The Dividend Cafe - The DC Today - Wednesday, February 28, 2024

Episode Date: February 28, 2024

Today's Post - https://bahnsen.co/3SZYlea The sectors that have historically performed the best following a rising Real Fed Funds rate in the past have been defensives like Staples, Utilities and Energy. The latter is obviously subject to commodity volatility in WTI, but its worth noting the strong out performance in Q4 results in Staples. We have exposure based on the bottom up fundamentals we like, but if there were also a part of the market to be watched with a contrarian lens as breadth shifts from tech elsewhere, these are on my list. 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, welcome to DC Today on Wednesday, February the 28th. It is good to be with you as it always is. And we opened futures were negative coming into the open and we opened down. We were down as much as 200 points and then sort of slowly regained for a lot of the day, at least. Rates on the day, at least on the Treasury rates, were really kind of unchanged. We dropped about two basis points on tens. There's angst over a number out tomorrow on PCE, which is really the Fed's preferred measure on inflation. And it's expected, you know, CPI ticked up this amount. And so it's expected to follow suit. CPI was up 0.4% on core. So 3.9% year over year. PCE, which has been more friendly to the Fed, frankly, it's their

preferred barometer of inflation. And also it has been tracking closer to their target versus the fixed basket of goods and services that CPI tracks. So we get that number out tomorrow. And frankly, I think markets were really just trading a bit sideways up and down. And so there was some noise today, but we'll see what we get tomorrow. Today, we had a fresh read on Q4 GDP, which ticked a little lower by 0.1 percentage point, came in at 3.2. We were at 3.3. Again, it's very strong. And if anything, I think it's reaffirming or affirming for markets to see revisions

come in basically the same and in line. So those things are both good. I had a little note in there. We obviously are bottom-up guys and in line. So those things, those things are both good. I had a little note in there, you know, we obviously are bottom up guys and gals. So we look at things differently than trying to judge, you know, which sector will outperform the best based on how the world will turn. But nonetheless, this is a pretty interesting period of time with a real, a rising real Fed funds rate. And so it's worth just looking back in history and to see different periods of time, different sample sets during those types of environments, which sectors

tended to outperform. And it was the defensive historically, pretty much across the board. There was variation around part of that defensive answer with energy because of course, oil prices are very volatile, but it was staples, it was utilities, it was energy. My comment in there is we own some of this stuff based on the fundamentals, but if there was a contrarian lens to look at what has performed and hasn't year to date, and perhaps what may perform as some of the breadth in the overall market moves, maybe from some technology names, particularly around AI into some of the other sectors and some of the other components of the markets at more reasonable valuations. David had a note in there, you know, the big news for the day company-wise was, you know,

Apple sort of ditched its plans to create an electric vehicle. And yeah, this is not something that they just started and then gave up on. This is something they've been working on for a decade now and decided to cut ties with it. Internally, they let employees know, but the focus is going to move more towards AI. Go figure. It's one thing, I mean, if they spent $5 billion on a project that they're just going to no longer work on, that's definitely egg on the face. No question about that. I agree with everything David wrote. Apple can get away with it based on it being Apple, and it created the smartphone as we know it. And so it gets a pass. And then also $5 billion divided by market cap or cash in the bank is really just a tip amount. We'll see if their shift in efforts

can pan out better and hopefully they don't regret that. The trade deficit for the month of January widened 2.6% to $90 billion, 90.2. So I wrote about this and asked Brian today coincidentally, but there was a question about what I'd written previously about why a strong dollar is good for the US over time. And this has something to do with that. We've had this big run in the US dollar, the dollar's up 17% versus trading peers to its historical average. And so it's strong and it's based on fundamentals and those things are good. We want a relatively strong economy versus the rest of the world. And we want to be more competitive and all these things. And so those aren't bad things. I'll take those.

But as far as dollar strength goes, you know, it can create more trade deficits because our currency gets stronger. And so we're able to buy more goods cheaper overseas and we tend to import more and we already do import more than we export. And that is why one of the reasons why a strong dollar is actually not necessarily your enemy. It hurts exports short term, of course. The stuff that we sell overseas gets more expensive and we sell less of it. And that's real and it's not to be dismissed. But over time, if we value being the world's reserve currency, having it be stable, having it be strong, having it be trusted, all those things are why it is that. And so we'll take some of the short-term bad with the very long-term good was my point. Again, tomorrow,

we've got PCE that will come out. That'll be the main headline that I'll walk through with you. And we also have some jobless numbers out as well that I'll walk through. But I'm going to let this end a little short today. For those that have interest, I'll be on CNBC World Street Signs tomorrow night at 6 p.m. Pacific. And with that, I'm going to let you go for the evening. I wish you all well and talk to you soon. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC,

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