The Dividend Cafe - The DC Today - Tuesday, March 12, 2024

Episode Date: March 12, 2024

Today's Post - https://bahnsen.co/3wT2REd A positive trading day in stocks with a fresh new read on CPI that was largely in line with expectations, with both Headline and Core up .4% for the month of February. While these are close to the same print we got in January that caused our 1.5% selloff, February’s read was priced in at this point, and if anything, more reaffirmed that the prior month ticking higher was more a one-off than a new longer-term trend. Yields were modestly higher across the curve, and Fed futures are at 60% for a June rate cut at this point. There is plenty of data from now until then, but all things being equal, our disinflation narrative remains intact. A quick state of the US labor force: Total Labor force participation rate total 16+ years at 62% = Not Great Labor force participation rate amongst 25-54 Yr. old’s at 83% = Great Labor force participation rate amongst 55+ at 38% = Abysmal (the chart fell off a cliff in the pandemic and hasn’t recovered) Total US Labor Force at a total of 160MM employed = Good The overall participation rate is still historically low at 62% (67%+ would be cooking with grease). Demographically however, with still positive population growth in the US, compared to declining population numbers in some other parts of the world (i.e. Europe, Japan, China), there is an advantage. 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. Hello, welcome to DC Today. It is Tuesday, March the 12th. Thank you for being with me here and a nice positive day in markets to report to you in the indices. The Dow was up 235 points. The S&P was up over a percent.

And NASDAQ was up one and a half. So positive across the board. There was a little weakness across treasury curve, but not a lot. Pretty modest. Yields rose on 10-year, about five basis points. We closed at 415. So all this was fairly positive on the day. Yesterday was coming off of yesterday's down day, which was angst over today's CPI number. And then we get the CPI number. And of course, it's about in line. Core was slightly higher, but I mean,

it in line. Core was slightly higher, but I mean, like half of a percent or something. It was just barely higher than expected. We got 0.4% for the month of February for both headline and then taking out food and energy for core, also 0.4%. The year over year number for headline was 3.2 percent, which was slightly higher than the 3.1 percent the last read. And then for core, it was 3.8 year over year, which was slightly higher, but basically in line from 3.7 that we had last time. So, you know, all this to say, I've said this before, but the path to two, two things. One, it won't be a straight line exactly. So it's not linear. So you get little bumps in the road. The market was up today because, again, I think the numbers were essentially in line, really. But it was affirming in that the January, what was telegraphed, at least, is very hot, tick up in inflation to 0.4 for the month, is looked at now as more of a one-off,

again, a bump in the road, not necessarily a permanent longer-term trend. So markets tend to like that. And then of course, just having the news and not worrying about what it could be is sometimes supportive to markets. So all those things on CPI are good. And then the second part was, and I've said this before, in fact, we've written about it a couple of different times, but just understand that the shelter component inside of that number is still at a 6% read. I think it was 5.97. And that's a third of how they measure CPI. And if you look at, which is a year over year number, by the way, that 5.97. So it's capturing a higher number in the front end. If you look at, which is a year-over-year number, by the way, that 5.97, so it's capturing

a higher number in the front end. If you look at the actual Zillow rent index, which is more like 2.5%, and then you would have swapped those two and put it in there for CPI calculation, you're already at the target or pretty darn close in the twos. So I think that we'll get there, and that's what we're looking at, at least on the inflation front. Markets seem to like it for the day. I put some data in there on labor force participation. I don't think I've written about it recently, but just sort of a checkup, almost like a report card of where we are in the labor force participation. We're at about 62% participation rate. Anybody 16 years and older in the country, which I give sort of a B minus C plus, I guess,

which isn't great. You know, something over say 66 or 67 would be better historically speaking. So we're on the low end of participation and the reason is, and it's bifurcated. If you look at 25 year olds to 54 year olds, which is the biggest kind of part of the meat or the middle of the labor force, we're looking great. We're at 83% participation in the labor force. Historically, that's above where we've been. And so that number I give an A. I think that's a good number. And then if you look at anything above 54 years and older, or sorry, 55 years and older, that's pretty abysmal. It's a weird phenomenon. I guess there's some intuitive numbers around it. But during the pandemic, that participation rate just fell off a cliff. So people retired early, essentially. And the good news is, is the standard of living in this country is, is of one high enough that people can get away doing that for all the negative things that you could say. But it's at 38%. So historically, that's very low. And it's just down from where it was and below

trend line. So if you add all that together, you sort of get a B, I guess, or a B minus maybe on labor force participation. It's a little lower than I'd like to see. But at the end of the day, because we still have, albeit small, but we still have population growth in this country. It's not negative, in other words. We don't have a declining population. We still have people having babies, believe it or not, and we still have immigration. That's an advantage. If you look at other places in the world, for example, China or Europe or Japan,

where population is generally declining, given participation around the same, then it's harder to grow GDP. around the same, then it's hard to really, it's harder to grow GDP. And that's why you end up with a declining or slower GDP environment in those places. And I said that because I think there's still something to be said about positive population growth in the US. David had a nice comment in there about valuations. And really, it was, you know, where we were now compared to the year 1999. Back then, you still had 43% of the index that was trading at 15x or cheaper, even though it was still overvalued, and particularly technology, there was still a big part of it, a big section of it that was trading it right at 15 times. And today, that 43% is only about 25% now. So what it means is

those top companies are skewing it even more than they were in 1999. And that's not necessarily a good thing. Of course, the companies now, as compared to 99, I believe are healthier healthier specifically in technology, positive earnings and all those sorts of things. But, you know, the, um, the top, uh, five, you know, companies in the S and P 500 are trading over 30. Um, and so, you know, I think there's other places in the world and in the market to take a look at for valuation going forward. There was a section in there, I get the question enough, I worry that I had at one point put it inside of DCT or DC Today. I hope I didn't. But the question is, when we take on an account

and it has a huge capital gain in it, what do we do? I just walk it through. I mean, it depends on the situation. It depends on the client circumstances, all these sorts of things. But we've got a lot of tools to deal with it. And frankly, we deal with it on a weekly basis. So this isn't something that is unusual for us. Divesting of appreciated securities. We do surgically.

We take our time. We use our internal tax team when we need to, uh, and it'll go quite well. And I guess my advice is just, I get the taxes. Um, nobody wants to pay taxes. I understand that, but you know, you don't want to put the tax cart before the investment horse when you're trying to decide what you should do. You should own the investments period. Um, okay. Uh, that's what I have for you today. I'm going to wrap it up tomorrow. We've got a pretty light day on the economic calendar. We'll see what Mr. Market brings us. But for that, I will let you have a good night and we'll talk to you soon. Thanks. The Bonson Group is a group of investment professionals registered with Hightower

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