The Dividend Cafe - The DC Today - Tuesday, August 22, 2023

Episode Date: August 22, 2023

Today's Post - https://bahnsen.co/45fwZGb This was the fifth day out of six that the Dow was down. China is defending its weakening Yuan currency by making it more expensive to bet against it (raising the funding costs makes it more expensive to short). They face a pickle of wanting looser monetary policy to support their weaker economy but wanting a stronger Yuan as their currency has depreciated in recent months. The UPS workers finalized their $30 billion pay raise. How distorted are things in the market right now? The Nasdaq was UP +1.6% yesterday, yet 67% of the stocks in the index were negative. The 2/10 curve is now only 69 basis points inverted (it had been well over 100bps at the peak). 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 the Tuesday DC Today. We had the fifth day of the last six days that the Dow was down today, down 175 points on the Dow, which is about half a percentage point. So continuing a little bit of a market sell-off, the S&P was down a little over a quarter of a percent. And then the NASDAQ was basically flat, up six basis points. Very weird action in the NASDAQ, by the way. It was barely up a little today. It was up over 1.5% yesterday. And yet you had 67% of the stocks in the NASDAQ down yesterday. So when you start getting that weakness and breadth and yet positive price action, it's just really getting top heavy and normally it doesn't bode well. But that's just kind of a distortion in the market

that we've seen as some of the larger cap names have done this disproportionate contribution into index performance. What else was of note today? Both utilities and real estate were the leading performers, up about 28 basis points each. And then you had financials were the biggest drag on performance. But nothing was down a whole lot. Speaking of financials, which are more impacted by the yield curve than most other sectors, the yield curve's inversion has come all the way down to 69 basis points. Now, understand that still means that the two-year treasury is offering a yield that is 69 basis points higher than the 10-year, but that inversion had been about 120 basis points.

And so you've definitely seen some narrowing of the inversion, but nevertheless still in inversion. The Chinese yuan, there is absolutely no question that policymakers are intervening to try to defend the yuan. It's been selling off. And yet, as I've talked about, both with Dividend Cafe Friday and some other comments made yesterday in the DC Today, they are in a bit of a pickle because they are wanting to ease and accommodate in monetary policy. Most of those things would add further weakness to the currency and they're not in much of a position to try to strengthen the currency while taking an accommodative tone in monetary policy.

One of the things that they've done in spades here, it appears to me in the last 48 hours, is make the funding cost higher, essentially make it cost more to short the yuan. So there isn't really anything sustainable or fundamental going on there, but it at least tries to punish speculators that are betting against it. Evidence, again, of them sort of acknowledging in financial markets the dilemma they're in of wanting to stem the depreciation of their currency while at the same time maintain accommodation and monetary policy. Existing home sales came out today. It was down 2.2% on the month. On an annualized basis, it's coming in at a little over 4 million homes,

lower than expected by about 80,000. Price-wise, it was down month over month in July and is only up now year over year 1.9%. So continued softening, but no collapsing out of our residential real estate market. Those are the major highlights I want to cover. There's Jackson Hole coming on Thursday. Chairman Powell doesn't speak till Friday. So that's probably what a lot more of the media attention will be on later in the week. In the meantime, there's just not a lot of buyers right now. There's not a lot of excitement, not a lot of action for those that care about things like three days or three weeks of market movement.

Luckily, I don't. Anyways, that's the scoop today in the D.C. Today. We'll be back at you again tomorrow, Wednesday. Look forward to whatever comes our way in tomorrow's D.'s DC Today. Thanks for watching. Thanks for listening. Thanks for reading. And please reach out with any questions. Take care. Thank you. or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors. All data and information referenced herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices,

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