expected. And frankly, I don't think the market's reaction was all that bad, frankly, from it. So I wouldn't read into it a ton. But the core number, if you strip out food and energy was at 0.4% versus 0.2%. So also, you know, higher than expected. But again, if you look at like a year over year on headline, we were about, we're now at 1.6% year over year.

It's up from 1% the month prior. So I understand that it's, that it's higher, but, but still, we're talking to sub 2% number year over year on headline. If you look at core year over year, we're at 2.8. So granted, again, we're not at 2%, but I feel like we're almost close enough for horseshoes and hand grenades, as they say, or we're working on it. We're working on getting there. And so while I've always said that the trend towards getting to 2% just won't ever be in a straight line, it just can't be. So there's just going to be periods of ups and downs, but I still feel like the trend

is very much intact. There was a chart I put in there that I thought was a good picture to show. It's a commercial real estate market. So it's showing you all different sectors in there. It's showing the run up into 2023 and it's showing the pullback that we've had here since. And now it's starting to show the recovery.

So those things are good. We want to see a recovery in commercial real estate prices. Office in particular has been a topic du jour, more on the loans running, coming due here in the next couple of years and having to be refinanced to higher interest rates with prices being lower, having higher interest rate expense. Will tenants be able to, or owners be able to afford it, those types of things, borrowers. And my point is just showing you, yeah, that's true. There's stress there, but just, if you look at the amount of run-up right leading into that, the amount of equity that was built up leading into price declines is quite protective. It's a big cushion. So price declines are never easy to go through, but it's not like this is 2006 and seven where there really was no cushion. And then you had

massive price declines. This is a different animal. And again, that's for non class A office. Class A is a whole different deal and there's no stress that we see in that market at all. But I thought it was a decent picture to paint for you in a chart. We also had initial jobless claims. The number's been around these low 200 levels for quite some time. And today was no, nothing changed there. We got a 209 print versus a 218 that was expected. So I'll give that as the slight positive news on the day. With inflation or PPI being a little higher on the day, you did see interest rates move higher again. And we've been backing up here for the last couple of days. We were up 10 basis points on 10-year yields and closed at 429. So if that range was something

around 410 to 435, we're creeping into the higher end of it here, but we're still in that range. Retail sales for the day were a little weaker than expected. We were expecting 0.7% for the month and we got 0.6%. So not too big of a deal there, but the revision lower for January brought it to a negative 1.1% for the month of January. So it was more about the revision the month prior than it was about today's number on the retail sales front. But again, the showstopper, I guess, for the day was the PPI headline and markets did close lower, but really not a whole lot. I would call it modestly by about a third of a percent.

So that's what we have tomorrow. We'll have Dividend Cafe in your inbox. We've got industrial production, which is a number that may show up somewhere that we'll take a look at. And then, of course, if I don't speak to you, I wish you all a good weekend heading into the weekend and a good St. Patrick's Day on Sunday. So with that, I'm going to let you go here for the day Thursday afternoon. And I wish you all well. Thanks for listening. The Bonson Group is a group of investment professionals registered with Hightower

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