The Dividend Cafe - The DC Today - Wednesday, May 3, 2023

Episode Date: May 3, 2023

Today's Post - https://bahnsen.co/42hbBOA So the Fed today raised rates a quarter point as expected, now to a range of 5%-5.25%. They indicated a “wait and see” approach about the next meeting though futures right now reflect a 91% implied probability that they are done raising rates. The language change of their statement implies that this is correct – this time, they are really done. 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. Well, hello and welcome to the DC Today, Fed Day Wednesday, and this is a very strange location. I'll actually post a picture on social media because I'm at the Delta Airlines, you know, Sky Club or whatever they call it here at the Minneapolis airport. And I had several client zooms and calls, a lot of writing, a lot of reading, portfolio work. And I have a flight, you know, near at the end of the day.

And so in this Sky Club, they have this like a phone booth. It's an overgrown phone booth where you can get privacy, close a door, have a table, have power, just kind of set up a little mini office. And it's quite a scene. plug into something like this all afternoon and work and in fact recorded dc today is a first in terms of uh doing something like dc today from a venue like this so i'll look forward to being back in the studio in the newport beach office tomorrow um but uh the fed didn't do anything surprising at all today uh raised rates a quarter point as was expected right, futures are pricing a 91% chance that there will not be any more rate hikes from here. Of course, that could change, but that's where things stand now. I did listen to all of Jay Powell's press conference, the chairman of the Federal Reserve, and there were no big surprises. He mostly talked. They changed language in their release

and they made more references to the lags of monetary policy, which sort of indicates, hey, we may need to give time to see if there's going to be a lag effect in the economy from the tightening we've already done. But of course, they did maintain their language about we really want to stomp out inflation and make sure we don't ease monetary policy too soon either. So they said all the right things, the things you would expect them to say. Markets didn't move at all. They were up a little bit for the first like 45 minutes. And then as has been the case pretty much every time we've had one of these pressers,

then in the final half hour of trading, you get a lot of sell-off from, I think, some of those short-term phenomena. And that's what happened. Today, Dow ended up dropping, what was it here, 270 points, 0.8%. The S&P was down 0.7%. The NASDAQ was down almost 0.5%. Big rally in bonds. And so again, there's that contradiction where the bond market loved it and is pricing in lower rates longer term. The 10-year is all the way back down to 3.35%. The 10-year is down 8.7 basis points today alone, and obviously now down all, not quite 100, but 90 basis points

from its high of where it was just months ago. Not exactly pricing in entrenched inflation. Oil is continuing to sell off. Fears on global demand, definitely lower than expected demand on diesel um actually inventories and stockpiles i would have expected a little different response on today versus yesterday but i i think that all of that right now is highly cyclical and volatile ism services came in a little bit better than expected but again what is this now the fifth in a row, perhaps fourth month in a row of expansion. New orders in particular had picked up. And then the ADP private sector payrolls report indicated 296,000 new jobs created in April. But of course, we have the BLS, the real Bureau of Labor Statistics jobs report that will come on Friday. And there's been quite a growing disconnect some months, not last month, but some months between ADP and BLS. In the dctoday.com today, we have two

questions in the Ask David, one about our take on debt ceiling brinkmanship. Are we fearful? Do we think there's a black swan event? How do we want to market time around maybe low probability, but high impact type events? And I will simply say that every day of your life as an investor and as a human being is a low probability, high impact event every day. It's always out there. It's a perpetual reality. And no, we do not believe in getting in front of something, particularly something that has seven or eight different precedents that proved to be nothing. And then when people constantly bring up summer 2011, where we did go to the brinkmanship, they did have a standoff between then Speaker Boehner

and then President Obama, and the market dropped 10%. And I just want to point out two things that first of all, at that exact point in time, literally Europe was falling in the economic ocean, total default, solvency fears for Portugal, Italy, Ireland, Greece, Spain. And then the notion of saying at the same time, you had the the debt default credit rating things going on in the United States. We most certainly never missed a principal or an interest payment on debt. We never even got close to doing so. And that is held up as the big standard of cats and dogs falling out of the sky. And what did the S&P do?

Did it drop 10, 11 percent in July, August? Yes, it did. What did it do September through the rest of the year? It went up 20%. So we don't believe these things can be timed, should be timed. We don't even know what we would be timing. You know, what Kevin McCarthy says on Fox and then what Joe Biden says on MSNBC. I mean, you know, do I believe that they are the end result of this, that along the way they'll be brinksmanship and elevated volatility?

Yes, I do. Yes, I do. Do I believe in the end that the entire economy will tank and United States will default on a treasury bond because of this? No, I do not. not. And so therefore, we have the view within the portfolio that the notion of acting as if a low probability high impact event is actionable is a very bad idea. So I will leave it there. There is another question in the Ask David as well. I will be back with you tomorrow from California doing another DC Today as markets continue to never sleep. Thank you so much for listening, watching, and reading the DC Today. 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.

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