The Dividend Cafe - The DC Today - Tuesday, June 20, 2023

Episode Date: June 20, 2023

Today's Post - https://bahnsen.co/3JpIamG Greetings from Grand Rapids, Michigan where I spoke at a large economics symposium today, and where I will be for the next couple of days before returning to NYC on Friday. As is my intention on most weeks with a Monday market holiday, this Tuesday DC Today is basically being done with the old school “Monday style.” 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 edition of DC Today. I have just literally run back into my hotel room, just got done giving a speech at a symposium in beautiful Grand Rapids, Michigan. And I was able to put together a full DC Today, the Monday style today. So if you read the written DC Today, you'll see all the normal market action and update on the Fed and public policy and all the things.

I'll try to cover as many of them as possible. public policy and all the things. I'll try to cover as many of them as possible. But with the kind of later hour, I'm going to be going a little quicker than normal, just kind of the way the schedule stuff of everything has unfolded today. The market was down 245 points today, which was 0.7%. The S&P was down just 0.47%. And then the NASDAQ was only down 0.16. So not a super big move in broader markets, Dow down a little bit more. The bond market rallied quite a bit. You had the 10-year yield down 10 basis points from 3.81% to 3.71%. So good move higher in bond market uh stocks either kind of flattish or or mostly lower but um the consumer discretionary sector was the only sector that was actually up and energy uh got hit uh you know the most down over two percent so that was sort of the day in the market

the bigger issue i would say is that the 10-year is kind of the big story right now it's been a long time since it's been over four percent and yet it also didn't want to stay down below 3.5%. So it seems to have found a comfort zone here in between 3.5% and 4%. And I think that the bond yield's inability to go higher than 4% does likely dictate the overall direction of equities. If the bond market were to sell off to where yields moved above four, then I think that you'd see a correlation with stocks and bonds positively resume and probably get a little end of this equity rally. But if the longer end of the bond curve is able to hold, But if the longer end of the bond curve is able to hold, of the yield curve is able to hold in the 3.5, 3.7, 3.8 range, then you can just sort of muddle around here for a while longer.

One thing that's interesting, I was talking a lot two, three, four weeks ago about the lack of breadth in the S&P. And we were at a point where less than 40% of companies were above their 200-day moving average just two or three weeks ago. And now that number is over 65%. And so you have seen a meaningful move higher in breadth as the market itself has sort of expanded the last couple of weeks, primarily through the month of June. primarily through the month of June. But 80%, 90% is a much better number to speak to market breadth and conviction of market durability. 65% is not quite where I'd formulate a more bullish feeling on the breadth and durability of the market as an index goes. But it's better than it was a few weeks ago.

So who knows? We'll see where it goes. One thing I think is just surreal to point out, 14 months ago, the Fed funds rate was at 0.25%. 14 months ago, ancient history, barely a year ago, 0.25%. It's now at 5.25%. And the S&P is at the same place that it was 14 months ago. So it's obviously dropped a lot in between, come back up, there's been a lot of volatility, but that's just absolute crazy market durability through that period. Now, I think that what's even more shocking than the stock market resilience through this Fed tightening is the credit spreads.

High yield was trading about 350 basis points wider than Treasury. So let's say it was a three-year high yield bond. three-year high yield bond, the yield would have been 3.5% more than whatever the three-year treasury was 14 months ago. Right now it's 4% higher. So the spread has widened 50 whole basis points. 50 basis points of credit spread widening through the most violent monetary tightening in 40 years. It's got to be driving the Fed crazy. So those are the kind of major market points I'd point out today, and we'll continue to monitor all the things happening. The Fed's going to be giving their congressional testimony. Chairman Jay Powell will be testifying tomorrow.

The Supreme Court has about 21 cases they're about to give a ruling on, including a highly sensitive matter culturally around affirmative action, including potentially some ruling on the validation or lack thereof of President Biden's student loan erasure plan. So we'll be watching the Supreme Court in the week and two weeks ahead. watching the Supreme Court in the week and two weeks ahead. The White House is allegedly working on an executive order to ban certain investments in China that impact national security, which that alone seems kind of benign and obvious. But the devil in the details, there's a couple of different congressional bills going around. China itself is very sensitive to what this may be, viewing it as an act of trying to interfere with U.S.-China economic relations. So we're watching that as well.

Housing starts jumped a stunning 27% on the month. They were 1.63 million. 1.4 had been expected. We were expecting kind of flat starts starts tiny bit up from the month before but not 27 percent higher um i think that you really need new supply and this is a good sign that so that it looks like both with permits new permits and housing starts that you're getting some uh confidence in the direction of building new homes i don't think that necessarily moves prices i think you need more supply to get more affordability, but I think it's healthy for the housing market at large. And NHB home builder sentiment came in at 55, well above the 51 expected.

So that seems to be a recurring theme here. Other than that, I want you to read the dc2day.com for the Ask David. Someone asked me what pushing on a string means, and I refer and kind of better define the act of monetary policy having no impact. It only works one way but not the other, pushing on a string. There's an against doomsdayism and a little update on energy and so forth. I have to run to the next meeting now, and we're a little out of time and late getting this out anyways. So I'll leave it there. My partner, Brian Saitel, is bringing you the DC Today tomorrow, Wednesday. I'll be back with you at the DC Today on Thursday. And of course, you'll have Dividend Cafe on Friday. Thanks so much for listening, watching, and reading the DC Today.

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