The Dividend Cafe - The DC Today - Wednesday, October 5, 2022

Episode Date: October 5, 2022

MARKET ACTION Dow: -42 points (-0.14%) S&P: -0.20% Nasdaq: -0.25% 10-Year Treasury Yield: 3.75% (+13 basis points) Top-performing sector: Energy (+2.06%) – third day in a row top sector Bottom-performing sector: Utilities (-2.25%) WTI Crude Oil: $87.97/barrel (+1.69%) Key Economic Point of the Day: ISM Non-Manufacturing (Services) came in at 56.7, still well into expansion and above the expectation but less than month’s levels. Services are expanding while Goods are slowing. Links mentioned in this episode: TheDCToday.com TheBahnsenGroup.com

Welcome to the Dividend Cafe, weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Hello and welcome to another DC Today. I brought to you this Wednesday, we're through the mid point of the week and kind of an odd day in markets. Let me just start, get the market stuff out of the way, and then I have a few other comments I want to make. Futures were down last night and into the morning, and the market opened down 250 points. And at one point, it was down not quite

450 points. So again, compared to the huge rally of Monday, Tuesday, it wasn't much, but it was down a decent amount. And then it rallied all the way back and actually at one point was up nearly 150 points. Total spread between the low and the high of the day was about 568 points in the Dow. That's a big deal of internal volatility. And then the Dow closed down just 40 points. And so all that intraday vol and really not a lot to show for it up or down. So Dow was down 14 basis points. The S&P was down 0.2%. The NASDAQ was down 0.25%. One comment I want to make, the 10-year treasury yield was up 13 basis points. It had been coming down, I think it was four of the last five days, and closed today at 3.75%.

13 basis points in a day, moving yields higher, bonds lower is a big deal. And I think you could argue that a 13 basis point move higher in the 10 year and the market barely moving is maybe a bullish sign. I mean, the market has been so correlated to bond yields. And if indeed it is now in a position to shrug off bond volatility to some degree, that could prove bullish for equities. Certainly nothing would be more bullish for equities than just an actual downward movement in bond yields. So we continue to watch that and believe that to be the most important correlation in the market. Energy was, again, the top performing sector. It was up 2.06% today. This is the third day in a

row for energy as the top performer, which is not super common at all. It's not super common for any sector to be the top performer three days in a row, but particularly for energy. The bottom performer was utilities, and they were hit quite well at down 2.25%. So big upside for energy, big downside for utilities today. Oil did close just over $88 a barrel. That was up about 1.7%. And that was on the news that OPEC Plus went forward with a 2 million barrel per day cut in targeted production. The rumors floating around were that they may go as high as a million barrels per day, and oil had jumped on that news.

Then they came out and actually doubled with the news itself. So oil now in just a matter of a week is up 12.5% from that high 70s position now to the high 80s. And I would say more than a short-term oil move, there does seem to me in the news to be very clearly a huge defiance of US wishes, not surprisingly at all for Russia, but from Saudi as well. And then in terms of the kind of price expectations in the future, if this is what Saudi is indicating as a new normal, that they want to target the ability to clear at a $90 level, obviously you could get demand to a point where volumes have to come way down and prices may drop. But if they are at a point where they want to target something in the 90s,

that becomes a totally different deal for the long-term expectations of profitability in the oil sector. Okay, moving on, a couple of quick things that are noteworthy in the news, because I don't think I would be doing DC Today if I didn't mention the extraordinary feat of Aaron Judge at the New York Yankees, hitting a 62nd home run on the season, beating Roger Maris's record from 1961 of 61 home runs. Obviously, we know back in the steroid era, the late 90s, that Sosa and Danbury Bonds had done more, but this is being recognized by MLB as the home run record. Incredible season from the quite fun to watch Aaron Judge.

