The Dividend Cafe - The DC Today - Thursday, March 7, 2024

Episode Date: March 7, 2024

Today's Post - https://bahnsen.co/3T43 A second positive day in markets and one with a little more conviction than yesterday, with the SP500 notching a new high. Powell gave his second day of testimony to Congress. Lagarde at the ECB held rates unchanged at 4%, although he did tilt the scales more toward assuredness that inflation was lower and June was the base case on when rates start to move lower. I have more conviction in the US waiting until June with growth forecasts in the mid-2 % range than I do the ECB, given GDP forecasts in Germany are a tenth of that at .25%, but we shall see. Higher debt levels lead to lower growth, lead to lower rates – rinse, wash, and repeat. 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, this Thursday, March the 7th. And great to be back with you here again today from Newport Beach, California. And a nice update in markets today. We had an update slightly yesterday, but a little more conviction today. We closed up about 130 points on the Dow. The S&P was up 1%, a little over 1%, and notched a new all-time high,

closed at 51.57. So again, from remembering back when it was in the 600s, it's surreal to see where it is. 10-year was down just a basis point on the day. We closed at 4.09 on 10s. And global yields, by the way, and basically the tops, call it 30 countries, are all trending lower. Japan is a little bit of an outlier, but more or less, rates are moving lower as inflation is abating basically globally because of supply chain easing and all of that. But on the day, Powell finished his second day of testimony to Congress, and more of the same there, not necessarily market moving. not necessarily market moving. Christine Lagarde in Europe, who runs the ECB, the European Central Bank, kept rates the same at 4%. Although she did tilt her hat a little bit more towards inflation, moving back towards the number that they need to see in order to cut rates. And my comment was more around, you know, they've said June is the date that they think they're going to do that.

And, you know, UK and ECB, they do tend to follow the US. There's a lot of reasons for that. But the growth paradigm in Europe is just much different than the US. We're looking at two to two and a half percent GDP growth for 2024 here, and something like a tenth of that in the biggest economy in Europe, which is Germany, at about a quarter of a percent. So whether they can wait till June before they need to cut rates or not is we'll see. I'm less convinced that they'll be able to, but again, it's three months from now. So all that to say, and I guess my comment was, you know, it's, it's just our theme of this Japanification, which is higher debt levels lead to lower growth because of interest expense and, and borrowing growth from the future till today lead to lower rates, leads to higher debt, leads to lower growth, kind of that rinse, wash and repeat paradigm. Tonight,

we have State of the Union. David had a little note in there on his love for writing about politics. That's a joke. But I do know he loves politics. I think the part that he might not love is just the craziness of the back and forth on political agendas and all of that and different things in political world. But we'll see what the president has to say this afternoon or this evening, really. And then we had jobless claims today were right in line. We were expecting 217. We got 217. And really, we've been hovering around this low 200s level for several months. So, you know, the Fed mentioned in their Beige Book that they were making more progress on an easing employment picture, and that was a good thing. We need to see that because the Fed's mandate is, of course, price stability and full employment.

And if they feel like employment is normalizing, that gives them a little bit more ability to go ahead and lower interest rates from the highly restrictive level that they currently are at. Trade for the month was, the trade deficit, I should say, was up 5%, a little over 5% on the month, which was more than expected. We're running basically a $67.4 billion trade deficit here for the month of February so it's substantial one of the reasons and I mentioned this maybe it was last week I think was the dollar versus other major currencies in the world is trading significantly higher it's actually started to roll a bit here and I think some of that is due to expectations that interest rates will actually start to go lower. But, you know, again, if the rest of the world is going to do the same thing, you know, on a relative basis, we'll see what really matters for currencies, which is the fundamentals. And, of course, the fundamentals in the U.S. versus most of the rest of the world, China, Japan, and Europe are much stronger.

So I'm assuming the dollar will weaken a bit, but I don't know that it's back to where it was several years ago or anything like that. So again, that trade deficit matters. The stronger dollar that we have, the more things we can buy overseas for cheaper and short-term, the less that we tend to export across the world as it's more expensive for others. Productivity for Q4 was up a little more than expected at 3.2, which is good. I think the notable piece of that was the labor input cost of that was up much less than expected. It was 0.4 and the number was expected to be 1.2. So again, some of these input price pressures for inflation coming lower basically across the board is what I paid attention

to more in the productivity report for the day. There was a question in Ask Brian, pretty simple one. It did come in, the real question this morning, about someone that has risk tolerance, what are some of the things that we use in portfolios for them? He's recently retired. It's a general question. I mean, I need to know more about the person that's asking the question first before I can give a specific answer, of course. But generally speaking, if someone that is risk tolerant, we would look at the equity market. Our dividend growth equity portfolio has growth, it has income, it has growth of income. It has those important factors that most people need to make their retirement nest egg work for them.

And then, of course, there's things like alternative investments, parts of the fixed income markets. All those things are for risk-tolerant people. They all have different risks associated with them, but they can all provide returns that will get people to where they need to go. Tomorrow, we have Dividend Cafe that will be in your inboxes as it always is, and happy Friday by the way. We also have non-farm payrolls out, which will be the biggest number on the day as far as the economic calendar. We're expecting 200,000 jobs and we're expecting unemployment to stay about the same, which is 3.7%. So we'll see what we get. It would not shock me if we got something lower than those numbers and the market actually

liked it, meaning that bad news would be good news because it would show employment slowing down a little bit, and maybe that would give the Fed more reason to go ahead and stick to that June timeline on cutting rates. But again, the number is unknown. So we'll see what we get tomorrow and go from there. With that, I wish you all a lovely evening. And if I don't speak to you, a great weekend. Thank you. Thank you. as tax advice or tax information. Tax laws vary based on the client's individual circumstances and can change at any time without notice. Clients are urged to consult their tax or legal advisor for any related questions.