The Dividend Cafe - The DC Today - Wednesday, April 17, 2024

Episode Date: April 17, 2024

Today's Post - https://bahnsen.co/3TX5X1I What started off as a positive trading morning, slid negative as the day progressed. Powell’s comments yesterday were debated as to whether he took his ‘Pivot’ from October back. Not to worry, because first, I don’t think he did take it back and two rate cuts are still priced in to Fed futures, and second, as I mentioned yesterday there is enough in the economy that is good at this time to withstand a delayed move lower in rates by a few months. The Fed’s beige book out today supported that general positive undertone in the economy which helped us off the lows of the day a few hours before closing as well. Seeing as we all made our tax payments this week, yesterday we saw the US Government take in the most it ever has in tax collections from corporations and non withheld amounts at $155B. The previous high water mark was back in 2022 following a big year prior and reopening after the pandemic when the same April figure was $121B. The Congressional Budget Office (CBO) is expecting total tax receipts for the full year 2024 to come in right near that record level in 2022 at roughly $4.93T. This is good news for the budget deficit and the growth rate of Treasury bill issuance which is set to decline for the first time in two years, although still won’t put us any where near an actual budget surplus when we are talking about chipping away at a $2T deficit. 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. Welcome to DC Today. This Wednesday, it is April the 17th, and kind of a mixed day in markets. It actually started out on the day positive in the morning and then kind of gave way pretty soon thereafter. Not a ton of news out today, really. And I just think the market is still just sort of consolidating here at this point, pricing in some higher

interest rates. And then really some of the Fed comments from yesterday, Jerome Powell comments about rate cuts being maybe a little later in the year than halfway through the year. And so there were some media headlines grabbing attention around, did the Fed take back their pivot that they had from October or not? I don't think that's what he meant when he said those things. I think he was just stating the facts, which is that inflation has been moving sideways rather than lower. And so they wanted more proof of it going lower, and they need to wait until they see that. The positive that he said and that I'll say is that the economy does seem to be hanging in there,

and earnings that have been coming out seem to be also hanging in there. So it's not all bad news at all. But the market closed lower by about 45 points on the Dow. We're basically back to even on the Dow, give or take. We're up about a quarter point or something on the year. The S&P is up on the year, still around 5%. But we've just given some back. I mean, Q2 is a monster quarter. And so if we're 4.5% off of the all-time highs, so be it. But today we had a Fed Beige book. This is a pretty thorough analysis of the economy with all districts reporting. There's 12 of them, all Fed districts reporting about what they're seeing in their area as far as inflation, as far as the economic side of things.

And it was generally fairly positive. So we were down more kind of mid-morning to early afternoon. And then with the Beige Book out generally positive, you had some market recovery. And so we ended up closing slightly lower on the day. But out of the 12 districts that reported, 10 of them reported a modest uptick in economic activity. That's pretty good. So we'll take that. And most of them were basically in line with the prior month as far as price pressures, price increases. a fairly positive report overall and kind of more of the narrative that I've been mentioning, which is, yeah, rates are kicked out of here a little bit, but we're doing fine withstanding. The CBO, which is the Congressional Budget Office today, had their report on tax receipts. So we all just paid our lovely tax bills here on Monday. And they took in a record amount. So this is not amounts that are already withheld. So if you're getting a W-2 paycheck or something and they're withholding taxes,

or you're taking a distribution from an IRA and we're withholding taxes for you, not including those that withheld amounts, but additional payments that were sent in was a record amount, which was $155 billion. The last record of tax receipts in April was $121 billion in 2022. That was following the big run-up in 2021 and then basically the reopening of the world and the economy doing good things as far as growth goes, as supply chains eased and all those things. So generally a good number for the Treasury Department to take in that kind of money. For the year, CBO is projecting a $4.93 trillion total tax intake for the government, which would put it right in line with the record amount we had in 2022. So generally, tax collections are not the issue. As we all know,

it's the spending side of the equation, which is why we have such a budget imbalance. And this will help. And actually, the estimated amount of new treasury issuance that the treasury will have to do to fund the government will actually start to decline. Not in total terms, but the rate of growth, it'll still grow. The rate of growth will decline, which it hasn't done in two years. So those are generally positive things. Again, though, when you're talking about a $2 trillion with a T, budget deficit, these things definitely help, but it's a pretty big chunk to get over. You know, we might get down to, say, the 1.9s, the 1.8s even, as far as a deficit for the year,

which we would take, of course. But this isn't wartime. We have full employment, tax receipts are record highs. And so it's entitlements. It's where we're at with Social Security, Medicare, Medicaid, all those things that we know. Interest expense on the debt is also higher than it has been. Although frankly, it isn't all that high considering the number, the amount of debt that we have. I put a Q&A in there and asked Brian about how we manage our fixed income portfolios. Particularly, do we use bond ladders or do we believe in bond ladders? This is when you stagger maturity dates over a period of time. So look, if someone has an upcoming liability payment, have to pay for college in this state or have to pay the government a tax bill or something on this state,

bond ladders can be just fine. So it's a great tool. It's time-tested, been around for ages. But if we're managing fixed income in-house for people with goals, we're doing it in a much more dynamic way rather than just setting a static amount of maturity and getting whatever interest rate the market will give us at that particular time. We want to be able to have different asset classes in their high yield, both munis and corporates. We want to have senior secured loans, floating rate, securitized credit, government, corporate. So

we want to be able to manage the credit component based on the economy, how much credit risk we want to take. And we want to be able to manage the duration that we're going to take as well, how much interest rate sensitivity we're willing to take in a certain client account. So there's 12 different, I made that number up, but there's a dozen at least different asset classes, but also metrics that we're using to manage fixed income portfolios for people. So it's a fairly complicated process, but much more than just a static bond ladder, I guess would be my point. And then the other part of it is just, it isn't done in a,

the structures can be different too. So whether it's individual bonds, it's mutual funds, which we can use for certain asset classes, which make a ton of sense, or having a separate account manager with one of our partners manage individual bonds for us. Those are sort of the three different ways in which we do it. So with that, I will leave it there for the evening. Tomorrow,

we've got a little more rocking and rolling in the economic calendar, which is nice. There's initial jobless claims. I know there is a manufacturing survey, the Philly Fed manufacturing survey will be out. And then there's some existing home sales. So I'll walk through all of that with you on DC today. And we'll do that tomorrow. Well, I hope you have a great evening and reach out with your questions. Thank you. 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.

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