The Dividend Cafe - The DC Today - Tuesday, January 2, 2024

Episode Date: January 2, 2024

Today's Post - https://bahnsen.co/3NNxO27 This is a tough DC Today to write because I have to resist every temptation to start doing my “year behind” review or “year ahead” projections now. I am deep into the writing and preparation of that annual endeavor and I am really hopeful that the final product will be informative and profitable for all of you. In the meantime I am back from my Christmas week away with my family and excited that 2024 is here. This annual “white paper” I am in seclusion working on will be out this MONDAY, the 8th, as a special release Dividend Cafe. As I read, research, and write over the next three days in between sessions of hanging upside down in my closet, Brian Szytel will take on the Wednesday and Thursday DC Today task. 2024 started off with more of a 2022 vibe than a 2023 one as the Nasdaq dropped -1.63% and the Dow rose a tad. 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. Welcome to the very first DC Today of 2024. I do hope and trust you and yours had a wonderful new year. I am back in the country, although not back into the office. I have come out to my desert house with the intent being to totally focus on our year behind, year ahead white paper

that will come out as the Dividend Cafe on Monday, this coming Monday, which is January the 8th. So we're doing this as sort of a special timing. Normally, obviously, we do Dividend Cafe on Fridays. We need a little bit more time than the shortened holiday week will give us with all of the reading, research, and writing that goes into into it which is what I'm here to do this week then of course the editing and design and layout and you know kind of the the production side that the team has to do to get it ready for for publication we just decided to make Monday our release date and I'm going to have have Brian Seitel handle the DC Today load for me tomorrow and Thursday, Wednesday and Thursday, just so that I can be as focused

as possible. The white paper we've been doing since, I think, oh, it's at least a few years before we left Morgan Stanley. So I think it's been 11, 12 years now. And it's a monumental task. And I want it to be something that's really valuable for you all. I want it both in the podcast form, the video form, but especially the written deliverable that we are going to put into a printable PDF format. There's a lot of content to summarize, a lot of data, a lot of perspective we want to offer and give people at this turn of a new year some coherent contemplation on what last year represented and reflection on what we believe about this year ahead. And so it is a big priority for

me. It's something I take very seriously. Appreciate your patience as we get this out. Candidly, a whole lot of firms do a kind of year ahead type of deal or a year in review kind of thing, like a month or five, six weeks into the new year. in review kind of thing, like a month or five, six weeks into the new year. We don't have that kind of bureaucracy or delay, but a few days, hopefully you can understand, particularly coming off of the holidays and travel and just all of those different things. So there we are. That's the setup.

With all that said, we did do DC Today today, and I want to walk through a few things for you. The market opened 2024 with a real 2022 kind of vibe, but not at all like 2023. The Dow was up, but just a little bit. But then the NASDAQ wasn't just down. It was down quite a bit. 1.63% would have been one of its worst days of 2023 had it been in last year's calendar year. S&P was only down 0.57%. So it was a weird day in terms of how much technology was down, 2.58%. And then how much the defensive sectors were up, you had healthcare up almost 2%. And then both utilities, energy, as well as consumer staples and real estate were basically

all up over 1%. Candidly, I hate saying things when you can't prove it and there's nothing empirical to go off of. But just anecdotally, it looks a lot like rebalancing that most technology things would have been up last year and a lot of the defensive sectors would have been lower weighted. And so some form of rebalancing would have probably lent to more selling pressure in tech and buying pressure in some of the others. Maybe that isn't the story, but that's what it felt like to me today. When we talk about this market momentum, a few little bullets that stuck out to me in my morning reading, I cannot believe that 90% of the companies in the S&P 500 are above their 50-day moving average right now. That's an incredible amount of momentum.

And I'd point out that 70% of the index is at a 20-day high. So the short-term momentum embedded into the S&P is quite significant. But momentum is not a factor that we believe holds any predictive value at all. Momentum is backward a factor that we believe holds any predictive value at all. Momentum is backward looking by definition, and momentum lasts as long as it lasts. And then when it doesn't last, it doesn't. And that's tautologically true. And I think the reason we don't put a lot of weight into momentum is some form of predictive or future looking factor. form of predictive or future-looking factor. One of the things I'd point out that is surprising,

historically rare, is not only do you have 90% of the S&P above its 50-day moving average, you have 90% of the Russell 2000 above its 50-day moving average. So an index that's four times as large, focusing on significantly lower quality companies, just as you would expect in a smaller capitalization of the stock market, and yet 90% above their 50-day moving average. So you've definitely seen a broadening out of where markets have done well in the last eight, nine weeks. What else do we want to point out? Iron ore is at its highest price in over a year and a half. So for all the talk about a China slowdown, you have certain commodity indicators not cooperating with that narrative. Today, the 10-year bond yield was up eight basis points, closing at 3.94%.

I already talked about the top sectors of the day. On that story of bond yields, one of the big stories that closed out the year with risk assets rallying so much was the massive rally in bonds and the drop of bond yields. And again, the 10-year US Treasury going from 5% to below 4%. But this was a global phenomena. You had Germany drop from a 3% 10-year to a 2% yield. You had the UK go from 4.5% to 3.5%. So as a percentage of rally in bond prices, a percentage of yield decrease, percentage of rally in bond prices, a percentage of yield decrease, the US actually was one of the lower ones compared to some other developed countries. Okay, in the news today, first of all,

yesterday, we had this tragic story of a pretty significant earthquake in Japan, I believe a 7.6 magnitude that then has led, it was coastal, so it's led to follow-ups of big waves and typhoons and this kind of stuff. So that appears to be one of the larger stories globally. And of course, it's more weather related, but a natural disaster at that. Today, the president of Harvard University, Claudine Day, did end up resigning. It had been kind of a soap opera over the last month since that just disastrous congressional testimony, and then just story after story after story of plagiarism allegations ever since. And for a little while, it looked like she may survive it. But the magnitude of the story just got completely out of hand for her.

