The Dividend Cafe - The DC Today - Tuesday, May 9, 2023

Episode Date: May 9, 2023

Today's Post - https://bahnsen.co/42ACgWM The total amount of commercial bank deposits that have left the banking system since the Fed began hiking rates is now just shy of $1.1 trillion. Money market mutual funds have taken in $751 billion. Of the total aggregate move higher in the S&P 500 so far this year, 93.5% of it has come from the 20 largest companies in the index, with 6.5% coming from the remaining 480 companies. This is not the stuff sustainable market moves are built on. CPI comes tomorrow along with more hand-wringing on the debt ceiling. Good times … 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 the Tuesday edition of the DC Today. We are all looking forward to the CPI number tomorrow, Wednesday morning before market opens. In the meantime today, the Dow was down a little bit. It was kind of up and then flat and then up again in the last 20 minutes, went down, but it was down 0.17% on the day, 50 plus points. The S&P was down a little bit more, half a percentage point. And the NASDAQ was down about 0.63%. half a percentage point. And the NASDAQ was down about 0.63%. Technology was the second worst performing sector of the day. It was down 85 basis points. Materials were the worst, down 93. The best was industrials, but only up 17 basis points. So you had a few sectors that were up,

but barely, and then a little bit more pulling down. The bond market was totally flat on the day. The 10-year didn't move at all. The yield closed at 3.52%. Oil was up a little bit more again, about 50 cents a barrel, closing at 73.5%. That's about it for markets. From an economic standpoint, last night I did read the report on China reporting their quarterly export growth was up eight and a half percent year over year. It had been expected

to be up seven percent plus change. So you had better than expected growth on China's exports, starting to see a little bit of evidence of the China reopening coming to fruition in terms of a little bit better economic data and activity. It's been slow going out of Q1, but a little pickup there on exports. NFIB, which measures the small business optimism, that index did report its lowest level in over 10 years, since 2013. And it wasn't down much from last month. So it's just been sort of a slow drip down for a little while, but each category was lower, but barely, you know, new, you had just kind of expectations, sales, CapEx plans, hiring plans, blah, blah, blah, all muted. And again, I would argue a lot of that is very likely connected to access to credit and

cost of credit, just sort of weighing on some of the expectations for small businesses. So I mentioned CPI coming tomorrow. A couple of other quick things I do want to go over. The earnings season is almost done. We still have a couple companies reporting, but with the majority of earnings season behind us, it's kind of interesting to see where things stand that on the year you have the S&P 93.5% of its market cap increase so aggregate the total S&P 93 and a half percent of that increase in market cap has come from 20 companies six and a half percent of it has come from 480 companies okay now the way I just said it is exactly accurate there's nothing funky or or or gamey about the way I'm sharing

it. But of course, one of the factors would be that if there are 250 companies that are down on the year, then they're going to be pulling it down quite a bit. But I didn't say the top 20 performing and the bottom 480 performing, I said by market cap. And so the fact of the matter is that when 94% of movement is coming from 20 companies, you do clearly have a lot of companies in the bottom 480 not up on the year and in fact, probably down. And then of those top 20, you surely have the majority of them up. So you just have a very top heavy market. It's not the greatest sign of sustainability in terms of market momentum. Somebody asked me a question and asked David today that you'll see in the dctoday.com about these banks that got themselves in trouble by taking so much deposit money from one particular

sector or geography had risky levels of depositors that made them more vulnerable to a bank run to deposit withdrawals that ultimately ended up hurting some of these high profile banks that have gone down this year. And they said, what are they supposed to do? You know, are you supposed to just turn down money that comes in? I think it's a fair question. I just want to point out this money didn't just show up. Okay. This was money that was sought after. They were marketing to a particular niche and doing so quite aggressively. So I would argue that you don't really just incidentally end up with a high concentration of a sector or geography specific depositor and bring on all that additional vulnerability on accident. It does require some effort, particularly focusing on services and needs to a given type of depositor

or sector or whatnot. But even apart from that, even if it was just an accident, you just, lo and behold, woke up with all these vulnerable deposits from one particular industry. I would still suggest it probably ought to weigh in to the way you manage your bond portfolio to the type of capital you raise, particularly the equity you're going to have in your cap stack. And, um, you know, the general way you think about hedging, the equity you're going to have in your cap stack. And, you know, the general way you think about hedging, the way you think about interest rate risk, the way you prepare for deposit withdrawals, that even apart from what did create a given deposit level, I would think one might want to have some sensitivity to what they can know about their depositors and their

customers. So that was a fair question and hopefully my answer is helpful. $1.1 trillion, speaking of banks, $1.1 trillion has left bank deposits since the Fed began raising rates. $750 billion of that has gone into money market mutual funds out of the banking system. Okay, CPI tomorrow, bright and early. Thanks for listening. Thanks for watching. And thank you for reading the DC Today. We'll see you tomorrow.

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