The Dividend Cafe - The DC Today - Thursday October 27, 2022

Episode Date: October 27, 2022

I returned from my meetings in Palm Beach at the end of the day yesterday and hit the ground running (both figuratively and literally) very early this morning. I love doing the DC Today. Special thanks to Brian and Trevor for filling in, and off we go with an action-packed recap of today … Market Action Dow: Up +194 points (+0.61%) – but off of a +550 point high S&P: -0.61% Nasdaq: -1.63% 10-Year Treasury Yield: 3.92% (-9 basis points) Top-performing sector: Industrials (+1.14%) Bottom-performing sector: Communication Services (-4.12%) WTI Crude Oil: $88.58/barrel (+0.72%) Key Economic Points of the Day: Real GDP grew in Q3 at +2.6% annualized rate as net exports grew in light of energy exports being up and Chinese imports being down. Personal Consumption and Business Investment were up, but only a tad. New Orders for Durable Goods were up +0.4%, below the 0.6% expectation 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 another episode of the DC Today. It is Thursday and I feel like I've been away for a little bit. I actually recorded on Monday of this week from Palm Beach. I had Brian filling in for me on Tuesday as I was speaking in Palm Beach, and then Trevor on Wednesday as I was flying back. But it's just been a whirlwind of a week,

and there is so much that's going to be in Dividend Cafe tomorrow, Friday. I can't wait. It's been an awful lot of work putting different things together, but I feel like I'm on the verge of pulling it together in the way I wanted, which is to take a lot of stuff from our meetings in New York City and kind of delivering to you guys a summary of key takeaways and things. And I'm excited for it. So that'll be in Dividend Cafe tomorrow. But of course, that leaves us with today and another wild ride in markets. Real quickly, I'm going to pull this up because I don't have my readers. The Dow was up 194 points, but you got to remember that the Dow had been up 550 points earlier in the day. So it actually gave up a lot of its intraday lead. It closed up 0.6%. But then the Dow giving up 350 points of a lead is only the second market

story as the NASDAQ was down 1.6%. It's been a very rough week for the NASDAQ. And it looks like tomorrow is going to be another rough day, as I'll explain in a moment. But having these days with such a high dispersion of results between the Dow and the NASDAQ or the Dow and the S&P, today the Dow was up 61 basis points. The S&P was down 61 basis points. I've talked about this before. It happens. It doesn't happen a lot, but we're in a little season here where it's been happening. And so you had a pretty substantial drop in NASDAQ and a pretty decent day to the upside and the down. The 10-year treasury yield, by the way, was down 9 basis points to 3.92.

So a very big rally taking place in the 10-year treasury, particularly from, let's see here, October. What was the date that was the actual high? I thought I put that in there. I did not. Roughly a couple of weeks ago, the 10-year was at 4.23%. So you're now looking at 31 basis points of a drop in the 10-year. But then the more substantial marker was literally two weeks ago, the 10-year in UK was 4.5. And today, it was at 3.5. So you have 100 basis

points of drop, a massive rally to the upside in UK bonds. I'll talk about that in a moment. rally to the upside in UK bonds. I'll talk about that in a moment. Best performing sector today was industrials up 1.14%. The bottom performing sector was communication services was down over 4%. Huge amount of that attribution is to the company formerly known as Facebook that was down 25% today. So that's the summary of markets. The last thing I'll mention is crude oil closed at $88.58. It was up 0.72%. So mixed bag, some really brutal results in some tech stuff, some pretty bad results in almost all tech stuff. Some pretty good results in some parts of the more diversified economy, particularly rate sensitive sectors and the Dow overall doing fine, but giving up some lead. But remember, it's up a substantial amount here in the last couple of weeks.

And the news front, I mentioned already the drop in Facebook. I mentioned already the drop in Facebook. After hours, Apple released today, which is the largest company in the United States. And I would point out, too, that Amazon announced, which is up there. Apple right now, as I'm recording, is only down a little over 1% after hours. It had been down 5%. Amazon is down 20%. So after hours trading is what it is. Things could be even worse tomorrow or better.

