The Dividend Cafe - The DC Today - Tuesday, December 6, 2022

Episode Date: December 6, 2022

Lots to cover here in the DC Today … Listen to the podcast or watch the video, and check out the info below! MARKET ACTION Dow: -351 points (-1.03%) S&P: -1.44% Nasdaq: -2.00% 10-Year Treasury Yield: 3.53% (-6.6 basis points) – ferocious bond rally of last month continues Top-performing sector: Utilities (+0.66%) Bottom-performing sector: Energy (-2.65%) WTI Crude Oil: $74.34/barrel (-3.35%) Key Economic Point of the Day: Business Roundtable CEO Outlook Survey was at its lowest number since Q3 2020, but is way, way above the breakeven level of expectation (that is, still anticipating substantial economic expansion, albeit with a grimmer relative outlook than last year) The trade deficit came in at $78.2 billion in October, less than the $80 billion expected. But total trade was up on the month and is up +13.7% versus a year ago. The container ship debacle has largely subsided and yet there are still some issues marginally constricting trade (China COVID policy, Russia sanctions, etc.) Key Economic Point of the Day: Business Roundtable CEO Outlook Survey was at its lowest number since Q3 2020, but is way, way above the breakeven level of expectation (that is, still anticipating substantial economic expansion, albeit with a grimmer relative outlook than last year) The trade deficit came in at $78.2 billion in October, less than the $80 billion expected. But total trade was up on the month and is up +13.7% versus a year ago. The container ship debacle has largely subsided and yet there are still some issues marginally constricting trade (China COVID policy, Russia sanctions, etc.) 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 another DC Today and another day of some downside volatility in the market. I'm going to just kind of quickly cover the basics and let you go on your way. I first, just by way of summary here, the Dow was down 350 points and it was pretty much steadily down all throughout the day.

It started up a tad bit, went negative, and then just slowly but surely throughout the day. It started up a tad bit, went negative, and then just slowly but surely throughout the day. In the final hour, I think it did get close. I'm not sure if it hit down 500 or not, but we were doing some tethering of client cash down 480-ish. So it was very close to down 500, and then it closed down 350. So you got a 150, 130 point bounce at the very end, down 1%. S&P was down close to 1.5%. The NASDAQ was down exactly 2%. So it was again, kind of on a down day of 2022, this was a more normal down day where all three indices were down, Dow down the least, NASDAQ down the most, you know the deal. Now, the part that has been unique with this recent market sell-off relative to the rally that we have been in for the last couple of months is that today, and this has been the case now for a full month, the bond market is in quite a rally. And so today, the 10-year was down 6.5 basis points. The 10-year yield is

down to 3.5%. So again, the price movement higher, the rally up in treasury bonds has been pretty significant for about a month now. As a matter of fact, I think today is December 7th. It might be the 6th. Yeah, it's the 6th. It started on November 7th. So we've really seen quite a rally here since the last month. Utilities were up on the day today. That was the only sector that was up. It doesn't get much more defensive in theory than the utility sector.

And so you had one defensive sector that was up on the day. And then let me look. The consumer staples were second best and healthcare was third best. Real estate was fourth best. Those other three were all down anywhere from 68 to 78 basis points. But again, the defensives were the leaders and then the cyclicals, energy, communication, energy was down two and a half percent. Communication was down two and a half percent. Technology was down over two percent. Consumer discretionary, which got pummeled yesterday, was down another one point six. So, again, you see the priority in market being on the defensives and cyclicals taking on the most downside.

Crude oil was down three point three percent. It's back down to seventy four.34 a barrel. That's a remarkable drop in crude prices. And yet, you know, people are asking how come oil stocks have done so well with this oil turndown. And I think that that is a very fair question, and it really does speak to a market dynamic I just want to quickly explain, and that is the concept of future expectations. I think you could argue that strategic petroleum reserves being used so much with guarantees for replenishment basically tells the market, okay, in the here and now, oil prices have come down.

