The Dividend Cafe - The DC Today - Thursday October 6, 2022

Episode Date: October 6, 2022

A little market move down today – nothing to write home about. But more information on big picture you will want to listen to right here … MARKET ACTION Dow: -347 points (-1.15%) S&P: -1.02% Nasdaq: -0.68% 10-Year Treasury Yield: 3.83% (+7 basis points) Top-performing sector: Energy (+1.82%) – fourth day in a row Bottom-performing sector: Utilities (-3.30%) – second day in a row; rare and nasty WTI Crude Oil: $88.90/barrel (+1.26%) Key Economic Point of the Day: Initial jobless claims came in at 219k, higher than the 203k expected (though continuing claims came in a tad less than expected) Mortgage rates at 16-year high … (6.75%) ASK DAVID “Given the tight labor market and recognizing the number of people that left the workforce over the past 2+ years, is it reasonable to expect a decrease in unemployment numbers any time soon? If it’s not reasonable to expect a decrease in unemployment numbers, do you think the Fed should use this criteria as a benchmark for monetary policy?” ~ Ed D. Unfortunately, I do believe unemployment will go higher, and I do believe it will be relevant to Fed policy. Technically their dual mandate includes full employment, so if they pursue a monetary policy that increases joblessness I believe they will reverse course. I don’t think it is the benchmark they say it is, but I do think right now it gives them cover in non-effective monetary tightening (if anyone still believes the Fed Funds rate is causing inflation I have a bridge to sell them, assuming I can get the parts and labor). Links mentioned in this episode: TheDCToday.com TheBahnsenGroup.com

Welcome to the Dividend Cafe, weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Hello and welcome to another DC Today, your daily market synopsis. Let me give you kind of the breakdown of everything in the market today. Thursday, October the 6th, fourth market day of the week, fourth market day of the month. The Dow was down 347 points, a little over 1%. S&P was down a little over 1%. NASDAQ was down about 0.68. So we were pretty flattish yesterday after a big comeback. We were up massively Monday, Tuesday, gave a little back today. I wouldn't say there's anything big surprise going on.

The 10-year treasury yield was up seven basis points. You know, let me look with a two-year closed. With the 10-year closing at 3.83, it's getting closer to where it was last week. It's still, you know, a decent amount below its high of 4% from last week. It's still a decent amount below. It's high, 4% from last week, but it went from 4% all the way down to 3.7%. Now it's kind of in that middle range at 3.83%. The two-year was up 10 basis points. So it really does kind of take away some of the mystery as to why stocks would have a little sell-off today, particularly with another big up day in energy, bond yields were higher. And that seems to be the greatest correlation we have right now.

And so I'm sticking to that story. Energy was the top performing sector. In fact, it was the only positive performing sector, but it was up 1.82%. This is the fourth day in a row of energy being the top performing sector. And I think from its bottom now as a sector of last week, energy is up something like 15% in a week, maybe even a little more. It's been a massive rally there. Crude oil along those lines was closed at $88.90 a barrel. Let me give you the exact info here. It was up one and a quarter percent. And I want to make some comments about oil and policy, but I'm going to save that here for the end. Let me pull through a couple other economic and Fed things and we'll close out with some energy comments.

The initial jobless claims this morning came in at 219,000, and it was expected to be about 203,000. So it was a little more than expected, but continuing claims came in a very small amount, less than expected. There wasn't anything real compelling in the jobs data. There wasn't anything real compelling in that jobs data. But just by way of reminder, we're going to get the BLS jobs data, the Bureau of Labor Statistics, tomorrow morning, Friday at 530 a.m. Pacific, 830 Eastern, as we do the first Friday of every month. And this will be covering the month of September. And that has a chance to be a market moving event as people take jobs data to then interplay with what they believe Fed reaction will be. And so effectively, if you accept this kind of syllogism, they are believing the bad jobs number means good Fed action for markets and vice versa. I find all of it repugnant. Mortgage rates rose for the seventh week in a row, up a quarter of a point last week,

