The Dividend Cafe - The DC Today - Wednesday, January 3, 2024

Episode Date: January 3, 2024

Today's Post - https://bahnsen.co/3RMxbqz A second down day in the new year, and of course two days isn’t a trend but frankly after nine consecutive positive weeks in markets, some consolidation and back filling is healthy and welcome. I do hope you all are feeling as refreshed and recharged after your Holiday time with family and friends as I am, and while there was less Christmas snow in Utah then I would have liked, there is plenty of fresh market data for us to go through today. While 2023 saw an outperformance of growth over value, as it essentially just recouped what it lost the year prior, its interesting to note the recent shift the other way. From the lows of late October, the SP500 rallied 17%, but the equal weighted index outperformed large cap tech by a shocking 5% with a rotation to value. As David mentioned this morning on CNBC, starting point valuations can be critical for investor outcomes. With an average estimate for earnings in 2024 at $244 a share, the SP500 trades at 20X earnings. Equal weighted, you get something closer to 16X and some of this recent rotation appears cognizant of those other sectors offering better relative value. Could this continue? Well, while markets were meaningfully higher last year, the largest flows still went to money market funds at +$1.34T, which now hold a stunning $5.87T of cash (aka dry powder). 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. My first time here with you, at least in 2024 in the new year. It's Wednesday, January the 3rd, and I'm here with you in Newport Beach office studio. So another down day in markets, all of two, I guess, so far in the new year. And I don't know that that necessarily makes any sort of trend. And frankly, with, you know, having a nine week run up of call it 15 plus percent in S&Ps, getting a couple of days of some consolidation. It's healthy. It's normal. Frankly, it's welcome as far as I'm concerned. I'm putting money to work every day. And so having some normalcy in how markets trade versus just a one-way ticket is appreciated technically,

even though it's a down day. Tens were slightly lower today. We had two basis point move. We closed at 391. So largely unchanged there. We flirted actually with 4% intraday. So we got a little move above four, just touched four, and then kind of came back down. There was some inline numbers that came out. We had ISM that came out at 47.2, which was just a little bit above what we were expecting at 47.4. We were expecting 47.2, so about in line. So it's still contractionary. So it's saying some of that manufacturing data is just a little bit below what would be expansionary inside of a growing economy, but largely in line. We had

job openings today that were also largely in line, but actually a little bit better. We're running at about 8.8 million at this point, which while it's the lowest that we've seen in a couple of years, we'll call it three years, it is still very healthy. The labor market is still holding its own just fine. We had a high of around 12 million. That was in 2022, beginning of 22. So you can kind of see that post-COVID anomaly just go through the economy with employment. And that's now kind of come back here a little bit, which is healthy. And it's what the Fed wants to see. So those numbers came out. We got a little bit low, you know, after a 4% 10-year kind of came down a little bit back to 390s area. We had Fed futures yesterday that were at a 76% chance of a Fed cut in March of 25

basis points, moved a little lower to 70%. But pretty interesting to note how far in advanced Fed futures are pricing in, rates declining. By the end of 2024, it's almost 100 basis points is what it's showing, at least on my screen, is what's most probable. So I don't know, it might be a little ahead of itself there. But all that to say, markets, again, have had a great run here. We're hitting into the new year with an earnings expectation of something like $240, $244 a share of S&P 500 earnings. So if you just divide that by call it 4710, roughly, where we closed today, you're at about 20 times earnings. So markets aren't cheap. I wrote a comment in there today, though, that if you were to equal weight the index, so we sort of know these

giant technology companies that, you know, this magnificent seven, the seven biggest technology companies out there, which, by the way, have a market cap now equal to the UK, which, by the way, have a market cap now equal to the UK, the entire market cap of the stock market of the United Kingdom, Japan, and Canada altogether, just those seven US companies. So it's pretty phenomenal. But they're trading at really high multiples, high valuations. And so if you were to take those out or at least equal weight them in the index, you get a market closer to something around 16X, 16.5, a little more normal. And we've seen a rotation, at least the past, call it two months, from growth to value. And while the year of 2023 was definitely a growth heavy year, that's what outperformed everything else, largely because

it sold off so much in 2022. But, you know, if you equal weight things, and you're seeing just this rotation into some more of the value areas of the market, because they're more reasonably priced at this point. And I suspect that that continues. You know, I don't know linearly, you know, in a straight line, but generally speaking, I think it's a pretty safe bet to go with some more reasonably priced parts of the market. There was, even with last year's run up, there was still about a million, or I'm sorry, a trillion four that went into money market funds. I mean, rates are 5%. Why not, right? So there's a lot of cash on the sideline.

And so, you know, I don't know that we'll get another 23 performance in 24. I'd be shocked, frankly, but there's a lot of dry powder. There's almost $6 trillion sitting in money market cash at this point. And so, you know, potentially rates go lower in 2024, potentially have some dry powder at least, or the availability of it to move into some risk assets throughout the year. So down day on the markets, but just getting started here in 2024, I wouldn't read too much into it here after two whole days. But tomorrow we have ADP payroll numbers. We have initial jobless claims. I'll be back with you on DC Today tomorrow. And with that, I hope you all had a wonderful holiday season and happy new year and all those fun things. And reach out anytime with

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