The Dividend Cafe - The DC Today - Wednesday, November 1, 2023

Episode Date: November 1, 2023

Today's Post - https://bahnsen.co/3tYWGgn So the market closed the month of October down -1.35% in the Dow, down -2.2% in the S&P, and -3.4% in the Nasdaq. Let’s just say those numbers got a lot better the last two days, though. And then today was noteworthy as well … Fed Day is the best day, and today the Fed kept rates where they were, as expected. The market was up +100 when Powell began talking, it went up to +200, then gave that back, then went up +250, and closed just a tad below that level. More importantly, bonds rallied viciously – with each maturity from two to ten years on the treasury curve seeing yields drop over 10 basis points. His only comments about quantitative tightening were that they were not, at this time, considering slowing down or ceasing their “run-off” of the balance sheet. The word “run-off” is key because they are not actively selling bonds – they are letting about $80 billion of bonds mature per month and not reinvesting the proceeds. This is a form of tightening, but less aggressive than some have suggested. Bottom line – Powell was pretty clear that they know financial conditions are, themselves, doing their work for them, and while he skirted around QT it is hard to see how anyone could hear what he said today and conclude any additional rate hikes are coming. As mentioned yesterday the rally on Monday saw 2.5 advancers for every 1 decliner, and yesterday it repeated at 2.3 to 1. A year ago when the market bottomed and a nine-month rally began the breadth of the rally was consistently above 5-to-1 and sometimes well above 10-to-1. Market participation is still too thin to feel good about things. 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. Well, hello, and welcome to the Wednesday edition of the DC Today. It is Wednesday, November the 1st. We are out of the month of October. We're in the final two-month home stretch of 2023. And today was Fed Day. So a lot of things I want to cover today. I'm going to get right into it. The market was down in the month of October for the third month in a row. The Dow was only down 1.3%. The S&P was down 2.2%. And the NASDAQ was down 3.4. So you basically just had a little bit of escalating downside by index relative to the risk curve. And by the way, those numbers got a lot better in the final two days of the month. Monday and Tuesday of this week saw a pretty nice market rally.

I believe in the Dow it was about 650 points alone. So those percentages had been a lot worse coming into this last weekend, but technically on the month ended up looking a little better. So today the market rallied as well. And it's a little interesting. The market had been up about a hundred points before Chairman Powell came out to speak. They announced at two o'clock Eastern that they were not touching rates this time, which was 100 percent probability already. And nothing really was going on. And then the press conference began. Market went up a little higher at first when he first started talking and then it gave back the lead and then rallied up 250 points and i listened to the entire presser there there and this has been i don't know 12 meetings in a row now there's always a lot of volatility um right before during and after the press conference

and and i've always said i'm i'm very confident that that's just traders unwinding positions i don't really know what traders would have had what kind of idiocy lined up on this one. There didn't seem to me to be much to kind of speculate about. And it wasn't that severe. I mean, we've seen this stuff in 500 and 700 point increments, not one in 200 points. So it wasn't really a big deal. But what was a big deal was the bond market. I mean, the bonds rallied, I think the most since February or March in a single day, you had yields drop at every point on the term structure from two year to 10 year by over 10 basis points. The 10 year was yield was down 11 basis points. And in fact, that brought it down to a 4.76 yield. So it's really after flirting with

that 5% done its best to kind of come off of that five level. And that's pushed bond prices up quite a bit here today. So you got a run up in bonds, stocks held their rally, expanded it a little. I think that all he really said that I'd consider to be interesting is their acknowledgement that financial conditions had tightened more than just what the Fed funds rate was indicating, and that they realized that there's more financial tightening going on as a result of higher mortgage rates and the long end of the bond of the yield curve. But then when he was asked about quantitative tightening, he said they were not at this time considering slowing down or ceasing their roll off. In other words, slowing down the process of quantitative tightening,

