The Dividend Cafe - The DC Today - Tuesday, October 31, 2023

Episode Date: October 31, 2023

Today's Post - https://bahnsen.co/3QErw6L With half of the companies having reported quarterly results, we now see +4.3% earnings growth year-over-year and +1.4% revenue growth. Of course, half is only half. Links mentioned in this episode: TheDCToday.com 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 the Tuesday edition of DC Today. The month of October is officially over. I'll go through some more month end data recap tomorrow since the market month just ended about 20 minutes ago. But, you know, the market kind of ended pretty strong. It would have been a much uglier month if it wasn't for the last two days. And it's actually a little more interesting the way the market action went today than even yesterday. Of course, the market was up well over 500 points yesterday, and it was only up about 120-plus change today, but following up a big market rally like that with another up day,

and another day where all 11 sectors were up. So even in a day that was, let's see, the Dow was only up 38 basis points, the S&P up 65 basis points, the NASDAQ up just a little less than half a percent. So it was kind of an okay day in all three market indexes, and yet all 11 sectors up after a big rally like yesterday. That's a pretty strong showing. And by the way, doing so when the bond market was down,

you had bond yields moving higher yet again. So I'll go ahead and go through the market data first and then come back to a couple other items I wanted to cover. The the bond yields were all showing a little bit down this morning, but then they did come higher. Initially, the Eurozone announcing their lowest level of year-over-year inflation in any given month in over two years caused bond yields to drop a bit. That didn't last throughout the whole day. And the 10-year

closed at 4.91%, up 3.4 basis points. In terms of the sectors, if you find it interesting, I'll share it. I do. Yesterday, the worst performing sector was real estate, and it was still up. And today, real estate was the best performing sector, up a little over 2%. Today, the worst performing sector was communication services, which yesterday had been the top performer. And yet even communication services was also up today, up 18 basis points. So the best and worst inverting from yesterday and yet in all four cases, best and worst yesterday, best and worst today. Real estate and communications, all positive. The oil commodity price was down 81.28 a barrel, down 1.25%. And what else did I want to cover in terms of markets?

You know, the FOMC is coming tomorrow. They met all day today. They'll announce tomorrow that they're not going to touch interest rates right now. And markets already know that. Like I said, it's been 100% priced in the futures market for several weeks. But then what they say into the future, what they say about quantitative tightening, or maybe they won't say anything, I expect the talking points won't change much from the lunch I attended with J-PAL a couple weeks ago.

They'll still talk about the need to make sure the data shows that inflation has been eradicated and that this hyper level of disinflation they're seeing is not going to reverse, and they'll say all that stuff. But then whether or not they address their rate intentions going forward and whether or not they address their rate intentions going forward and whether or not they address quantitative tightening, which I think is the bigger factor at the long end of the curve,

that'll be more interesting. Speaking of that curve, by the way, the 230, so the two-year yield and the 30-year yield, have kind of uninverted for the first time in quite a while. Now, they ended up just dead flat. I think both at 5.07%. But they had been inverted for quite some time and now they've sort of un-inverted. The two-year and the 10-year have not un-inverted, but they're getting much closer.

There's only a 16 basis point spread between the two-year and 10-year, where that had been as high as basically about 100 basis points at the peak. And it's been inverted for a long time now. And so the 210 has definitely flattened out quite a bit. We're about halfway through earnings season. Half of companies had reported coming into today. And you right now are seeing 4.3% earnings growth year over year, 1.4% sales growth year over year. We still have half of the companies to go. I don't

know how those numbers will shake out by the rest of earnings season. I mentioned the issue with Europe's inflation rate. It would be really interesting to me if Europe abandons its tight monetary conditions quicker than the U.S. central bank, and that ends up being the issue that finally reverses the dollar being on this very, you know, kind of obnoxious hot streak.

