The Dividend Cafe - The DC Today - Tuesday, January 10, 2023

Episode Date: January 10, 2023

A little early morning volatility but then a small rally on the day in markets. Read below, listen, watch – the choice is yours! MARKET ACTION Dow: +186 points (+0.56%) S&P: 0.70% Nasdaq: 1.01% 10-Year Treasury Yield: 3.62% (+10 basis points) Top-performing sector: Communication Svcs (+1.29%) and Consumer Discretionary (+1.26%) Bottom-performing sector: Consumer Staples (-0.16%) WTI Crude Oil: $74.66/barrel (flat) Key Economic Points of the Day: Used Car Prices dropped -15% year-over-year in 2022 (from where they ended 2021), the largest single-year drop on record. This came, of course, off of large increases in 2021. The Fannie Mae Home Purchase Sentiment Index was up in December versus November but basically right at the all-time low set in October. 21% of people surveyed said they believed it to be a good time to buy. The NFIB Small Business Optimism Index dropped to 89.8 from 91.9 in December, the lowest since June of last year. 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 DC Today. It was an odd day. It was a good day in markets, I suppose. I mean, stocks were up. It was, let's see, futures were down 150 pretty much all morning. And then we opened up 50 points. And so without really a particular news catalyst or anything. So that was probably your first clue it was going to be an odd day. And then if you look in the dctoday.com, I have the chart of the daily market action. We kind of moved around a bit and then just sort of rallied throughout the second half of the day, but not a huge rally, but modest. The final numbers ended up being, I know the Dow was up 186 points, which is half a percentage point. The S&P was up 0.7 and NASDAQ was up exactly 1%.

And this was a day which the bond market, the yield was up 10 basis points. So you had bonds come back a tiny bit there. But still, again, those yields hanging in there in the mid threes, well off of the mid fours level that we had seen at the 10-year, further out on the curve. Communication services was the leading sector, which explains the NASDAQ having a good day. The communications were up at 1.29%. And then right behind it was consumer discretionary, 1.26%. So you've had a little leadership here from some of the laggards. Some of the names that are much more beaten up have been doing pretty well. And then technically, we didn't

have 11 out of 11 sectors up, only 10 out of 11. So it's still a pretty broad rally, but consumer staples were down 0.16%. Oil was flat on the day. In terms of a few kind of substantive things I want to go through, used car prices, the Mannheim Used Car Index came out, closed the year down 15%. By the end of 2022, it had dropped 15% from where it ended 2021. That is the largest single year drop on record. Of course, that's coming off of very large increases in 2021. And both these factors speak to why, however, anyone wants to talk about or parse out inflation reality. because I don't know anyone that could say with a straight face that the Fed caused used car prices to go up 30% in 2021 or drop 15% in 2022. And yet we know the Fed has a role in inflation and we know that the supply side had a role. And I'm all for people debating about how they turn the knobs on each. But the used car index is a great example of the thesis I have around supply. And the Fannie Mae Home Purchase Sentiment Index, I think this, I want to get the exact numbers.

This is an interesting deal because it's a sentiment index, but you have down to just 21% of people serving saying they believed it was a good time to buy. And there's varying degrees of negativity within the other 80%. But that's a really low number. And so I think you are really seeing an acceleration of negative sentiment around home purchase. really seeing an acceleration of negative sentiment around home purchase. By the way, that index was technically up in December a tiny bit, but it hit an all-time low in October. And so it's another data point. You know, we also got the NFIB today, which the NFIB small business optimism dropped a

couple points from December. optimism, dropped a couple points from December. It's the lowest since June right now, but it had come up a little bit after the summer and then come back down a little. And there's varying degrees of concerns that a lot of small business owners are sharing about their economic outlook. The Fed, Bostick is one of the Fed governors. He's a voting member of FOMC. They asked him how long he thought rates should remain above 5%. And he said a long time. So you have different Fed governors saying into the press different things. This has been an ongoing pattern, a sort of mixed bag, using non-PAL Fed governors to try to forward guide in the media

and yet sometimes contradictory guide. And I do think it's a little tough for the Fed to say we're data dependent and then say something needs to happen for a long time. Does that mean unless the data says otherwise? Because if so, then it's sort of a worthless statement. And if not, then I guess you're not data dependent. So there you go. The things I want to say right now. It's worth commenting the European winner of doom. People are wondering why natural gas prices come much lower. Crude oil is sitting in the 75 range.

We've talked about our outlook on some of the upside risk there, particularly if you're the federal government who needs to refill the SPR. But, yeah, stockpiles in Europe are significantly improved. There is no doubt that the weather has cooperated immensely. They had nowhere near the extreme winter conditions so far in Europe that could have been the case and added to natural gas usage. But I would just like to point out that it's another example of which doomsdayers have no accountability. And I don't ever mind someone getting something wrong. People make a forecast

and forecasts can be wrong because nobody can tell the future. And people use inputs into modeling an expectation and inputs can be fallible or they can vary or they can go different than we expected. There's a lot of things that can happen. But so getting something wrong is not my point. happen. But so, so getting something wrong is not my point, but the, look, there were people talking about how Europe was going to freeze to death, starve to death, and not have at any clearing price to be able to get ahold of gas and this and that. And I, I, people could say, well, they got lucky or this could have happened. that could happen. I mean, whatever. The point is, it's a reasonably benign situation right now. They have a lot of long-term needs to deal with. But I'm referring specifically to the prediction that come winter, meaning winter 2022 going into 2023, you're literally going to have that sort of apocalyptic moment.

going to have that sort of apocalyptic moment. And I think it's just one out of a million examples of where those that predict extreme doom and gloom generally get stuff wrong and generally it doesn't hurt them. And my rule of thumb is to get those types of things from people that will hurt if they're wrong, not just benefit if they're right. So the dollar is continuing to drop. It was a theme of ours for 2023. It's now below both its 50-day and 200-day moving average. It's worth noting, yes, currencies like the euro have improved quite a bit versus the dollar, but that Chinese yuan has had a significant rally to the dollar since November. Keep your eyes on that.

And then just quickly on the policy front, the House did pass the rules package last night. That was expected. Then you may have read or you may see headlines that they voted to repeal the IRS funding, the extra IRS funding the IRS is supposed to get in that new Biden bill from last year. And they're supposed to get an additional $80 billion. And the House voted and passed to repeal $71 billion of that. So if you see those headlines, I just want to make sure you understand that's not going to happen. House voted on it and it did pass the House and it's

obviously not going to pass the Senate. So the headlines are always, in my mind, a little bit dishonest because they refer to what the House passed and there are some civics-challenged folks reading it that may not know how a bill becomes a law, that has not yet passed the Senate. It's most certainly not going to pass the Senate, and there's not going to be a reduction in IRS funding for this year. So people can love that the House did it as a symbolic point. They can think it's a waste of time. People can have their different opinions on political tactics. But I'm just here to remind you that you're not seeing $71 billion leave the IRS funding this year because it won't pass the Senate. All right. That's all I got. We'll be back with you tomorrow, Wednesday,

a little later than normal tomorrow because of a lunch appointment after the market closes. But nevertheless, our day in,, day-out routine continues. I hope you're enjoying 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.

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