You have a bit of increase in supply, and yet the market is well aware that there is that future business coming. And whether it's Putin, whether it's the overall dynamic in Europe, the way in which OPEC Plus is positioning things, the changing dynamic between OPEC producers and Asia, particularly China, versus their reliance on the U.S. I think that the market and the way they're pricing energy stocks does seem to believe that there will continue to be a favorable environment for that sector, even as we sit here right now with $75 oil. Gas prices, by the way, when you talk about the gas you put in your car, this is just remarkable that gas prices are basically now very close to flat on the year.

Something in the range of $3.50-ish a gallon at the beginning of the year. It got all the way up to close to $6 a gallon and then down to $3.50 again. It's not quite full circle, but getting there. I'm going to use that to also kind of tap into the inflation story. A couple tidbits that are on my mind. First of all, I've been pretty public about the fact that I believe the supply chain and various supply related issues, which incorporate labor shortages, were the primary cause of price escalations in 2021 and 22. And to the extent that you may believe I'm right about that, the supply chain pressure index has dropped substantially. The Richmond Fed manufacturing survey that measures vendor lead time has dropped significantly.

Manufacturing delivery times are way down. Shipping costs are way down, basically almost back to pre-COVID levels after mountaining up higher and then now coming down the other side. So there's a number of supply chain metrics we follow that are all substantially improving. Now, you look at that wage inflation that we talked about from the Friday employment report, 5.1%. And then there is this heavy belief in this thing called a wage inflation spiral. I don't believe in it. But look, the element, the channel through which higher wages can raise inflation is certainly likely to be in the services, X energy and X shelter for that matter.

I don't think people get a 5% increase and then say, I want to go out and get higher rent. And yet the major components to CPI with goods, which are headed are disinflating even through rising wages all year, really since, you know, much earlier in the year, food and energy is much separated from wage levels. And then the shelter side, which I have argued for a lot of reasons, many rate sensitive and many valuation oriented, that shelter is coming down. So I just don't believe that we're looking at price inflation through wages.

All right. There's more I can say on the inflation side, but I'm going too long as it is. So bottom line in terms of the day, let me pull up my notes here again. What did I do with them? Here they are. What else did I want to go through? The economic data, the business roundtable CEO outlook survey. It's at its lowest number since the third quarter of 2020. I was surprised by that because it was still well into expansion territory. So it's way above expectations for break-even. But nevertheless, the Grimmer relative outlook compared to how CEOs felt about business conditions and economic conditions a year ago or a year and a half ago, definitely on the downtick. Trade deficit came at 78 billion in October. That was quite a bit less

than the 80 billion expected. When you talk about 2 billion on trade deficit, that's a big movement relative to expectations. But I would just look to the total trade number imports plus exports for the United States, and it's up 13.7% versus a year ago. You know, that container ship debacle has largely subsided. But I still think you're dealing with Russia sanction, Russia tension issues on the margin, and then certainly less on the margin, more substantive continues to be China COVID policies. Yesterday's big sell-off, the downside breadth, the decline to advance ratio was eight to one. So, you know, nothing we haven't seen 50 other times this year, but pretty substantial. And we'll watch the Georgia election tonight again. I don't think that it's very likely that there'll be a surprise, but until it gets called, it could be,

but I expect a 51-49 Democrat Senate after tonight. That's all I got. I'll leave it there. I think President Biden's announcement with Taiwan Semiconductor in Arizona today, more chip manufacturing in the States, I think it's a big deal. I was on Varney talking about this morning. I think it's not at all a surprise they want to do it in Arizona versus certain other potential cities and states. And yet, I don't believe the CHIPS Act was a good piece of legislation. I think it's largely corporate welfare, but that's a lot of money that I don't think talent semiconductor would be spending in the States without it. And you see, you know, the CEO of Apple, CEO of Nvidia are on site today. They're customers of what

the semiconductor manufacturing will be out of, out of this new plant. So it's probably a net positive thing in certain categories, the one maybe looking at it. I got to leave it there. We'll be back to you tomorrow with another DC Today. Clients, you got your portfolio report coming bright and early tomorrow. Reach out to us at questions at thebonsongroup.com. Anytime. Thanks for listening to and watching the DC Today. 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 Advisors LLC.

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