The Dividend Cafe - The DC Today - Wednesday, November 8, 2023

Episode Date: November 8, 2023

Today's Post - https://bahnsen.co/3My1KhW Futures were as quiet as could be last night, and markets followed suit in a benign trading range that came off the lows mid day to close slightly higher and extend our November rally at least on the SP500. To be fair, we did come into November with only 17% of the SP500 having a positive three month return so were set up well for a rally and while the market did close higher yesterday the advance decline ratio on the NYSE was a dismal -1.6 to 1, so we are losing some steam here. The top two weightings of the SP500 (one makes Windows and the other the iPhone), now make up 14.6% of the index and each have larger market caps than the entirety the UK FTSE 100, the French CAC and German DAX indices. To say the market remains top heavy in big tech is an understatement. US and Chinese economic dependency on one another (one to make widgets and one to buy them), has continued to decline. The US now imports more from Mexico than from China for the first time since 2003, and China is recycling less of those dollars back into US Treasuries as a result. Both of these tie into why private foreign investors make up a larger piece of Treasury buying and why, in addition to slowing Chinese economic fundamentals, the Yuan has devalued against the dollar this year. All this and more in todays video podcast. 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. Welcome to DC Today. My name is Brian Seitel, and it's great to be with you all again today. It is Wednesday, November the 8th, and another technically positive day in markets, although not hugely positive. And futures coming into this morning were just as quiet.

Markets actually traded up in the morning. They traded down a little bit through midday. And there was some comments from Federal Reserve Jay Powell at a conference. It was some opening remarks that were perceived to be a little bit more dovish. And you got a little bit of basis points out of some of the yield curve and a little bit more in stocks and risk assets following that. But all in all, we basically closed flat on the day. The Dow was actually down 40 points. The S&P and the NASDAQ were up 0.1% of 1%. It's a pretty quiet day. The 10-year yield dropped five basis points. Again, that was sort of after some of those comments from Jay Powell. So technically,

we're sort of extending our November rally. And I wrote this in there, but we came into November with pretty dismal internal market metrics. Only about 17%, only about 17% of the S&P 500 was showing or reflecting a positive trailing three-month return. So we were kind of due for a bounce. And then we also got, again, the Fed, you know, holding rates steady and as much telegraphing that they're basically done with their rate tightening

campaign at this point. And so markets are feeling a little better. The steam is coming out a little bit of this thing, though. So I don't want to get readers too excited. I mean, the internals of the market have still been very top heavy in the weightings of the S&P right now. The two biggest holdings of it, which is Microsoft and Apple, basically make up almost 15% of the S&P 500. So it's 14.6% weighting. And to put that in perspective, the market cap of each one of those companies is the same size as the FTSE 100 in the UK, the CAC index in France, and the DEX index in Germany, just one company. So we're really pretty top heavy in our markets on the S&P. And part of which way those companies trade

is where the index trades. And so is what it is there. The Dow was down, call it 8% last year, and it's up almost 3% this year. So still negative over two years. The S&P is still negative over two years, and the NASDAQ is still negative over two years, and the bond market is negative over two years. So we're just kind of getting through this period of time in markets. And again, this rally has been nice in the month of November. I put a couple of just little stats in today's DCT about DC Today. The relationship between China and the U.S. has continued to evolve, I guess I'll use the word. But as far as the dependence on one another, them making things for less than we could make those things,

and then us buying those things, which is exporting or importing deflation, basically, and then them taking that money that they're earning from the U.S. and then recycling it back into U.S. treasuries to keep our currencies really tethered and also to earn interest payments to sort of finance all their construction. That paradigm has played out at this point in a big way. We're now importing more from Mexico, for example, than we are from China. And that relationship hasn't been that way since 2003. This is sort of following NAFTA and all those incentives to trade with Canada and Mexico. So that relationship continues to change. And I don't know that necessarily is a bad thing,

frankly, for either country. If China was attempting to change to a consumption-based economy, this is helping them do that. They don't have the US as their sole sort of buyer of things they're making. Their economy is slowing. And so we're seeing that. And I think some of the energy pricing coming down a little bit is because of that. Demand is lower in parts of the world like China and, frankly, potentially in the U.S. Not meaningfully, though, yet. The comments out of J-PAL today at the forum that he was at were more around, this is like the centennial for the Research and Statistics Institute. We're more around having flexibility in the models that they use

and how dynamic the US economy is and how it's evolved and those types of things. I agree with him that you should have dynamic, flexible models to try to calculate a dynamic and flexible economy. The way it's perceived though is instead of sort of a dogmatic 2% target on inflation, maybe that means that they're willing

to accept some other number or maybe it means they'll have some flexibility. And that's kind of why you got some of the dovish tone in some markets on the day. But all in all, I mean, I'll take it. Look, if we have a longest win streak here in two years going on, we had sort of a dismal showing last month and now we're leading into November, starting off on the right foot. We have peak rates, basically, and we still have the economy expanding. Those aren't bad things. And so volatility today was down again, 2.5% on the VIX. We're sort of the mid-14s now. Historically, that's kind of going towards a low area, and that's good. That means fear and volatility is coming out of markets. And I think the bias, frankly, is to the upside. At least

that's what the market is telling us as of right now. Tomorrow, we have some more comments from Powell. He's at a conference, a panel at the IMF, the International Monetary Fund. So we'll have some comments from him. I don't know that it's going to be anything other than status quo at this point. Fed futures, by the way, are basically showing with like an 86% probability that they're done raising rates to put it in perspective. So I don't know what else he could say that would change that at this point. We have jobless claims tomorrow. We have a GOP debate for anybody that's still watching, frankly, with the outcome that we sort of know already. But that debate is tonight. So I'll be watching that, paying attention. I hope you will be too. And with that, I shall let you go on the evening.

I hope you enjoyed reading DC today as I did writing it. I will be with you tomorrow on it as well. And I'll make sure that there's some fun neat things in there for you. So with that, I'll say good night and we'll talk to you soon. 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. Advisory services are offered through Hightower Advisors LLC. This is not an offer to buy or sell securities.

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