And she did end up resigning today. So I think that we're going to try to cover little stories like this now and then in D.C. today, because the normal news cycle is probably going to have some electoral story in the campaign as we now get to be a few weeks away from the early primaries almost every day. And I have no intention of talking about the election every single day of 2024, but that's mostly for my own spiritual sanity. Okay. Public policy, a few moderate senators, Kyrsten Sinema in Arizona is taking the lead here. They're still going to work on some sort of compromise border immigration bill that they believe could get enough support in the House and Senate to get done.

And if that does get done, that increases the likelihood of a Ukraine funding bill. Apart from some border bill, I don't see the Ukraine deal happening. So there's a lot moving on that. But as we talked about a few weeks ago, this was never going to get done before the end of the year. And now we're through the holidays and we'll see where this conversation goes. That was interesting. The Biden campaign released plans, not policy plans per se. It's not an agenda in the 2024 calendar year, but part of their campaign stick

in 24 will be to announce that they want in a second term a 25% minimum tax on billionaires and a five times increase in the tax on stock buybacks. And I'm sure they have plenty more they're going to fill in as they get through the details here. But some of the early indications of a policy agenda just have to do with big tax increases. So that's worthy of print, obviously, when it's so direct into the policy front. Into that world of real estate, housing, mortgage, commercial real estate, all that kind of stuff that I like to cover in the Monday edition every week. Right in Christmas week, the major law firm, Paul Weiss, but the tenant is somewhat irrelevant. They signed the largest office lease that was signed in America in 2023. 765,000 square feet, I believe covering 18 floors

in one of my old buildings in New York City that I was in for a year before we moved to the spot that we are now. And we had a much smaller presence in Manhattan at the time. It's 1345 6th Avenue. It's at 54th Street and 6th Avenue, very near Central Park. It doesn't really matter. But my point is, you know, Class A office getting a 20-year lease for 750,000 square feet shows you that a lot of what troubles the office space is not in Class A, even in these big cities. That office, by the way, is Kitty Corner from where we're going to be moving our New York office to later in the year. We're in letter of intent now to sign to move to a different space, also quite a bit larger, but no, not 18 floors of space. So just a little update there on some of that commercial real estate conversation. This is anecdotal, but nevertheless

worth mentioning. Currently a 78% chance in the Fed funds futures market of some rate cut. There's different percentage odds of what the level of rate cut would be by the March meeting. I think that seems pretty optimistic, but again, that's where the futures are. And then it's 100% chance of some rate cut by June, again, of different levels of magnitude. You know, right now it's over a 30% chance that we will be at 200 basis points lower, 175 to 200 basis points lower by the end of 2024. So, you know, the futures are definitely on the aggressive side right now of discounting plans for Fed rate cuts. On the energy side, I thought it was funny this morning, as I was working out, I saw on CNBC oil rallying with turmoil in the Middle East. And I ran and put a ship in the Red Sea and a large global shipping company pulled their ships out and said, we're not going in there until things settle down.

And so then I saw that oil was up like 1%, which, you know, for those of you follow oil prices, 1% is like flat. I mean, it goes up and down 1% just, you know, almost by accident every, every hour. I mean, it's just not a big deal. So it didn't seem to me that the headline on the TV, um, in my fitness center matched the reality of what was happening. And then by the end of the day, oil actually closed down one and a half percent, but still with the headline of big tensions in the Red Sea. So look, it is true. Iran has a warship in the Red Sea and no one really knows why. Yet oil prices are basically saying they don't believe this is anything escalatory. I want to hold fire on the, no pun intended, on anything I want to talk about regarding 2023 that was and 2024 that will be. But just real quick mention, the midstream energy

sector closed anywhere between 15 and 20%, depending on the specifics of how you get it. And MLPs alone were up over 25% in 2023. And that's with oil prices down 10% on the year. But the reason I'm bringing it up is that MLP is isolated. So you have the whole midstream world, there's Canadian, you have corporations, which is a big portion of the industry now. But then those master limited partnerships that are publicly traded, but set up for tax structure as partnerships, that used to be the vast majority of the pipeline space, they were up 25% for the third year in a row. That's never happened in history. Okay, there is a long Ask David answer in the dc2day.com where someone had asked whether or not I thought, you know, what yield on the 10-year would make it an attractive place to enter?

What's the right clearing number, you know, that just makes sense when you factor in all the things that one would think about in buying a longer dated bond? And I had to give a longer answer. And I'm not going to go through it here now in the podcast and video. But if you're interested, I think it's an important subject. I'd go to the dctoday.com and read today's Ask David. Okay, that's all we got. I'm looking forward to being back with you. I love doing the DC Today at the beginning of every week. I need to be fully focused here on the white paper. You'll see me next Monday in the Dividend Cafe with the year behind and year ahead and all that goes into that.

In the meantime, Brian will obviously have some wonderful information for you and market synopsis over the next couple of days. So happy new year. Welcome back to the DC today and reach out with any questions anytime. Take care. 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. This is not an

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