The Dividend Cafe - The DC Today - Tuesday, December 12, 2023

Episode Date: December 12, 2023

Today's Post - https://bahnsen.co/3Nr4A93 A consistently positive trading day on this inflation-day-Tuesday. Both core and headline CPI came out largely in line with expectations and markets were constructive with stocks modestly higher and built on gains into the close and rates down just a few basis points. These numbers are coming out right in time for the December FOMC meeting to end tomorrow with a rate decision (which is at a 100% chance for a continued pause), Fed statement update and Powell presser following. Continued broadening out in markets with more non mega cap technology names participating. Yesterday by the way, was the first time in over 10 years we had markets up broadly (including a positive Nasdaq) with all seven of the largest technology names (aka Magnificent Seven) all closing lower. Today we had more participation those names, but worth noting the subtle shift in leadership, particularly with Industrials. A positive dynamic we have spoken about for years but particularly post the Russia/Ukraine conflict continues to play out in energy markets. For the month of November, 68% of all US LNG exports were sent to Europe which has now over taken Asia as the number one destination for US LNG exports. Just as tensions between US/China has begun to permanently shift supply chain manufacturing destinations globally, the EU shifting its reliance on Russia for its energy and heating needs isn’t likely to be temporary and is quite positive for the US energy dynamic. 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 DC Today. It is December the 12th on Tuesday, and nice day in the market actually. We were a little quiet in the morning, and then we ended up just sort of melting higher through most of the day and kind of built on gains and closed right at the high, at least in stocks, but on the Dow. But both the NASDAQ and the S&P

were also higher on the day. Bonds were basically unchanged. The rates were down a little bit. The 10-year was down three basis points, closed at 420 on the 10-year. So big news of the day, there's really just one kind of data piece, which was CPI data. It was an inflation read that had been anticipated. And pretty much in line, we had a headline come in at 0.1% for the month and 3.1% year over year. And the big detractor outside of that, you probably guessed it, is energy coming down. So gasoline was down 6% inside of the headline number, which was good. All of that was basically right in line with expectations. Actually on the month, I think that it was unchanged is what was expected, but basically the same. We're talking about 0.1. On core, we had a 0.3% month over month change,

again, right in line with expectations. And then the year number, again, we're stripping out things like food and energy. So energy was the big pullback inside of the headline number. So core, the year-over-year number is still 4% on the year. So still a little sticky, I guess, year-over-year, but we've talked about this many times, and I won't spend a lot of time today talking about it again. But inside of that, there's an owner's equivalent rent number that's still at 6.8%. And we have numbers out just recently from the Apartment National rent list that shows the number's really negative 0.9% for the month. So we're using 6.8%. That's a third of what CPI is calculated from. And so if you think about that 4% number, it really is inflated because of housing.

It's because it uses an average instead of what's happening in real life. Like if you look at the Zillow rent index or any of this stuff, it's definitely not showing that rents are growing at 6.8%. They're in fact declining. It was like 89 out of a hundred cities that this list tracks were negative and 0.9%. So if you kind of bake all that in, you really do get an inflation number more like in the mid twos, which is right where they want to be. So I think they knew that because they're smart, of course. But I think that they are, I think they're somewhat tethered to this worry about what happened in the 70s and having to stop and go again on interest rates. I don't know that it's a worry as much as everyone seems to write about it particularly. But yeah, I'm sure that they

don't want to have to stop and then raise rates. But comparing this paradigm following a pandemic and just global indebtedness and a globalized world and all these things to what was happening in the 70s and the 80s, I just think is a little bit off. I don't know that there's much correlation to those two time periods, especially given where unemployment is today at 3.7% versus where it was back then. Tomorrow, we had this inflation data today. It's timely tomorrow. We get this, our FOMC meeting ends, the two-day meeting ends tomorrow. So there'll be a rate decision tomorrow. They're going to leave rates unchanged. Definitely that they will.

It'll be more focused on what the language is. Will they talk about the balance sheet? I wish they would. I don't know that they will. But I have a feeling in 2024 that that conversation will start to come up a little bit more. Maybe around the time in the March meeting. You know, if you look at Fed futures right now, there's like a 50-50 chance they're going to start cutting rights in May and something less than that in March.

And I believe that you may see something more of a language around the balance sheet runoff, quantitative tightening, maybe, you tightening, maybe toning that down or stopping it, depending. And then following that, maybe a rate cut decision could come. Look, these things can change. So I'm not here to pretend there's a crystal ball. I'm just saying what Fed futures are priced in. And I'd be surprised if they were decreasing interest rates at the same time they were decreasing the size of their balance sheet. Those two things seem to work against one another. I wrote a little piece today on a positive dynamic in the energy paradigm in the United States. We've written about this and

invested in this for many years, so this isn't new to us at TBG. But post the Ukraine-Russia turmoil, you really have seen a pretty dramatic shift in the EU's demand for heating, for went to Europe, which has now overtaken Asia as the biggest destination for U.S. LNG exports. It's a good thing. It helps with budget deficits and trade imbalances. It helps with jobs. It's a cleaner fuel to burn, all those sorts of things. And I'm sure isn't what Putin necessarily wanted.

But there you have it. It's a benefit to us. The analogy I wrote is just like the, you know, the pandemic really, and also just trade tensions between China and U.S. have really started to shift the global supply network, the supply chain network to places like Mexico and just other parts of the world, Vietnam, you know, and those types of changes are not something that happen overnight, but they're, and they're also not something that get undone overnight. So when you're talking about building infrastructure to ship liquefied natural gas to Europe, because that's, you know, they can buy it for as much or less from a price perspective, but from a friend

versus a foe, and then also supply chains moving around the world. These are usually long-term paradigms that don't just move back overnight because people get friendly all of a sudden, or a war stops or something like that. So it's impactful. Tomorrow, we have numbers out on PPI, producer price index. And then, of course, like I said, there's the Fed meeting that will end. And then more importantly, it'll be the press conference that Powell gives. And then, you know, what kind of updates they give on the economic projections following that meeting. So that'll be interesting to watch. Other than that,

David will be back with you on DC today, tomorrow, and then I will be back with you on Thursday. And I appreciate you listening and reading. As always, I appreciate your questions and I wish you all a good evening. Thank you. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC, member FINRA and SIPC, with Hightower Advisors LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities LLC. Advisory services are offered through Hightower Thank you. This is not indicative of current 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, or other information contained in this research

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