The Dividend Cafe - The DC Today - Wednesday April 26, 2023

Episode Date: April 26, 2023

Today's Post - https://bahnsen.co/3V6B23f The House Rules Committee voted at 2:20 am to send the House spending legislation to the floor for a vote, implying that Speaker McCarthy has the 218 votes needed to pass a debt ceiling increase that also cuts $4 trillion from government spending over the next ten years. We watch and wait. The Fed Funds Futures have come down to a 77% implied probability of a quarter-point rate hike next week (it had been 93% a couple of days ago). That’s still pretty high and still pretty close to a “sure thing,” but maybe if the First Republic Banks continue that you see in the news, it won’t be a sure thing. That issue is the primary driver of markets right now, today even outweighing what was a pretty solid beat from some big tech companies. 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. Hello and welcome to the Wednesday edition of DC Today. More of the same today in markets. Kind of an interesting tug of war in that there was such positive results from a couple big tech names in their after hours last night. It was looking so strong from both Microsoft and Google in their news reporting that it was expected it could end up being a big positive day. And in fact, the NASDAQ at one point was up well over 1%. The NASDAQ still closed up a little less than half a percent. It gave back quite a bit of its lead and the Dow was down 230 points. S&P was down about 0.38% on the day. So you had just a couple of big names helping out the NASDAQ

into positive territory. The Dow down pretty much across the board, most sectors, most areas of the market. The only positive performing sector was technology led by those two companies. Utilities were the worst performer. They're down over 2%. It's a very odd day when you have utilities and industrials down over 2%. One of the big sentiment issues is certainly the same story I talked about yesterday that you are no doubt reading about in the news, which is the ongoing downward spiral on First Republic Bank. Talk of them getting some sort of a deal, working very diligently to try to sell assets. Right now, offering to try to sell off some of their bond book at par value to avoid a write-down and then yet get equity for those companies that would essentially be overpaying

for those bond assets and then get a kicker on the other side and they're not getting any takers on that deal yet i don't see markets really relaxing until until that stuff gets resolved now that is very likely to be resolved uh you know in the next day or two perhaps it goes on the weekend perhaps we end up with one of those infamous sunday uh pop-up days uh It could very well bleed into next week as well, but I sort of doubt that. Something, one way or the other, a positive or negative feels to me like it's going to happen for this reasonably prominent U.S. bank in the days ahead, and that has a more market-wide ramification. But in the meantime, earning season continues, and you are getting pretty positive results,

especially from some of these tech companies so far. So it's helping kind of offset that impact in the market. The federal funds rate is now, the federal funds futures for the federal funds rate is now pricing in a 77% chance of a quarter point rate hike next week, and it had been 93%. So I'd say that 77 is still high enough to say, yeah, it's going to happen, but not high enough to say, sure thing. Particularly if you end up with some kind of contagion effect or impact or problem from something with First Republic in the days ahead, that could end up being a catalyst for the Fed sitting on their hands next week. We will see.

The other news is that at 2.20 in the morning last night, the House Rules Committee did vote to go forward putting their debt ceiling bill for a vote. And again, I don't believe that Speaker McCarthy would allow that to happen, that the Rules Committee would have wanted it going to a four vote if they didn't have the 218 votes or more or believe they have the 218 votes or more. And so there may very well be the next chess move in this debt ceiling issue playing out if that is going forward for house passage. That's kind of the major news of the day, the house vote. And then, of course, the market volatility largely led by the uncertainty about what's about to happen to First Republic Bank.

the uncertainty about what's about to happen at First Republic Bank. And in the meantime, I would send you to the dctoday.com to read the Ask David where someone did ask me, given my outlook, given Japanification, given bond yields, does just going long-dated bonds make a little bit of sense right now? And I contrast that versus the dividend growth option that we believe to be a worthwhile consideration in the present environment. So I'll leave it there. Thanks for listening. Thanks for watching. Thanks for reading the DC Today. We'll come back to you again tomorrow with another episode of the DC Today. This is not an offer to buy or sell securities. No investment process is free of risk. There is no guarantee that the investment process or investment opportunities referenced herein will be profitable.

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