The Dividend Cafe - The DC Today - Tuesday, November 28, 2023

Episode Date: November 28, 2023

Today's Post - https://bahnsen.co/3Gl2T9d The market is up over 10% in just twenty trading days, a 99th percentile move if there ever was one. The rally has brought along lower-quality equities and higher-quality ones, and financials, in particular, are surprisingly strong. Defensives are not as strong (consumer staples, utilities) as more cyclical or high beta sectors, but they are hanging in there. The dollar has dropped, and the Yen has rallied in the last few weeks, causing many currency traders to say, “Wait, it wasn’t supposed to do that?” Markets were pretty boring again today (though to the upside), and bond yields continued their decline. 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, a pretty slow and boring day in markets, but it has not been slow or boring overall for, let's say, the last 20 days. In the last 20 trading days, the market is up over 10%. That rate's above in the 99th percentile of all time. That kind of movement in that period of time simply does not happen very often. of time simply does not happen very often. The last couple of days may have been slow, but when you look at how much things dropped in September and October and how much they've rallied since, you certainly have had a more significant tug of war going on over the last few months. What has continued even the last couple of days is this incredible rally in the

bond market. And the 10-year dropped another six basis points today down to 4.33%. And we were down nine to 12 basis points at most spots in the yield curve, three-year, five-year, seven-year, kind of the middle of the curve. So you've got a huge rally in bonds there. And basically what you're left with is an ultra-short part of the yield curve, let's call it one month, three months, that's still around 5.4% where the Fed funds rate is. But then when you go from two or three months to two or three years, it drops a full percentage point from 100 basis points from roughly 5.4 to 4.4. And so the term structure right now is such that the term premium

is negative. And all that means is that, and I talked about this at Dividend Cafe a month or so ago, that growth expectations and inflation expectations are very low. And you're basically getting the short end of the curve plus a negative term premium in the bond yield curve. And I believe that speaks to growth and inflation expectations. And yet, hopefully, at the point at which the Fed does begin cutting the short end, the term structure will be such that longer dated maturities will hold, and you'll get a normalizing of that yield curve, an un-inverting, and there will be some degree of growth priced

into the bond market. But we can't really get optics on that until the Fed does indeed cut the Fed funds rate. So that's where things stand now. And the bond market has driven a significant rally in the stock market. And even at daylight today, the Dow was up 84 points, 24 basis points. The S&P was up just 10 basis points, pretty flat. NASDAQ was up a little over a quarter point. Real estate was the top performing sector, up half a percent. Consumer discretionary was right there as well. Healthcare was down half a percent. So very muted in terms of the worst case and the best case, the delta not too far apart. I know within our own dividend portfolio today, no stock was a worse contributor than negative

four basis points and no stock was a better contributor than positive four basis points. And so being a money manager who's looking at that every single day, it's really rare to see that little dispersion. Oil was up 2% today. It's back above $76. And then the other thing I wanted to go through economically was that rents fell. The apartment nationalist rent report for the month of November showed rents down 0.9% on the month. A decline in rents in 89 out of 100 cities that they monitor. So ongoing disinflation there. Somebody did ask me, by the way, in the Ask David section, if I thought it was a bad idea for the Fed to raise rates as a way of constraining demand,

of the Fed to raise rates as a way of constraining demand, which is in their mind intended to bring demand in line with supply and therefore mute some inflationary pressures. And I gave an answer there that I'm not going to go through now on the podcast, but I think you should read at the DCToday.com because I think it helps summarize in just a paragraph or two a better understanding of inflation than maybe the one that is sometimes articulated and certainly a better idea of what the Fed can and can't and should and shouldn't do. So I'll leave it there. There's a few different links you'll want to check out the DC today. Clients will receive their weekly portfolio holdings report bright and early tomorrow morning. And then I'm jumping on a plane tonight for a meeting on the East Coast tomorrow.

So Brian Saitel will bring you DC today on Wednesday. And then I'll be back in California Thursday. And we'll go from there. That's about all I have. Reach out with any questions. Thanks for listening. Thanks for watching. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC,

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