The Dividend Cafe - The DC Today - Tuesday, September 26, 2023

Episode Date: September 26, 2023

Today's Post - https://bahnsen.co/45cmDG2 Markets were hit again today (five out of six days to the downside) as the Biden administration announced a major antitrust lawsuit against Amazon, and general market jitters continued (despite a flat day in bond yields). Why is the U.S. dollar up so much when things are supposed to be so bad in the U.S.? A good place to start might be the fact that yields are high and growth has been decent (and compared to other places, quite decent). Currency is a relative game, always and forever. More dollar bears have lost their faces and reputations, failing to understand that basic point more than anything else. To be totally honest (and believe it or not, I am serious right now), I cannot remember if “net neutrality” rules were supposed to ruin the internet and the world as we know it or if “rescinding net neutrality rules” was supposed to ruin the internet and the world as we know it. What I do know, or at least I think I know, is that we used to have them (I think), and then they were rescinded in the Trump administration (I think), and it doesn’t seem like a lot of horrible things happened in having them or not having them. And then this morning, I see that with the Biden Administration now having a majority of votes at the Federal Communications Commission (FCC), the intent is underway to bring back net neutrality rules, which is either a good thing or a bad thing. I would have more to say if I could keep it all straight. Another Fed governor is talking about a further rate hike, and futures respond by INCREASING the odds of NO further hike. Follow the fed funds futures, not the rush to a microphone. 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 DC Today. You had the fifth market sell-off out of the last six days today. So certainly not a lot of momentum to be buying in the market. I'm going to talk about some of the reasons for that, the overall market environment we're in. Today in particular, markets were hit as the Biden administration, the Federal Trade Commission announced antitrust, a major antitrust lawsuit they're bringing against Amazon. And I have a link to that story in the DCToday.com. I think you combine a rather surprising headline event like that with the underlying market jitters and you get more market downside. Despite the fact that today bond yields actually didn't move, generally a good portion of market activity as of late has been correlated with the bond market.

And today we saw bond yields flat and equities down quite a bit. I'll get that out of the way first. Dow was the best performing index and it was down 388 points. That was 1.1% to the downside. The S&P was down 1.5%. The NASDAQ was down almost 1.6%. Like I mentioned, the bond yields were flat. The 10-year was at 4.55%. The best performing sector today was energy and it was down half of a percent. and it was down half of a percent. But the worst performing is utilities, and they were down a shocking 3%. So, again, mostly red ink today.

Oil, by the way, was up. May explain why energy did relatively well compared to markets. And oil was just up a little bit, but back up above $90 a barrel. Why is the dollar up so much if things are going so badly for American economy? Pretty simple. They're not going that bad for American economy relative to other countries. The growth of the U.S. economy is not great, but it is not recessionary, and it is better than 4x counterparts. In the meantime, the Fed is tight. And so you have attractive interest rates that makes people want to park in dollar-denominated assets,

all the while not having to give up much for growth. It's pretty simple. Never forget that currencies are relative things. And this is where I think dollar bears often get their faces ripped off as failing to understand the relative nature of the forex world, foreign exchange currency world. And along those lines, because it really does connect to this, today notwithstanding as bond yields were kind of boring and equity prices were not, but this has been a global bond yield story, not a U.S. yield story. And I think that any attempt to understand what's happening right now in markets, apart from understanding the global yield nature of it, is going to be short. You will come up short with an understanding of what's happening right now

as global bond yields have moved higher this last month. right now is global bond yields have moved higher this last month. I'm going to skip over it because I don't care. In a sentence, the FCC, which is the Federal Communications Commission, which should not be confused with the FTC, which is the Federal Trade Commission, and the prior story I mentioned regarding antitrust violations against Amazon come from the FTC. And now an attempt to restore net neutrality rules come from the FCC. And if you don't think we have enough alphabet soup of regulatory agencies,

I can tell you the acronym for an awful lot more. But I think the way it was is that if we didn't have net neutrality, the world was going to end. Or no, no, what it was is at first net neutrality was killing us, and then we had to get rid of net neutrality, but then getting rid of net neutrality was going to kill us, and then now you've got to bring net neutrality back, and I can't remember what killed us or what didn't and what's supposed to be a problem. So, you know, hopefully the FCC will square all that out.

You have Neil Kashkari, Fed governor in Minnesota, former gubernatorial candidate. Did you guys know that? A Fed governor in Minnesota once ran for governor here in California. You'll be shocked to know he lost and then decided to go be a central banker. I know Neil. He is a piece of work. And he came out today to say that, you know, we probably need another rate hike. And meanwhile, the futures responded by increasing the odds that there would not be another rate hike. I recommend you follow the Fed funds futures, not anyone who is running to a microphone from the Fed.

Full year earnings estimates for the S&P 500 for 2024. Full year estimates are right now at $248 a share in the S&P 500. We will be lucky to hit $222 in 2023. in 2023. So maybe that 248 is a conservative estimate and you really are going to see over 10% earnings growth from this year to next year. Maybe it's too optimistic and you're going to start seeing revisions down. But I think what you will want to watch in the next six months, besides valuations, which are heavily connected to bond yields, is earnings estimates themselves. And if revisions begin one way or the other, that'd be a good place to start for what to expect for next year. Single-family homes declined 8.7% in August, and the average price

is down 3.2% versus a year ago. September's consumer confidence came in 103, but 108.7 the prior month, although we thought it only been 106 and it got revised up. So it was down from what we thought it was. It was down even more from what it was revised up to. But present situation actually improved on the month, but it was future expectations down significantly. I've told you before what I think of the consumer confidence metric as a predictive indicator. Why are high yield bond spreads? Let's put it, let me reword it. Why are high yield bonds that are taxable not suffering as much as high yield bonds that are tax free? You know, there are nuances in the sense that you

could say, well, spreads have responded differently. There's more worries about government tax revenues in the high yield muni space than there is in the taxable side is immune from that. But really, it's mostly just about duration, that your average high yield taxable issue is somewhere around a four duration. taxable issue is somewhere around a four duration and you get closer to 10%, eight or 9% for the high yield munis. And so you're going to have worse price deterioration when rates go higher with high yield muni. And then of course, when rates go lower, you get higher price appreciation. That's the duration story applied to high yield, taxable versus tax-free. Very thoughtful question that came in there. A good link if you're at thedcda.com

to my appearance on Varney this morning. We talked about a number of different things and you may be interested in watching that link. And then tomorrow morning, clients will get their weekly portfolio report. I know they'll be interested in that. Thanks for listening. Thanks for watching. Thanks for watching.

Thanks for reading the DC today. We'll see you tomorrow, Wednesday, debate number two in the GOP primary. 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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