which is reducing their balance sheet. They're taking liquidity out of the system. They've removed themselves as a buyer of bonds and long end of the curve yields have gone higher. And when asked if they were looking at adjusting any of that, he said, no. Now they're still letting 80 billion a month roll off. They're not selling those bonds, but when bonds are maturing, there's 80 billion a month that they're not replacing. maturing there's 80 billion a month that they're not replacing so that is a form a very slow form of of removing liquidity and uh he wasn't he didn't indicate anything about the change there uh i think you know where i stand that at some point a change will come they haven't felt forced into it yet so bottom line i think he is um well aware of where financial conditions are i don't

know how anyone could have listened to what he said today and believe that they're going to hike rates again. The futures jumped up to 82% probability that they will not touch rates at the December meeting. But we have two CPI numbers and two unemployment numbers still coming in between now and then. So who knows if there's some data rationale for some other activity, but I would say that they're very likely done raising rates. We've said that for some time, as you know. And then I think the question becomes in 2024, what they do about the long end of the curve. All right. I talked about the rally over

the last couple of days. The breadth was two and a half to one advanced to decline in the market on Monday. It was 2.3 to one yesterday. So, you know, the market bottomed out last year in like, let's call it October-ish. You were getting rally days where it was 10 to one, 12 to one advanced to decliners. And then you ended up having about a nine-month sustained rally. We're not there yet. I do think that you're still very thin in the market leadership, and that's usually not the stuff index rallies are based on, but we'll see. I mean, all that's subject to change. I don't think it's always perfectly predictive, but I do think that there isn't an underlying reason to believe that the broad market is positioned for

meaningful move higher. The Treasury's announcement this morning, I think futures were down about 100 the entire morning as I was working in the pre-market. And then at the point that Janet Yellen announced their plans for issuance, the futures did come back to about even. And all that was, was, you know, like I mentioned the other day, there is a little bit less issuance required than they thought. And they're breaking up what is needed. I think they're going to sell about $120 billion of bonds. But $10 billion of that will be no, it's $112 billion. And $10 billion will be new. The rest will be replacing other bonds that are maturing. And about a third of it is going to be a three-year maturity, about a third,

a 10-year and about a third, 30-year. So I don't know what would necessarily move the yield curve in any of that. It's pretty spread out. On the news front, the White House did confirm President Biden is going to meet with President Xi. I think it's going to be November 16th or so in San Francisco. So that's always potential for some sort of news. And like I said, the Dow is up 222 points today, about two thirds of a percentage point in the Dow, about 1% in the S&P and a little over 1.5% in the NASDAQ. Big rally in bonds as the 10-year dropped 11 bps. Technology was the leading performing sector up 2%. Energy was the worst performing sector, but only down about 30 basis points. Oil is still sitting around $81, hasn't moved much. The ADP private sector jobs report showed 113,000 jobs created in October.

That correlation between the ADP report and the BLS, the Bureau of Labor Statistics number, the real jobs number that comes on Friday, that correlation has just totally fallen apart for some time now. So who knows what it means in terms of the BLS data. The JOLTS data, the job openings came in at 9.6 million. It had been 9.5 million last month, and it was expected to drop by 200,000 in 9-3. It went up 100,000. So that number has been stubbornly high of unfilled job openings. And then finally, ISM manufacturing came in 12th month in a row with contraction. And it was expected to be slight contraction at 49. It came in at 46.7. So pretty

meaningfully worse than expected report in manufacturing. That's a national number. The Ask David today deals with whether or not I think Japanification means we ought to revisit gold and wondering like, hey, has maybe gold done better than people have thought? And I will not go through my whole answer here on the podcast, but in the Ask David of the dctoday.com, I provide a very thorough answer as to why I believe gold has been one of the worst failures in markets history at meeting expectations around being a hedge against inflation and creating positive return in deflation. And I answer it thoroughly at the dctoday.com. I am in a Brian's I tell do DC today for me tomorrow. My meeting schedule is a little crazy here in New York. And so Brian will take over

the reins on Thursday and I'll be back with you in the Dividend Cafe on Friday. Like I said, Fed Day is the best day. Always fun, always interesting, always good to do midday macroeconomic and monetary analysis. That's what we've done. Thanks for listening. Thanks for watching. Thank you for reading. Reach out at questions at thebondsongroup.com. Anytime. Appreciate you being here in the DC today. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC, member FINRA and SIPC,

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