The Dividend Cafe - The DC Today - Tuesday February 7, 2023

Episode Date: February 7, 2023

Lots of chatter from Fed Governors these days with Kashkari saying we need higher rates for longer, Bostic in Atlanta saying January’s jobs report speaks to another rate hike (which was already priced in), but now today Jerome Powell basically reaffirming his message of last week, which is one of an imminent pause. Right now, we see a 91% chance of a quarter-point hike at the next meeting and a 70% chance of one more quarter-point hike after that. Dow: +266 points (+0.78%) S&P: +1.29% Nasdaq: +1.90% 10-Year Treasury Yield: 3.68% (+5 basis points) Top-performing sector: Energy (+3.08%) Bottom-performing sector: Consumer Staples (-0.36%) WTI Crude Oil: $77.37/barrel (+4.40%) Key Economic Points of the Day: Bond yields have jumped 37 basis points since the 1st of the month on the short end of the curve The trade deficit came in at $67.4 billion for December, a tad less than expected. Exports were up +7.6% last year (energy had to help) and imports were up +2% on the year. Those divergent rates led to a decline in the trade deficit, but unfortunately, a decline of -2.5% in total trade for Q4 and -1.1% for Q3 brought total trade for 2022 down to just +4.4% versus a year ago. Links mentioned in this episode: [TheDCToday.com] https://bahnsen.co/3DPsyG2 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 DC Today. It kind of feels like a Fed Day, even though it wasn't a Fed Day in the sense of the FOMC meeting, the Federal Open Market Committee. There was no rate announcement and there was no official press conference around rate policy. But because Jerome Powell gave a speech today and a number of other Fed governors are getting their moments of fame and then you had a lot of market volatility around intraday Fed talk. It felt like a Fed day. So bottom line today, and I'm going to go kind of quickly for you. The Dow ended up being up 266 points, and that amounts to a 0.78% return up on the Dow. And I'm going to caveat that in a moment. But the S&P was up 1.29% and the Nasdaq up 1.9%. So you had a pretty substantial move higher across all risk assets,

particularly these equity market indices. But the Dow was floating around up a few points, kind of flattish. And then it skyrocketed up 260 within minutes of Jerome Powell talking. And then it dropped to down a couple hundred points. And then it went higher nonstop for the remaining two hours, two and a half hours of trading to close up 265. So the point I'm making is that you got a four or five hundred point swing in a few minutes up for really no reason, down for really no reason, continuing on forward. And when I say no reason, I mean no fundamental reason, but technically there was a reason, which is the removal of those shorts that had come into today, you know, believing there was a possibility of hawkish talk from J-PAL, which I would, you know,

I don't really believe in making my living or putting my clients' outcomes in the hands of these kind of minute-by-minute or hour-by-hour bets. But if I was forced to have made one, I probably would have been on offsides on that too, that there was a reasonably good chance that Powell was going to flex a little today with some hawkish talk, and he really didn't. You did have Bostick, who's the Atlanta Fed governor, talking about the need to be higher for longer. Neal Kashkari never misses a chance to get in the newspaper. The Minnesota Fed governor, who I want to point out is not a voting member of the FOMC, and he definitely never misses a chance

to talk about how hawkish he wants to be. So you had a little bit of a tone from other Fed governors that things needed to be tighter. And I could have seen Jay Powell, particularly after the way the market responded to him last week, coming in with the same. But the bottom line is, as we closed out and I got ready to hit save and come record for you, the Fed funds futures are right now pricing in a 91% chance of a quarter point rate hike at the next FOMC meeting next month. And that would bring them up to 4.75. month. And that would bring them up to 4.75. And then there is a 70% chance priced in of another quarter point after that, which brings them to five. There is a little bit of futures action pricing, no hike at the second meeting, and there's a little pricing in more than that. But

you're really close to the market, almost perfectly aligning around a 5% terminal rate. So that's what happened in the market today. Bond yields have continued to move. I should point out, though, the inversion has just gotten worse because the 10-year is only up 29 basis points from where it was a week ago, whereas the short end of the curve, I'm using the two-year, is up 37 basis points. It's a pretty big move. I think that's something in the range of the low fours to 4.45 or so. You know, I can tell you exactly.

Let's see here. Yeah, 4.47% on the two-year. And that, like I said, said that represents since last week a 37 basis point move it was at about you know 410 before um the trade deficit uh came in for the month of december there's always a good four to five week lag for trade computation um it came in at 67.4 billion which is a little less than expected. And exports for the whole year last year were up 7.6%, where imports were up 2.2%. So that delta is largely because of energy.

We were exporting a fair amount last year, more than expected. And I would point out, too, that you did have a decline in total trade in the fourth quarter. Imports plus exports, which is by far my favorite metric, was down 2.5% in the fourth quarter and 1.1% in the third quarter. So what that meant was full year total trade was up 4.4% coming backwards in the second half of the year. What else? Read the Ask David in the DC Today for someone wanting to know why we talk about S&P earnings, not Dow earnings, even though we prefer the Dow as a price metric.

And I think my answer is multifaceted and hopefully thorough. Energy was the leading performer today, up over 3%. It was kind of due. Consumer staples were the worst performer, but they were only down 0.36%. Oil was up 4.5%. That was the day in the markets. That was the day with J-PAL. You have President Biden's State of the Union address tonight. What else do you have going on? Clients get their weekly portfolio holdings report tomorrow morning. That's all I have to say. Thanks for listening. Thanks for watching. Thanks for reading the DC Today. This is not an offer to buy or sell securities. No investment process is free of risk. There is no guarantee that the investment process or investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee.

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