The Dividend Cafe - The DC Today - Tuesday, April 25, 2023

Episode Date: April 25, 2023

Today's Post - https://bahnsen.co/3LESWXT It was sell-off mode today in stocks, with the Dow down -1% and the Nasdaq down -2%, yet it really was the -50% drop today in First Republic stock that seems to be the catalyst for the market turmoil (the drop lower in the broad market that accelerated around 10:00 am PT was just minutes after the acceleration of sell-off in First Republic).  Of course, the challenging news there was known all afternoon and night yesterday and all morning today, so it was really a mid-day realization that those problems are not going to be easily resolved (selling assets and raising new equity), and then the broad market has to digest that spill-over effects that could create. Lots more earnings news to come this week. 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. Well, hello and welcome to the Tuesday edition of the DC Today. We had a bit of a market sell-off today. I'm going to quickly unpack that for you and get you on your way. Mostly just market talk right now. The Dow was down 1% on the day, 344 points. The NASDAQ was down 2% on the day, and then the S&P was right in between at 1.58%. Every sector in the market was technically negative, but utilities were only down nine basis points. Consumer staples were only down 12 basis points. So they were basically almost flat. And then you had materials down and technology down over 2%. So everything was negative with it basically being kind of just barely negative all the way up to, you know, more dramatically. So the bond market rallied huge today, especially in the short and kind of intermediate part of the curve.

The two, three year yields were down 20 basis points. I mean, that's a substantial price movement higher. basis points. I mean, that's a substantial price movement higher. And then even the 10-year was down 11 basis points to 3.4%. And that's the 10-year. So big rally in bonds for kind of the obvious reasons, risk off allocations out of risk assets like equity into bonds. Here's the thing. The market was down the first couple hours of the day, and it's entirely possible we were going to have an overall negative day. A lot of consumer staples names were up, and it wasn't looking like a blood bath of a day per se. But then there's a big publicly traded bank called First Republic Bank that right at the 10 a.m. time period, Pacific time that is, they all of a sudden dropped significantly and

they had been down all morning. And so as you watch the news and see what was happening with First Republic, it translates into what became the market story of the day. The Dow's drop down when you look at the chart of the day was just minutes later. And so there's heavy correlation there, which leads one to believe that speculation around some of the turmoil there and fear of a spillover effect was bringing broader markets down with it. It's generally not much more complicated than that. When you have a bank that says they're trying to sell off about $100 billion of assets, different loans, and whatnot, and not have a lot of luck doing it and trying to raise new equity,

it just is bringing back into question, and we've had a number of other headline events over the last five, six weeks, just various concerns about the systemic exposure that may be the case with a particularly bruised or battered bank. So I don't have anything to say about what's happening at First Republic. I'm more applying it for you to the broader market, which I think is exactly what happened today. So bottom line on the day, Dow down one, NASDAQ down two, S&P in between. The defensive parts of the market were basically barely down. Higher beta parts were down a lot

more. And now we're going to go into earnings results for big tech, for a lot of the other remaining companies in the S&P 500. You still have 80% of them to go. So that could create upside volatility, could create downside. We will see what the substance of these earnings results end up being. And in the meantime, the correlation or non-correlation principle we like of bonds being a diversifier to equities has kind of come back a bit. They've been highly non-correlation principle we like of bonds being a diversified equities has kind of come back a bit. They've been highly pro-correlated and now there definitely seems to be a reverse correlation, which is the way all asset allocators should want it. So I'll leave it there. The Ask David section today of the dctoday.com delves into whether or not the Fed understands this shelter

lag that exists in CPI. And if they do understand it, why that isn't more actionable in their administration of monetary policy. I'll let you check that out. I suspect it's going to be kind of a busy evening. Lots of companies reporting, fun things going on. Clients will receive their weekly portfolio holdings report bright and early Wednesday morning. And in the meantime, we'll come back to you, client and non-client alike, with another Wednesday edition of the DC Today. Thank you for reading. Thank you for watching. Thank you for listening. 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 advisor with the SEC. Securities are offered through Hightower Securities LLC. Advisory services are offered through Hightower Advisors LLC. This is not an offer to buy or sell securities.

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