The Dividend Cafe - The DC Today - Tuesday, March 5, 2024

Episode Date: March 5, 2024

Today's Post - https://bahnsen.co/3T7Ki6D Markets opened lower and traded that way the remainder of the day in stocks, with bonds catching a bid and rates falling across the curve. We actually had good numbers on both services ISM and PMI numbers, although there may have been some market angst over Powell potentially sounding hawkish tomorrow in front of Congress, and we just gave a little back on the day. Q4 earnings season is basically a wrap at this point, and while the quarter came in great at 9.8%, the earnings per share growth on the entire year was just .5%. Q4 acceleration is expected to last for most of 2024 with earnings expected to be up another 10% and then somewhere closer to 13% in 2025. Margins have also advanced recently up to 16.8%, and while all of these things are of course generally good, this move up we’ve seen the first two months of the year seems to already have taken note. 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 and welcome to DC Today. It is Tuesday, March the 5th. Thank you for being with me here. I'm speaking to you here in our Newport Beach, California office studio. Nice sunny day here in California.

Markets were a little less sunny, although. The Dow was down about 404 points on the day. We actually opened lower and just traded and drifted lower for most of the day and then closed just off of the lows. We were actually down over 500 points about an hour before the close. So a little bit off the low for the day, but a giveback day nonetheless. And it was largely driven by potentially some angst. Powell is talking to Congress tomorrow. He does a semi-annual testimony. And so markets can

feel angst sometimes before what could be a more hawkish statement with Congress. I think it'll be benign and more of the same personally, but there was that and then some larger technology downside for the day. There was a sales miss in China for Apple and some other things. So some of the technology sector was just down on the day about 2% and then drove the overall markets lower a little bit. The bond market caught a bid on the day and rates went down to some degree. The 10-year was down about six basis points. We closed at 414 on 10s for the day. So a bit of a down day in stocks and an up to end bonds. We had ISM services data out today that was a little weaker than expected, but pretty much in line. We were at 52.6 versus about 52.9 expected. So still very much

expansionary. And I would say still generally good in the services sector in the economy. So those things are fine. And then we also had a revision in a final PMI, producer manager index number that ticked up a full percentage point to 52.3. So it was already expanding above 50 and then it moved higher, which is also a good thing. So the economic numbers on the day are not what drove the market lower, economic numbers were actually positive on the day. So there you have it. The PMI number, by the way, is the best we've had since the summer of last year. And actually, inside of it, the input prices were the lowest that we've seen now since October of 20, which is right around coming out of COVID. So most of the economic numbers were quite good on the day, and we'll take that. And then now that we're basically 99% through earnings season for Q4,

we're going to close somewhere around 9.8% higher for the quarter, which is quite good. But my comment was just keep in mind for the year of 2023, we still were only up about 0.5% on the year. So earnings grew, but not by all that much. And so the expectation for 2024 of earnings being up a 10% figure, which would be basically extrapolating Q4 through the entirety of 2024, and then an estimate for 2025 of 13%, 25 of 13%. I hope that those numbers get hit. I think the market has run up a little bit in anticipation of some of that, and I would personally take the under on it. And so if we're starting off at a 21X and earnings have to grow 10% just to keep that number, that multiple, I'm a little hesitant about it. In fact, there's a clip in there about me talking about market

valuations on CNBC Street Signs that you might want to check out. I know David gets a lot of media coverage on these, and it's fun when I do too. So I hope you like it. The other part that I mentioned was that inside of those earnings numbers, again, there's some, I don't know if I'd say lofty, but there's some expectation for a lot of growth in 24 and 25. And that's with margins have already rebounded up to almost 17%. So even with healthy margins,

there's just a lot of good news kind of baked in, I guess is the point to those statements. I put a section in there, which was a question I got from a great new client for the Bonson Group about how much turnover there is in the dividend portfolio. How much are we buying and selling? Are we taking names in, putting names out? How much trading is going on? Really, I mean, our turnover in the portfolio is quite low. I mean, really quite low. We own businesses that we've analyzed and scrutinized and that are growing dividends, in which the real way to reap those rewards is to let the dividends compound. And so just by nature of what we believe in, it tends to be a higher conviction portfolio,

a lower turnover portfolio over time. We still have to take names out and we still have to add names in, but it just doesn't happen every week or even every month. And in a given year, maybe there's a half a dozen names that may change that even be on the high end, frankly. Most of the businesses that we own, we own for the long term. What is more common than that is adjusting the portfolio because, of course, things change in the economy. Things change in earnings and things change in just stock prices. And so sometimes we'll get pullback in one name for whatever reason that is every much still as good as ever.

It just happened to have some depreciation in the share price. We may add to the name, bring it back up to the weighting that we have in the portfolio or even increase the weighting depending on the opportunity. And then the same is true on the opposite

where names may just perform. They may be just a victim of their own success. I could name half a dozen that this happened to recently or within the last 12 months, where you just had so much price performance on the share price, you end up getting a little ahead of yourself, meaning that our thesis played out. It just played out a little faster than we may have thought it would. And that's not a bad thing. That's a good thing.

But at that point, we'll either trim the position a little lower just to bring that waiting back to where we want it to be. Or we may actually lower the waiting and decrease the size overall in, uh, in, in the name, but actually selling the name outright or buying a new name is what happens a little more seldom in the portfolio. And that's why the turnover is, is less in it. And that's why the turnover is less in it. And that's the way we prefer it. Tomorrow we have, again, like I said,

Jay Powell doing his testimony to Congress. So we'll see what that entails. And then we have an ADP private payroll number that will be out. Those will likely be the two big market movers for the day. My sense is with today's pullback, I don't know if I'd read in too much for one day first off, but tomorrow is another day and we'll take it as it comes. With that, I'm going to let you go here this Tuesday and wish you all well. Please do reach out with your questions and we'll talk to you soon. Thank you. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC, member FINRA and SIPC, with Hightower Thank you. from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice.

This document was created for informational purposes only. The opinions expressed are solely those of the Bonson Group and do not represent those of Hightower Advisors LLC or any of its affiliates. Hightower Advisors do not provide tax or legal advice. This material was not intended or written to be used or presented to any entity as tax advice or tax information. Thank you.