The Dividend Cafe - The DC Today - Tuesday, October 11, 2022

Episode Date: October 11, 2022

An odd day (old school) as the Dow started down a bit, rallied way higher (up +400 points at one point), fell into negative territory, then closed up +36 as old-guard defensive sectors did very well (Real Estate, Consumer Staples, Health Care) and the cool stuff got hit. More to say on everything here. MARKET ACTION Dow: +36 points (+0.12%) S&P: -0.65% Nasdaq: -1.10% 10-Year Treasury Yield: 3.937% (+5 basis points) Top-performing sector: Real Estate (+1.02%) and Consumer Staples (+0.93%) Bottom-performing sector: Communication Services (-1.63%) and Technology (-1.52%) WTI Crude Oil: $88.68/barrel (-2.73%) Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividend Cafe, weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Hello and welcome to your daily edition of the DC Today. And that's actually where I'm going to start today's podcast is with a very, very quick reminder and explanation about the title, because it occurs to me that we're calling this the DC Today. I've been writing as the DC Today for now over two years, and we've had some changes lately with the podcast video and written schedule, but this is our daily market synopsis. We call it the dctoday.com. It sits under our Dividend Cafe podcast. And I wanted

to just remind everyone, I am a little bit of a political junkie and I hate being so. I don't like it. I wish I weren't. I've tried most of my adult life, certainly the second half of my adult life, to not be such. I don't watch political news at night anymore. I've improved to get a lot of this out of my system. I do stand by the great Bill Buckley, his line who said that no decent person would ever want anything to do with politics as long as they could be sure that politics would want nothing to do with them. But the DC Today is actually not meant to be a play on DC as in Washington, DC. Well, let me take that back. It's meant to be a play on it, but it is primarily about the Dividend Cafe. And so we write the Dividend Cafe every Friday as our weekly market commentary. We've done it forever. It's sort of this thing we created that we believe in a lot. And the DC Today was

like the daily version. It was kind of a mini, if you will. So we took the DC from Dividend Cafe, which yes, then had a play on the juxtaposition of public policy and markets. It kind of had that It kind of had that dual meaning with Washington, D.C. or Beltway. But it is a daily market summary. It comes from the Dividend Cafe mantra, ethos, belief system, and approach to markets that we care about deeply at the Bonson Group. And on behalf of our hundreds of clients and billions of dollars that we are responsible for, we take this approach and belief system, apply it to what's happening, and then we write about it. We talk about it and we record it and

put it out in various mediums. So the DC today, it has a political kind of corner because we write about public policy. We talk about where public policy might impact economics and markets. And yet at the end of the day, we are dividend cafe people, meaning what pours out of us at the Bonson Group. Okay, there's my brief reminder of the name, what it stands for, where it came from. For those who really remember TBG history, the Daily Market Synopsis didn't exist until COVID, and we began writing COVIDinMarkets.com,

and I changed the name because I believed from the bottom of my heart that COVID as a matter of daily life obsession needed to end by September of 2020. And it took a little while for others in certain spheres of public life to agree with me, but I felt that I was being a hypocrite to write something daily called COVID in markets if I was done with the daily of COVID. And so we changed the name and the approach and DC Today took on its own life as a daily market synopsis, which is now what I'm going to start doing for those of you wishing that I would shut up. The Dow was up 36 points today, but we got to come back to that. The S&P was down 0.65%. The NASDAQ was down 1.1%. The 10-year treasury was up six basis points, right at about 3.95%. And yet the Dow

was down in the futures, by the way, it was down about 200 points, if I remember correctly, at 330 this morning. It opened down on the day and then rallied quite a bit. And the Dow was a one point up exactly 400 points. And then it gave all of that back and then came back up again and not rallied, but closed into positive territory. So you had a couple of different stories today. One is the intraday volatility of the Dow itself. And the other is the divergence between the Dow and the NASDAQ. And we've had a lot of days like that this year, but it has been a while.

You've had certain days where energy's been on fire. Like last week you've had in September, uh, what became the narrative of everything going down good stuff, meaning the stuff we own or, you know, high quality and then bad stuff, which I'm being facetious, but facetious, but you know what I'm getting at, you know, more volatile, high beta growthy type stuff. But really there was quite a long period of time where it wasn't uncommon. Days the Dow was up and the Nasdaq down, or days the Dow was down only a little and the Nasdaq was down a lot. And that kind of sector divergence. And so it is in a bear market like this, a little more normal. And yet we've had different narratives going on

here for a few weeks. But today you had real estate, consumer staples, healthcare all up quite nicely. And you didn't, I did not bring my other glasses. You had real estate up over 1%, consumer staples up almost 1%, and healthcare up just a little less than that. And then you had communication services, which is kind of a spinoff of technology and technology itself, each down over 1.5%. And so that's the story of the market today. And who knows, I'm not saying it represents a new trend or anything like that.

