The Dividend Cafe - The DC Today - Wednesday, March 20, 2024

Episode Date: March 20, 2024

Today's Post - https://bahnsen.co/43pRAau Generally, a pretty market-friendly statement from the Fed, with some upgrading on the economy with GDP estimates moving up from 1.4% to 2.0%, they lowered their unemployment rate forecasts from 4.1% to 4% and raised the Core PCE forecasts by two-tenths to 2.6% for the year (and we are already at 2.8% now mind you). 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. It is March 20th here on Wednesday. It's great to be with you on this nice update in markets, really. The market was completely flat all morning into the Fed decision, which came out at 2 Eastern. And so we just sort of traded sideways in anticipation of that. And then Fed statements were unchanged on interest rates, which was, of course, expected at 100% Fed funds futures. We knew that part. What the market was waiting on was whether they were going to change some of their expectations on future rate cuts for the year, which is in their dot plots. That was reiterated today. So they're still looking at cutting rates by 75 basis points by the end of the year. That's what tipped markets to the positive side. And then we went from

basically a zero level roughly to up over 401 points on the Dow. So it's a nice update. We closed at all-time highs for Dow, for the S&P, for the NASDAQ. And rates were pretty sanguine. The yield curve steepened a little bit, but 10-year came in two basis points lower. The two-year was down about six basis points. So you just had lower rates across the curve with expectations that the Fed, while we're not quite back to 2%, they did a couple of things on the economic forecasting.

So they moved up GDP forecast from 1.4% to 2%, which is a meaningful increase in growth, which is a good thing. They moved unemployment lower, also a good thing. It was at 4.1 estimated by the end of the year. Now it's at 4%. And then they took PCE core, which is their favorite number to use for inflation, up a little bit by two-tenths from 2.4% to 2.6%. So what does that all mean? It basically means if you look at where core PCE is now, we're already at 2.8%. We're basic. We're almost there is what

they're saying. So we're almost there on inflation, pretty darn close. Same thing with unemployment. Unemployment's at 3.9. So we're basically there on that number as well. And then they kept their telegraph of three rate cuts by the end of the year in place. So markets like to see that. It gives some certainty in what they're thinking. And I think they're more certain about it too. I included a chart in there because I just wanted to show everyone how much progress we've made on inflation. It's gone from nine to three or a little less. It's not quite back to two, but the Fed knows that they've got to adjust policy ahead of where things are going. In other words, skate to where the puck is going. If you try to wait until inflation is at two, then you're probably too late, frankly. And so

I think that was all pretty good news for markets, generally speaking. Now it's just going to come down to our markets ahead of themselves, what are valuations, what part of the markets are better to invest in, all those sorts of things. And of course, that's why we have a business. So that's what we do. But all that to say, generally good news on the day. And the one part that David mentioned in there, which is very astute, of course, is that they did subtly mention the balance sheet.

And they did talk about reducing the pace of quantitative tightening when it's appropriate. I think that's opening that door to that being sort of the first thing that they'll end up doing. And I'm still in the camp that they'll talk about that right along the same time or even right before they have their first rate cut. And so I would assume that might be in May. Okay, so Fed futures is pricing in a June kickoff to to rate starting to decline. And it's something like 58% as of today. So that's where we are with Fed. That was the big news on the day. I mean, the Fed was really what

markets were waiting for. And I think it's a good amount of data to sort of chew through on that front. I had an Ask Brian section in there related to housing and the shortage that we seem to have in asking specifically about how things like Airbnb or VRBO taking supply of housing off of the market. My response on that is much more about the actual housing stock itself. It's how many units we have available compared to how many people are forming households and needing a house to live in, meaning creating families and looking for, of course, roofs over their heads.

And the disparity between what we've been creating in housing stock and what we've been demanding has been in an imbalance for many years, for many decades, frankly. The financial crisis really kicked that in the teeth a bit. We had an overheated housing market leading into it. It was sort of a boom and then a big bust cycle, but it really decreased the amount of home builders and construction and just real estate professionals in general through that period of time. And we've still been recovering from that. And to just give recent numbers for 2023, which is last year, there was about 1.7 million households created in the country and only about call it 1.3 or 1.4 housing units. So there was 950 single

family, maybe 450 or so on multifamily. And so, and it's not just a 23 deal. This has been going on for a very long time. And so of course there's existing inventory that counts. The people can buy existing houses and not just new stuff. That makes sense. But that's limited now with rates being a little higher and not a lot of inventory. And then we're just not quite adding to housing stock quite fast enough. So, you know, I think most of those things are probably supportive of rents and pricing and real estate generally because it's supply and demand. But, you know, it's an issue that will persist until we start building more over time. Tomorrow, we've got jobless claims out.

We've got a flash read on both services and manufacturing PMI data to look at. And then we have some existing home sales to go through. I'll be back with you tomorrow on DC Today. If I don't speak to you, have a great night. Thank you. 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 are offered through Hightower Securities LLC.

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