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

Episode Date: January 17, 2024

Today's Post - https://bahnsen.co/47HzpgS Markets have stayed in what is pretty much a buyer’s strike this month, as no violent sell-off has been forthcoming, but down days have piled up in advance of the heart of earnings season and with several Fed governors trying to modestly re-frame expectations. Odds of a March rate hike have come down a bit but still remain the most likely view in futures markets. This noise was, if you recall, a highly predictable and overrated theme as discussed in our Year Ahead piece for 2024. China’s economy grew +5.2% annualized in Q4 vs. +5.3% expected. The jobless rate sits around +5.1%. Most importantly, they indicated their third consecutive quarter of consumer price deflation (longest streak in 25 years). Did I mention this, too, was a huge theme in our Year Ahead piece for 2024? I was intrigued to see this morning that about 60% of BB and B+ rated high yield bonds are now trading above par value (it was around 20% just six months ago). That is an extraordinary rally in credit that is clearly a by-product of improved financial conditions (i.e. expectations for greater liquidity and easier access to and cost of capital). Retail sales for December exceeded expectations (shocked!) as core sales jumped +0.8% month-over-month. Online sales closed the year up +7% from the year prior, and across food/beverage/clothing there was meaningful increase on the month and year, even above what had been forecast. I expect the biggest public policy issue over the next thirty days to be a Ukraine deal tied to U.S. border security and likely tied to Israel support funds as well. The challenges to getting this done are immense. 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. I have a few economic data points to go through with you today, a couple market updates, and I'll get you on your way. It's a reasonably boring day in markets, meaning that the Dow was down a quarter of a percent. The S&P was down half a percent. NASDAQ was down a little more than half a percent.

So everything was down, but not a ton. Bond market was down as the 10-year was up four basis points. So slowly but surely, it's gotten back up to 4.1%. Obviously, the yield is way lower than the 5% it was at one point in October, but it also is higher than the 3.85 it was just a few weeks ago. So that's really behind the kind of market environment right now. You really don't have any massive sell-off days. You just don't have many updates. The market's just sort of down a little bit every day right now. And we'll see if this earnings season that we're going into will reverse any of that. It is a bit of a buyer strike. And I think a theme in my year ahead paper that we put out last week was that the Fed would end up being a

very overrated component to how people are viewing the markets. You know, the futures were at about an 80 something percent chance of the first cut in March, and now it's down to 65 percent chance. So you still have a greater than half likelihood of a rate cut in March. I personally think it could very well end up going to May. I don't think it matters at all. But certainly it matters to short-term noise and so forth. And I think that's what you're seeing a lot of that now. Maybe markets just sort of repricing various expectations that come around what the March rate decision will be. And a more substantive set of economic news, which also tied in very much to a theme of

ours for 2024, was the China economic growth data for last quarter coming in at 5.2% annualized, 5.3% had been expected. percent annualized, 5.3 percent have been expected. But more importantly, it was the third consecutive quarter of a consumer price deflation of quarter over quarter lower prices. That has not happened in China in 25 years. It was 1999. And so the theme we have about where China will go and what they will do to treat this sort of deflationary force they have infecting their economy and what degree they will choose to Japanify, I think, is a significant theme for 2024. And you're already seeing some of that play out. Anecdotally, just kind of moving through some of the things on my mind this morning. 60%. This is stunning, 60% of the high yield bonds that are rated either BBB or B plus

are now trading above their par value. It was only 20% of bonds. So those are the two higher ratings of the junk bond ratings so still you know lower quality ratings of credit uh worthiness but at the higher end of the of the bad stuff if you follow me and 20 of those bonds were trading at their par value or higher and now 60 are in that entire universe that's a massive rally speaking to improved financial conditions, improved expectations for liquidity, improved access to, but especially cost of capital, all serving to tighten spreads and improve the pricing, obviously, in the high yield bond space. The economic data point that came out today that's probably most covered in the media is retail sales. They were up 0.8% core sales month over month. What a surprise