What may cool the dollar may very well be the European Central Bank beating the Fed to it in terms of dialing back some of the tight monetary policy. Speaking of which, Japan did loosen its control of the long end of the yield curve. They've had caps in place at 1% on the 10-year, and they agreed to let that go a little more flexible. But they held on to negative yields at other spots of the yield curve. So one hand giveth, one hand taketh away. There's still highly, highly, highly interventionist central bank in Japan. What else? The late payers in California, I've been talking about this all

year. I'm kind of surprised that most people don't really know about it. But the vast majority of California taxpayers were not required to file or pay their federal income taxes on April 15th because of the rainstorms that happened in Q1. They were given an interest-free and penalty-free extension to October 15th. And California being the largest state in the union, that did impact tax collections and impact the cash flows, which impacted the schedule at which the Treasury issued debt. And sure enough, the high spike in federal receipts from California payments last week did cause the Fed to announce a need for a little lower Treasury issuance than had been expected. Now, it's still a monumental number. Don't get me wrong. They're running very large deficits, but the number was less than expected. And that has to do with timing of cash flows. We'll see if that shakes out into affecting yields. It is not as of yet. So yesterday's big rally day, you had two and a half advancers for

every one decliner. That's good breadth. It's not great. We'll see what tomorrow held. Both days, as I mentioned, had every sector positive. That's a lot on the markets. Somebody in Ask David did ask me if I felt there was something funky in the GDP numbers, something maybe cooking the books a little, that it seems like the real economy is not doing so well, but the GDP data showed 4.9% annualized real GDP growth in Q3. And I want to be very careful about those who might have a tendency to look at something through a conspiratorial lens or a politicized lens. If a Democrat wants good numbers when their guy's in office or a Republican wants bad numbers when the other guy's in office or vice versa, parties to candidates to

whatever the economic outcome or expectation may be. The data is the data. And I'm not surprised by anything in the GDP number on Friday. The consumer spending a lot of money is what my default position is about the American consumer. I don't find that to be one of the most sophisticated parts of my economic study over the last 25 years. That is something I've studied a lot and analyzed a lot and have very strong opinions on. But if I hadn't and all I did was spend social time with 20 Americans, I'd still probably come to the same conclusion. I have not found a lot of fiscal restraint from most American consumers.

That's fine. But it's especially not going to change when 96.5% of them have jobs and those average jobs have created 4.3% year-over-year wage growth. What would slow the American consumer now is generally a lack of access to credit. That could end up happening. It hasn't happened yet. And I've talked about this in my analysis of credit conditions. The cost of capital has gone higher if someone's buying a new house.

The cost of capital has gone higher if a business is looking to refinance its borrowing or issue new borrowing. But for most American consumers, the higher cost of capital has not trickled down into a lower access to credit yet. Now, the business investment, non-residential fixed investment in GDP was terrible. It showed basically no growth, slightly negative growth. Inventories built up, and that helped add a little to GDP this quarter. That could reverse the next quarter. So the numbers did not surprise me. inventories built up and that helped add a little to GDP this quarter that could reverse the next quarter so the numbers did not surprise me and yet I think two things are true at once that right now the cyclical moment when a lot of people

predicted economic tough times over the last almost two years recessionary conditions it just simply hasn't happened those people have been wrong that's what happens in the prediction business as people are often wrong but structurally there's still severe impediments severe headwinds to real structural trendline economic growth and that largely stems from so far inadequate business investment being able to lead that greater capex, leading to greater productivity, etc., etc. So, no, I don't see any cooking of the books

in the GDP numbers, but I also didn't think the GDP numbers were anything to write home about, and I expect it will come back down next quarter, even if we don't end up going to recession at all. I don't think you'll see this continued. So there you go. We'll see you tomorrow for Fed Day. Remember what I always say, Fed Day is the best day.

Usually just because I get to try to make a bad rhyme and mock traders doing what traders do. Thanks for listening. Thanks for watching. Thanks for reading the DC Today. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC, member FINRA and SIPC, with Hightower Advisors LLC, a registered investment advisor with the SEC.

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