The Dividend Cafe - The DC Today - Thursday, November 17, 2022

Episode Date: November 17, 2022

Another volatile day with the Dow closing flat after being down nearly -400 points. More to say here: MARKET ACTION Dow: -7 points (-0.02%) – had been down over -300 points at the low and -400 pre-market S&P: -0.31% Nasdaq: -0.35% 10-Year Treasury Yield: 3.76% (+7 basis points) Top-performing sector: Technology (+0.21%) and Energy (+0.12%) Bottom-performing sector: Utilities (-1.79%) WTI Crude Oil: $81.94/barrel (-4.26%) Key Economic Points of the Day: Weekly initial jobless claims came in at 222,000 – not a big move from the week before or variance from expectations Single-family starts in new housing construction dropped to 855,000, down -6% on the month and -35% from post-COVID highs ASK DAVID “What do you think the impact would be on the stock and bond market if the Fed formally changed their inflation target from 2% to 3%? I assume it would be risk on for equities?” ~ Mike S. Yes, it would be. But they won’t. And they don’t need to – they basically already did in 2020 with their adjustment to the 2% standard (that is, they no longer target 2%, but rather an “average” of 2%, meaning they can let things run hot in perpetuity to “blend” to 2% depending on how the math before or after works. In other words, they gave themselves “flexibility.” Links mentioned in this episode: 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 Thursday edition of the DC Today. The markets closed today pretty close to flat. The Dow was down seven points after being down about 400 points pre-market and then even during trading hours down over 300 and sort of came back. So you've had some volatility up and down all week and then some days it was up and lost it and today it was down and lost that. And so there you go. A few other metrics of the close in the market, and then we'll talk about a few other things. The S&P was down 31 basis points, so down a bit, but nothing significant.

NASDAQ right behind that at 35 basis points to the downside. The 10-year Treasury yield was up 7 basis points, so closed at 3.76%, not a big day on the bond side of things. The top performing sectors for the market were technology, which was only up 21 basis points, and energy, which was only up 12. And then consumer staples was the only other sector that was even positive. It was barely up. The rest were negative. So on a breadth basis, more was down than up today. Utilities were the worst, down 1.79%. And so some just kind of quirky stuff in the data. Oil was actually down over 4%, largely on some stories circulating that are kind of quirky stuff in the data. Oil was actually down over 4%, largely on some stories

circulating that are kind of calling into doubt this idea of China accelerating the reopening. You can imagine that would be bullish for oil, and there's some doubt as to whether or not that's in the cards. So oil closed at about $82 a barrel. I think that's the basic stuff I want to cover on the market. There's a few other news events and economic things I want to talk to you about. The yield curve at the 210, the two-year and the 10-year, is 66 basis points inverted. And that caught my attention this morning. I was studying the 210, the 310, the 35, the 1030, and the three-month 10-year. And so it's a lot of different points on the curve, all of which are in inversion.

But that 210 at 66 bps inverted is the most inversion since 1981 in over 40 years. since 1981 and over 40 years. So really, either this yield curve has been inverted long enough and severely enough or long enough that either it's foretelling a recession or the yield curve as a predictive measure is just done. And nevertheless, I maintain my view that that's all well and good if one believes, well, we're really getting a great signal from the yield curve here. But the problem is knowing we're going into recession doesn't tell us how deep of one, how long of one, and how much is priced in. So I don't have anything new to say on that that I haven't been really saying to you all year long. The Fed, this is kind of interesting. the Fed had a few different governors speaking today.

One of them, James Bullard, who tends to be pretty outspoken, he is a voting member now of the FOMC, gave a speech where he said rates are not yet sufficiently restrictive. His colleague, Esther George, who I've read quite a bit over the years, she said, basically, we need to get a real recession to bring down inflation. So the problem with that is you have a couple of FOMC governors saying some things, and I don't know if they speak for the whole FOMC or not. And both of these have a, both these governors have a history of changing their mind rather quickly. And Bullard in particular can be one of the most dovish and one of the most hawkish on a whim. And so, you know, the market can read into it. But a day like today, it went down 400 and it came up 400. And that was either

related to this or not. But I would just say it points to the ongoing instability thing. What is not budging is the futures market read of a 50 basis point hike next month instead of 75. So let's talk a little politics and then some economic data. I'll let you go. Nancy Pelosi announced that she will not continue in Democratic Party leadership. The Democrats did surrender majority position in the House, although they did so with much less of carnage in terms of lost seats for the Democrats than had been expected. But nevertheless, knowing that a different party speaker of the House is coming and her being at a point in her career and age, she expressed desire for new generation people to come in. And already it appears that Hakeem Jeffers is going to be that replacement to former Speaker Pelosi. I don't think there's any big market impact to it, but it's worthwhile on the D.C. front to cover.

The latest prediction on that house, by the way, I feel pretty good about this. And I'm starting to see more of a consensus. NBC has gotten off of there. It's going to be a three vote lead for the House. And nobody's holding on to the silly stuff about 25. You know, there were some who had been saying 30 before the election, then 25, then maybe it'll end up being 20. And I think I still thought the day after the election that there were enough races within reach that they could still end up at around 16, 17. And then even that kind of came down from there, as obviously Democrats outperformed substantially in a lot of these House races. But I'm guessing you're going to end up at 222 to 213.

But I'm guessing you're going to end up at 222 to 213. And at this point now, we're not trying to do a total macro top-down estimate. We're just, there's all the races that are known, and then there's the very small handful unknown. And then you make a projection on each one and then do math, right? Where before people are speculating in the context of a more macro statistical model, which is much less reliable. At this point, I do think that there are three races that could go all three of Pub and all three Dem and switch the math and bring it to maybe plus or minus three from the 222-213. But I think that that 222-213 captures where it will end. And so a nine vote lead, which again is a lead. It's higher than people thought it could be a week ago. It's much

lower than people thought it would be two weeks ago. And yet nevertheless, here we are. Okay. Weekly jobless claims came in at 222,000. Not a big move from last week and not much variance from what the expectation was. Single family starts in new housing construction was probably the economic data point that got my attention most today. It dropped to an annualized rate of 855,000 last month. That's down 6% on the month from where it was the month prior, but it's down 35% now from where its high was post-COVID. So there's just simply no way around the fact that multifamily construction starts are not coming down much. Single family

new starts are coming down a great deal for obvious reasons of demand erosion and affordability. That's the bulk of things I guess I wanted to cover. I'm excited for Dividend Cafe tomorrow. Talking about the issue of yield and income and what metrics matter to investors to be really practical. And then in terms of plans for Thanksgiving week, I'm going to do the long DC today that some of you love getting that I love writing that will go out Monday, a long written DC today with the normal format, all the subjects and topics and so forth. What I won't be able to do as a podcaster video on Monday. And then on Tuesday, the normal DC today with the market summary synopsis,

and then a video and podcast from partner Trevor Cummings will come out. Wednesday, we'll have a dividend cafe, kind of a short Thanksgiving version of dividend cafe, all mediums. And then that'll be it for the week. We won't have our client portfolio bulletin Wednesday, and we won't have anything on Friday, just in honor of the Thanksgiving week and the reality around my family schedule, your family schedule, and the resources of our team at TBG and where we want to prioritize things. So that's the schedule for next week. And other than that, reach out via questions at thebonsongroup.com. Please rate, like, enjoy our podcast and video.

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