that it outperformed expectations. This is the biggest broken record I have seen in all my years of covering hundreds of economic data points. the amount of times that some retail or consumer-oriented number comes in higher inspected and everyone sits around shocked, it's like they've never met an American. Anyways, online sales closed the year up 7% from the year prior. Food, beverage, clothing all had meaningful increases, both in the month of December, but year over year. Food, beverage, clothing all had meaningful increases, both in the month of December, but year over year. And total, I just want to point out, full year 2023, retail sales were up 5.6% year over year. So whether you think the inflation rate was 2.5%, 3%, 3.5%, no matter what, you had a retail sales number year over year that was roughly in the range of being doubled out of the inflation rate. So as I say in the DCToday.com, with recessions like this, who needs Keynesian stimulus?

I sometimes write the jokes for myself. The biggest public policy issue on the table for the next 30 days will be the Ukraine deal tied to a U.S. border security deal, potentially tied as well to Israel support. I remain as a political junkie with very little expertise in sausage making on the Hill, but nevertheless, a lot of experience watching others who have expertise. I have absolutely no idea how they get a deal done here. The daylight is so significant between the two sides and what they each would expect to give on the other component. It just strikes me as totally irreconcilable. But we shall see. So as I mentioned, Dow down 94 points, a quarter percent. A rare day, by the way, where the best performing sector was negative.

And that happens a lot in big sell-off days. But that happens almost never in a day that isn't down that much, like today. The S&P is down half a point and the Dow was down a quarter point. And yet the best performing sector was consumer staples which was down 12 basis points the worst performing sector was real estate which was down 1.8 percent oil still you know right there near 73 a barrel it seems to me to have been in a very tight range for some time now something in the range of between 70 and 74 a barrel that's very tight of a bandwidth for oil price volatility. It was up a few basis points today. Industrial production up 0.1% in December. It was supposed to be down 0.1%. It was mining

output that increased. Auto production had a sizable jump, 1.6% in the month. Non-auto manufacturing was down. Utilities output decreased. So there was a mixed bag, but within the aggregate data on the full year, high tech equipment was up 18% year over year. So even what was a more dormant year for industrial production, high tech equipment moving much higher. And then finally the NAHB Home Builder Sentiment Index did jump seven points, but it jumped all the way to 44. 50 is at that kind of critical mid-level. Still, it was five points better than had been expected. The present situation moved quite a bit. Expectations moved, and that kind of makes sense with mortgage rates dropping, but it's foot traffic and prospective buyers that are still just very, very low.

But nevertheless, the sentiment at least feels a little bit better. Not necessarily a surprise given lower mortgage rates. So Brian Saitel is going to bring you DC Today tomorrow. I will be at our Phoenix office meeting with clients tomorrow, and then we have a dinner event for clients in Arizona tomorrow. So very, very happy with what is happening at TBG's Phoenix location, the Mountain West region, where we opened an office in early Q4 of just last year. I'm looking forward to being out there tomorrow. And then I will have Dividend Cafe for you on Friday with a real, uh, a comprehensive update of our Q and a, just lots of questions that come in covering multiple topics. You'll

have that in your inbox Friday as always. So I'm going to leave it there. That covers kind of the basics in the market today, the economy, the big things happening, and we welcome your questions anytime. Uh, please, uh, send those if you have more of them to questions at thebonsongroup.com. The good portion of them get through to me. And with that said, thanks for listening. Thanks for reading. Thanks for watching the DC Today. 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. Securities LLC, member FINRA and SIPC, with Hightower Advisors LLC, a registered investment advisor with the SEC. 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. The investment opportunities referenced Thank you. It is general market commentary and does not constitute investment advice. The Bonser Group and Hightower shall not in any way be liable for claims and make no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice. information are provided as of the date referenced. Such data and information are subject to change without notice. This document was created for informational purposes only. The opinions

expressed are solely those of the Bonson Group and do not represent those of Hightower Advisors LLC or any of its affiliates. Hightower Advisors do not provide tax or legal advice. This material was not intended or written to be used or presented to any entity as tax advice or tax information. Tax laws vary based on the client's individual circumstances and can change at any time without notice. Clients are urged to consult their tax or legal advisor for any related questions.