It's just the way things played out today and the way they have largely played out this year until the last several weeks. Crude was down 2.7%. The barrel, the oil WTI price per barrel was still right around $89. We're staying up there in the high 80s, low 90s ever since the OPEC Plus announcement. Okay, just economic news real quickly. The NFIB Small Business Optimism Index, I love with, you can't see this, but I can enlarge on my screen on my iPad. The NFIB ticked up to 92.1, more than expected, more than last month. And so kind of a contrary narrative that business confidence is hanging in there in the midst of recession and higher borrowing costs. I need to come back to Fed and central bank stuff, but I got to get two quick

stories about public policy done. Several lawsuits are about to play out in the weeks to come, public policy done. Several lawsuits are about to play out in the weeks to come, potentially setting up some of them getting settled right before the midterms related to various complainants and plaintiffs on the Biden administration's plan for student loan erasure. So there's a possibility of some reversal there. We don't even know which plaintiffs will be deemed to have standing and where courts will go. And maybe they punt. Maybe they, you know, there's a lot legally that could happen. And so I wouldn't want to make any prediction there. But it's a key story economically as it dovetails in with the politics.

The biggest policy news of the day was that the Department of Labor, they did not issue a ruling, a final finding, or institute a new policy, but they did propose a rule change. Now there's going to be a comment period and there's a lot that can still happen, but the Department of Labor federally, so California had already tried this with an assembly bill successfully, had already tried this with an assembly bill successfully. And now the Department of Labor proposed, remember, for good or for bad, often the way the country goes starts here in the Golden State. And I guess I got to say as a lifetime Californian, that's often bad, not good. bad, not good. But they would allow gig workers a classification status of employee versus independent contractor where that gig worker may so desire. And this would apply when I say gig worker. Oftentimes it's in the companies like Uber and Lyft are rideshare companies, DoorDash and Grubhub are food delivery companies, where there's just, you know, kind of a gray area in that treatment. So where the Biden administration may end up wanting to take this and what it means economically, both bottom up to these companies and sectors and top down what it means macroeconomically.

And I'll wait to weigh in further till we see where it goes. And do you really need me to weigh in further? I mean, don't you maybe know how I feel? Okay. Vice Chair Lael Brainard, second highest command at the Federal Reserve. Charles Evans, another significant Fed governor out of Chicago, both gave speeches Monday that were the most skeptical I've seen so far of hawkish policy. And they didn't talk about we're ready to cut rates and they didn't talk about we've whipped inflation, but they were the first speeches that were more deliberate in saying, first of all, that they are expecting supply chain issues, better functionality in the supply chain, lower commodity prices, that they will be having disinflationary effects.

effects, but also the need to see at some point a rate pause to allow time to see if some of the tightening they've done has worked. They didn't put a timeline on it. And they've actually specifically said, no, we still intend to kind of get to that four handle rate. But my point is it's difficult to wait for the Fed to say they're doing something different when markets are just waiting for the Fed to talk about how they're going to say something that refers to something different. There is that level of kind of preface in front of the actual chapters of this book that markets are going to respond to. And I believe little things like the vice chair of the Fed giving a speech like that, it's worth watching if you start seeing a narrative kick in. All of this is Fed created narratives. Speaking of which, just to get out of the way, People's Bank of China, the central bank of China, is relaunching a supplementary

lending program. Our Fed has tried some of these silly things plenty, but they want their central bank to provide debt capital to governmental banks that are kind of special purpose lending institutions that are under the purview of the Chinese government, development bank, export import bank, and they want their central bank to fund it. So whenever a central bank is funding a governmental bank, it's with money that doesn't exist, just so you're clear. Okay. Finally, and I'm not going to be able to see any of what I typed here anyway, so I may as well close this. Biggest story right now, I have a desire to do more research to really formulate an opinion as to how big it could end up being. But the Bank of England's kind of whipsaw here on their

interventions in the bond market, it's fascinating. And I mentioned that they were all in a quantitative tightening, reducing balance sheet. Their bond yields were blowing out. They came in and stabilized the long end of their yield curve by threatening to buy bonds. And they only bought about 5 billion sterling and yields came way down. And it looked like, OK, maybe they flexed and then it's all right. But then they kind of exited and it started disruption and more volatility within the rate market again. And now they've come back and we're going to do 5 billion per day, which is still very small. And then they doubled it to 10 billion. So they went from 5 billion sterling pound total to 5 billion per day for this week, and they doubled it to $10 billion. And so why I bring it up is it's maybe not going to prove to be that big of a story

in the facts itself and in the particulars themselves for England's yield curve. We're not exactly British bond buyers specifically, But wow, is this ever a great indication of what happens when a central bank intervenes, is an intervention provokes a counter intervention that provokes another counter intervention. And you have all these people predicting how it's going to play out and they have no idea, no idea with this kind of monetary experimentation where this goes. So do I think we're getting a little small scale version of a country across the pond in their own dynamic of what we face with when we talk cavalier about how easy it may be to do this and then undo this and start this, but then go the other way. Your first intervention won't be your last

when it comes to monetary policy. So Bank of England is right now kind of running a dress rehearsal for a lot of other central banks. I'll probably have more to say about this tomorrow. a lot of other central banks. I'll probably have more to say about this tomorrow. Thanks for listening to the DC Today, our daily version of Dividend Cafe, our daily market synopsis. With that, I'm going back to work. Appreciate and reach out with questions anytime. Take care. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC, member FINRA and SIPC, and with Hightower Advisors LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities LLC. Advisory services are offered through Hightower Advisors LLC. This is not an offer to buy or sell securities. No investment process is free of risk.

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