hitting their highest level on a 30-year mortgage, 6.75% national average. That is the highest in 16 years. So for those of you doing the math, 16 years brings you back quite a bit even before the financial crisis. By way of the Fed, there's a non-voting member of the Fed Board of Governors, Bostic, who said, ideally, I'd like to reach a point where policy is moderately restrictive between 4% and 4.5% by the end of this year, and then hold at that level and see how the economy and prices react. That seems to be kind of a consensus view, not really 4.5% and still hiking, not stopping in

the threes, but getting by the end of the year to around four and then holding. But again, this is one governor and not even a voting one. But that was sort of an encapsulation of his statement as to where he wanted to be. In commenting on, I think Mary Daly is our San Francisco board, Federal Reserve board chairwoman in San Francisco. Mary Daly made the comment, I don't see rate cuts late next year at all in response to the futures market pricing and cuts coming later in the year. So there's hawkish talk, there's dovish talk, there's in-between talk. And ultimately, this is Jerome Powell is going to make this decision. But, you know, they're going to be job owning different things in the futures right now are not giving us a clear indication as to where that'll go. things in the futures right now are not giving us a clear indication as to where that'll go.

So I did mention yesterday that Apollo had backed out of providing some financing on Elon Musk's purchase of Twitter and doing a lot more research on this last night. Morgan Stanley is the investment bank that's on the hook for the lead financing and they've committed and it's binding. And I think it's something like $12.5 billion of debt capital. Apollo is only playing a role in the preferred stock cap raise, which is sort of a hybrid security between the debt and the equity. And Apollo has said they're not doing a raise on the preferred now. So I don't think that we have any indication right now that there is a out. And Elon Musk, he wants to go forward with the deal. But really, if he doesn't have the financing, he's out. I think his lenders are reasonably committed. And what we heard from Apollo yesterday, upon further reflection,

would still indicate a deal that is going to be forced to close. But, you know, it's been a saga so far, so anything can happen. But I wanted to give that update. Okay, so oil up massively since the beginning of the week. And the big news yesterday that OPEC Plus has decided to cut production next month by 2 million barrels a day to target 2 million barrels per day of production cuts. And the rhetoric from the White House has been unbelievable. First of all, there was a big report that they were going to lift sanctions in Venezuela and allow exports of oil from Venezuela. That was in the Wall Street Journal, but the White House did deny it. So I don't want to go there. I mean, they had sources. The Wall Street Journal wrote

a credible piece. But when the White House is denying it, you got to look and say, I guess we don't really know what's going on there. But even some of the things they are saying, apart from lifting exports on a country like Venezuela, there's a lot of talk about escalating this rift with Saudi Arabia. I would not ignore this story for what it means to oil markets. I would not ignore this story for what it may mean geopolitically. But let's just say my piece earlier in the year about really fraying relationships, weakening relationship between the US and Saudi Arabia is looking more and more prescient. And it seems to have escalated here this week. So that's the scoop in markets today. We'll see what markets hold for Friday. I will say this,

Friday is my favorite, not because of the week ending, because I actually love working in the middle of the week and the beginning of the week as well, and frankly, weekends. Dividend Cafe tomorrow, we're going to kind of continue in a subject about bear markets. Last week, my piece on bear markets was intended to provide a real actionable perspective. Tomorrow is going to be less on investor behavior and investor mentality and mistakes to avoid and actions to take. That was really my focus of last week's Dividend Cafe. But I've decided to kind of dig into a little more historical precedent and use a bit of

a path through history to teach us a couple of things about the present. So I'm looking forward to Divinity Cafe tomorrow and then your long form written DC Today on Monday. Thanks for listening to the DC Today. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC, member FINRA and SIPC, and with Hightower Advisors LLC, a registered investment Thank you. in this research is provided as general market commentary and does not constitute investment advice. The Bonser Group and Hightower shall not in any way be liable for claims and make no express or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced.

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