The Dividend Cafe - The DC Today - Tuesday, October 24, 2023

Episode Date: October 24, 2023

Today's Post - https://bahnsen.co/3tLGlvi Markets today rallied a bit (though they closed off their highs) as Treasury yields calmed down and leveled out. Earnings season is not even 20% complete yet, so all projections are quite premature, but thus far, revenue growth is coming in +0.9% year-over-year with earnings growth of +1.2%. There will be more meaty data to chew on in the next week and the week after that, of course. Republicans nominated Tom Emmer as their new potential Speaker of the House, but it is highly doubtful they have the votes in a full vote of the House to get him approved. A fair question – are many people buying Treasuries now not as a non-recession call (yields higher because there is no recession), but rather as a recession call (one will come and right now we get 5%, so buy now and then during a recession Treasuries rally and yields fall). In other words, is it a trade? And if it is one, is it a good one? Time will tell. Was 5% the top in the 10-year? It is obviously way too early to say. It fell pretty quickly below it yesterday and today closed at 4.81%. But the bond market volatility in 2023 doesn’t allow us to read anything whatsoever into 19 basis points or 30 hours. 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. Well, hello and welcome to the Tuesday edition of the DC Today. A little excitement in the markets today. The Dow did close up over 200 points. So it was about 62 basis points to the upside. S&P was up 73 basis points, caught three quarters of a point. NASDAQ was up 93 bps, call it 1%. So all three market indices up in the day. But with the Dow, you'll see in

the chart at the dctoday.com, there was kind of some zigs and zags, up and downs, and yet it did close to the upside. So a lot of that may have just been some buying out of some good earnings results from some companies this morning. We could put a link there in the website, but Coca-Cola had good results, and Verizon had just one of the biggest days I think it's ever had to the upside. So those things helped lift markets to some degree. Now, the other issue is that the 10-year was down two basis points. So you go, well, that's not much of a rally in bonds. And actually some of the other maturities saw their yields go higher a little bit on the day. But my point being, it's settled, that there wasn't like an eight point ups or 10 point down or the yields kind of stabilized just

for a day. And yesterday going up eight or nine to the 5% level, then down from there 15 or so close the 10 year closing today at 4.81%. So 19 basis points off of that 5% for it delved into yesterday. There's no way I'm sitting here saying 5% on Monday, October 23, you know, or whatever was the top. However, for now, there has been a little bit of stabilization, what has been a day by day by day nonstop, highly elevated volatility in the bond market. So that may have spoken to some of what took place in markets today. Utilities were up over two and a half percent. Obviously, that's one of the most troubled sectors on the year. And then energy was the only negative performing sector, and it was down 1.4 percent. Still one of the better performers on the year. And then energy was the only negative performing sector and it was down 1.4%.

Still one of the better performers on the year. Crude oil was really the story with the energy sector. It was down to $83.58, down 2.23%. So yields dropping a little, oil dropping a bit. Is some of this now maybe looking from a non-recession to a recession type call again. I mean, it's way too early. The numbers are not nearly dramatic enough, but directionally, these are some of the things that some of the market actors will play with. The earnings season is not even 20% done yet. So you know how I feel about giving the data to prematurely, but where we are so far, and we're about to have an avalanche of companies reporting for this week and the next week is really the peak of earnings season. You'll get over 50%

of companies reporting then, but at the close to 20% level, you're looking at 0.9% year-over-year revenue growth and 1.2% year-over-year earnings growth, not continued earnings contraction year-over-year. 1.2% is not much earnings growth, but it is a lot different than going backwards. In the dysfunction junction that is Washington, D.C., Tom Emmer has been nominated by the Republicans to go up for a vote for Speaker of the House. I don't understand how they would have the votes to get him through, but perhaps there's a lot of people ready to wave the white flag. So he's the new nominee, and we'll see if this new flavor of the hour pulls it through. I'm skeptical until proven otherwise. The final thing I want to

say is about treasuries. Is it possible that the move from 4% up to 5% was pricing in a non-recession? Like, okay, we had thought a recession was coming. Long yields were staying lower. Now we don't believe recession's coming. Yields move higher. Now we don't believe recession's coming, yields move higher. That's sort of the consensus view. It's been my view that one of the factors was the markets having to, financial markets having to recalibrate to the lack of a recession that they had previously been trying to discount. Now part of me wonders, is the bond market pricing in by this rally and yields going higher,

is this an avalanche of buying that has pushed prices higher, that buying the high yields in anticipation of them coming down? If we go into a recession, are yields going higher or lower? They're going lower. Is this a chance to be buying at low treasury prices, high treasury yields, in advance of perhaps a reversal of these somewhat sanguine economic conditions that then move into something more recessionary? It's an interesting time in the bond market to say that you could argue the price action has been indicating non-recession

pricing or prep for recession pricing. And I think both are plausible scenarios. So nevertheless, we don't time the yields. We don't forecast the yields. But there's a lot of people doing that right now, clearly. And that's where you get an elevated bond volatility. OK, I'm going to be with you again tomorrow, Wednesday. It's Thursday that we'll be off for our annual team meetings. And in the meantime, reach out with any questions. We'll see what tomorrow holds in oil and yields in the market and through earnings season. Thanks for listening.

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