The Dividend Cafe - The DC Today - Wednesday, February 8, 2023

Episode Date: February 8, 2023

Good afternoon, Brian Szytel here with you today on this down day in markets following yesterday’s unconvincing (to me, at least) Fed-led rally. Today there is more chatter from several other Fed Presidents I’ll discuss, along with some comments on inflation, recession indications, and some takeaway comments from last night’s State of the Union address. Plenty to go through, including my Super Bowl prediction at the end, so I’ll let you hop into the podcast link below from here and reach out with any questions, as always. US futures opened last night down slightly, losing a little ground through the night, pointing to a down 100-point open at home, while Europe, in contrast, continued to hold gains. Markets opened in the red by about 110 points but were back toward fair value within the first hour of the morning session. Dow: -207 points (-.61%) S&P: -1.11% Nasdaq: -1.68% 10-Year Treasury Yield: 3.63%%, down 4.7 basis points on the day. The 2/10 yield curve is inverted by over 80 bps. The 3mo/10YR curve is inverted by 108 bps. Top-performing sector: Real Estate was the best-performing sector today at -.29%, although all sectors were in the red. Bottom-performing sector: Communication Services are down -4.13%, largely due to Google being down over 7% on the day. WTI Crude Oil: $78.41/barrel, up +1.63% Links mentioned in this episode: [TheDCToday.com] https://bahnsen.co/3xdfw1m 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 DC Today. Today is Wednesday, February the 8th, and Brian Seitel here with you. 8th and Brian Seitel here with you can kind of go over some of the market commentary for the day and go through some of some of what we saw and what we were thinking about. So last night futures opened up slightly negative maybe 40 points or so lost a little bit of steam. Europe was up most of the night or actually all the night they kind of held held gains but we traded lower in futures and were down something like 100 points or so into the open. Opened down maybe 110, made it back to fair even, even value, fair value within a few hours, or not even that, about an hour. And then just sort of slowly drifted lower throughout the day. And most of the reason was due to all different Fed governors and Fed presidents talking, I think four or five of

them, more hawkish comments. So following sort of yesterday's update with Jerome Powell's comments, which markets somehow applauded, I didn't really believe it. Breadth was low yesterday. And so I was a little surprised to see it close as high as it did yesterday, because he basically just said the same thing. It didn't really add anything new, which is just that rate hikes are going to slow, but that they're going to stay higher. And, you know, it's data dependent and so on and so forth. But on the day, top news story, you know, you know, President Biden gave his State of the Union address last night. I'm sure most of you saw that. I watched the whole thing.

I don't know how to say it. I mean, his approval rating went up one point after the speech. So I guess that gives you whether it was a good or bad. It moved by one point higher, which is to 41 and more or less the low of his term. There was talk about the debt ceiling. He touted some of the job gains over the last couple of years, although did mention that that was coming off of a global pandemic and not a partisan comment, but just factual, just typical politics. He did use the term finishing the job four or five times. And whether you read into that and say that's because he is running for a second term or not, I really didn't think that he would. But after last night, maybe the odds are a little bit higher that he may.

That was probably the top news story on the day from last night. The news in the day, intraday, was more, again, Fed governors coming out and talking about where they see interest rates and giving their commentary on markets and things. And to give you an idea, let's see, Powell last night or yesterday talked about disinflation, meaning peak inflation had occurred and the rate of inflation was going down definitively. Today, however, Fed Governor Waller talked about excessive inflation being more of a serious problem than higher rates, and he does not see immediate drop in inflation, so rates are going to be higher for longer. New York Fed Williams said that there is a lot more

to do today, that financial conditions are tighter, and sees a rate of five and a five and a quarter which is about about what the market is thinking it as well Kashkari did the out of Minnesota said that wage wage growth is far too hot for us to see a two percent inflation rate so basically in hawkish comment that rates are gonna stay long higher for longer and then Fed Governor Cook said the same thing rates are gonna be higher for longer so And then Fed Governor Cook said the same thing. Rates are going to be higher for longer. So I don't know why they wouldn't say those things personally. They have a Fed funds rate at 475 at this point. They're trying to cool inflation. They're getting what they want. Inflation is going down. Why would they change their guidance at this point? I don't think they would or should until they feel like they've claimed victory. So markets sold off a little bit because of this stuff. Rates were a tiny bit higher. The 10-year was up about four

and a half basis points. Tech stocks were hit pretty much across the board today. But all that to say, looking into some of the things that we would look at as far as a recession goes, and there was a dividend cafe about this a few weeks ago, and not to repeat it, but, you know, with jobs number last month at 517,000 in non-farm payroll and 3.4% unemployment, it's pretty hard to argue that we're in a recession. Time will tell and history will be history. be history. But some of the things that we're looking at and keep an eye on that are usual indicators, which are all flashing red or orange, you know, yellow, I guess, meaning that they're on our screen. The yield curve remains highly inverted. It's inverted something like 80 basis points on the twos, tens, and 108 basis points on a three-month 10-year. And historically, I put a chart that you'll see here, but it's a decent indicator. It doesn't cause a recession. It's usually a sign in the economy that

there's been a policy mistake in the Fed, meaning that they're too tight. Upwards earning surprises are the lowest right now since 2008, which was the financial crisis. right now since 2008, which was the financial crisis. Again, another sign of recession. Consumer stress is elevated right now. Food prices, gas prices, mortgage rates. If you think about the consumer, it's a little stressed. Bank lending is tighter than it was a year ago. Profit margins have dropped from about 17.7 to 16.2,

and typically a drop of 150 basis points, which is exactly what that is, is indicative of a recession. And then the PMI, both in manufacturing and services, kind of waffling between positive and negative territory, contracting and expanding territory. Again, some flashing signs there. So yeah, I don't know that it's an immediate thing, but these signs are things that we pay attention to, no question about it. And we'll see. Some real estate news, nothing we don't already know. I mean, the housing supply is still at a 20-year low. We're about 400,000 and an imbalance from

demand and supply in housing. The median price is down 11% over the last year, but from an affordability standpoint, which is what most home buyers care about, what their payment is, with rates at 6%, you're at a $2,200 a month payment versus a $1,500 a month payment. So if you think about what it would take at 6% mortgage rates for that to correct and come back down, it would be another 30% drop in prices. Of course, that's not going to happen or not likely to happen. What will likely happen is that there'll be continued downward pressure on prices, but that there'll also be downward pressure on interest rates. And those two things might settle out to get us back to where we were. The economic news on the day wasn't a huge number. It was wholesale inventories, which are basically a forward-looking indicator on wholesale inventories as far as building a little bit more of a cooling number for the economy.

But other than that, it was fairly quiet. Tomorrow, there's some jobless claims that we'll have. I know the next big print from economic standpoint is going to be on Tuesday of next week, which is the CPI number. So markets will be paying attention to that. And we'll have my partner, business partner, Trevor Cummings, will bring you DC Today tomorrow, and then David will be back with you on Dividend Cafe for Friday. So that's kind of round out our week, and then, of course, we head into Super Bowl Sunday weekend where the Philadelphia Eagles will be taking on the Kansas City Chiefs.

And being a Chargers fan, I can't root for another AFC West team. So I'm definitely going for the Eagles. And my prediction for the game, which will be accurate, is 37 to 31. Anyways, that's what I've got for you today. I appreciate you listening. As always, reach out with questions, email me, call me anytime. And thanks so much. We'll talk to you soon. Securities are offered through Hightower Securities LLC. Advisory services are offered through Hightower Advisors LLC. 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. Past performance is not indicative of current or future performance and is not a guarantee.

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