You don't know. But it doesn't look like this pummeling of big tech is ending and with the results you've seen in Google, in Facebook, in Amazon, in Microsoft, and now we'll see how bad Apple's is. There's a pretty consistent theme of not having had a great third quarter in big tech, and yet a pretty consistent theme in a lot of non-tech sectors doing pretty well. So an interesting combination of events there. Credit Suisse, by the way, massive European financial behemoth doing a huge restructuring, more or less, to try to save the deeply impaired company, trying to raise $4 billion of new capital and planning to cut thousands of jobs. So I want to

share all the company-specific news. Macroeconomics, and then I'll get ready to wrap up. Real GDP grew in Q3 at 2.6% annualized. You recall we had had net contraction in both Q1 and Q2. The primary factor driving GDP growth in Q3 was net exports being higher. We're exporting more energy. We're importing less goods from China. So net exports, which is essentially exports minus imports, work to the favor of the GDP calculus. And yet the more sustainable elements like business investment, they were up in the quarter, but not by much. The consumption was up in the quarter, but not by much. So just as I didn't believe that the factors pushing GDP metric, I wrote a whole dividend cafe about this, down in Q1, Q2 were really clearly recessionary, despite many people's political impulse to want it to be. I don't think that the nature of this economic print is all that

positive either. It's again, right in this perfect land of ambiguity that the economy has been living in for some time. New orders for durable goods were up on the month 0.4%, a little less than the 0.6% expected. Now, the European Central Bank, as expected, they hiked their deposit rate by 75 basis points. That brought them up to 150. If it feels like they've done more than just two rate hikes to get to 150, it's because they started at a negative yield. And so some of their initial rates hikes were just getting them

out of the negative zero land of make-believe. And then I want to talk about the Fed real quickly. The expectations for a 75 basis rate hike in November, which the announcement will come next Wednesday, November 2nd, were 100% a few days ago. They're now down to 88% with a 12% chance implied in futures pricing of 50 basis points. So 88 is pretty close to 100. I bring it up just to say that for some reasons, some of that shine of a assured three-quarter point hike has come off. But then more interestingly is that in December, the odds of a second 75 base point rate hike, they were at about 70%. And now they've come all the way down to 40%, a little less than 40, as a matter of fact. So the majority view is overwhelmingly for 75 in

November and slightly majority for only 50 in December, which would equal 125 base points of rate hikes between now and the end of the year, which would bring the 300 basis point, a 3% Fed funds rate up to four and a quarter by the end of the year. I don't know. That's the majority view in the market right now. And that's come down from where it was just a couple of weeks, not even a couple of weeks ago. So be that as it may, the real question going into 2023 will be what the terminal rate is. I suspect that you are looking between 400 and 450. There's always a chance of being a little higher, but I don't believe it will. But again, the part that will matter much more is whether or not they continue hiking or

they pause and flatline at whatever that terminal rate of Fed funds may prove to be as we leave 2022. All right, I'm going to leave it there. Like I said, a special Dividend Cafe coming tomorrow and something I'm very excited about. But that covers today in the market. We'll see what the impact of Apple and Amazon's results are on the broad markets tomorrow. We'll see if this dispersion between Dow and Nasdaq continues. of Apple and Amazon's results are on the broad markets tomorrow. We'll see if this dispersion between Dow and Nasdaq continues. And hopefully you'll find Dividend Cafe

to be enticing and interesting. I know a lot's gone into it and there's so much to be chewing on right now in this very complex world we live in. Thanks for listening to and watching and reading the DC Today. Securities LLC. Advisory services are offered through Hightower Advisors LLC. This is not an offer to buy or sell securities. No investment process is free of risk. There is no guarantee that the investment process or investment opportunities referenced herein will be

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