The other news I want to share is more market-oriented. I'm getting a lot of pop-ups in the last couple hours about Apollo announcing they're going to back out of providing the financing on the Elon Musk purchase of Twitter. And I don't have anything to say about the deal. I don't have anything to say about Tesla, about Apollo, about Twitter. That's not what we do here at DC Today. I mentioned as a news story that yesterday we shared that Musk had announced, okay, I will not go to court. I will go ahead and go through on my deal. And then today we hear at least one of the premier lenders backing out of the financing. Is it possible? There's not enough information yet. Is it possible that that's what the new strategy is? Is say you want to go forward

with the deal, avoid a court ruling, but then you don't get the financing and therefore you can't be compelled to close? Or are other lenders just going to pick up where Apollo left out and other lenders who are already in the cap stack not announcing that they're backing out of the deal? I'm just saying this is something to watch. That whole story may not be over yet. Public policy, big story circulating around the web and it's math that we've all known anyways. I'm just reiterating it. There's no new information here other than Politico writing a story about it today. There are 33 Senate seats up every two years. I think you guys know that. They're six-year terms, and they do an election every two years.

So the way the cycle goes is 33 are turning over every election. And 23 of the races that will be up for grabs in 2024, 23 of those seats are currently held by Democrats, and 10 are held by Republicans. So we're focused so much on the 2022 election and what could happen with the Senate because we're in a literal 50-50 tie and it could break one or two either way. I would suggest the 2024 election is going to prove fascinating on the Senate. Eight of the 23 Democrats that are in those seats that would have to be running for reelection, eight of those 2023 are either

undecided or actually unlikely to be running again. So you could just have an awful lot of vulnerability for the Democrat party in the 2024 election for the Senate. But obviously, with 30-something days to go, more people are focused on this year than two years from now. Quickly on economic data, the ADP private sector jobs number came in pretty much in line with expectations. 208,000 jobs last month. They were expecting 200. I say this every month. The ADP number is not always correlative to the BLS number, but the BLS number comes Friday. And we'll see where that jobs data is. The ISM non-manufacturing number, which is the services sector, came in at 56.7 for the month,

well into expansion. It was lower than last month, but it was higher than expectation. And that's a pretty good expansion level. So you see services expanding and goods seeing their expansion slow down quite substantially. Divergence in the economy between services and goods. On the Fed side, there's a new Fed governor, Philip Jefferson. I believe this is the first public comments he's made since his appointment. It's the first time I've heard him since he became Fed governor. So I paid attention to his comments this morning, more or less just made a lot of comments about how much progress they're making and bringing down inflation. And so you could argue by implication, he was talking a bit dovishly, but again, there's been a lot of Fed commentary over the last few days and a lot of Fed governor commentary that's happening tomorrow. And it seems quite a mixed bag of people leaning into some, you know, dovishness and more leaning into their hawkish rhetoric.

And we'll see. We'll see what happens. I find this fascinating and I'll explain where I think it comes from. Fascinating. And I'll explain where I think it comes from. We talked last week about the Bank of England had announced that they were going to intervene to support the British, what amount the sovereign debt market, their 30 year long dated bonds, what we would call treasury bonds here have had collapsed in price and saw yields skyrocket higher. They said, we're going to come and do whatever we have to intervene. And the yield has gone from 4.5% to 3.9%. I mean, that's a huge drop, but they bought a grand total of 4 billion pounds, 4 billion sterling of these bonds. So 4 billion is a lot of money for us individually, but when you're on sovereign debt, it's like a snack account or something. It's just nothing.

So how in the world do they bring bond yields down so much with very little actual action? much with very little actual action. It's just the declaration of intent, the statement of support, the announcement or guidance, it still matters. The ability of a central bank when they have credibility to state an intention can and usually does with credible central banks carry a self-fulfilling prophecy. What an incredible example in the last few days. I've already covered energy. That's kind of the news for the day, the markets for the day. After Monday, Tuesday, when you're getting 15, 16 underpoint rallies or whatever in a couple of days, a little down 40 days seems kind of boring. But a lot of these things are noteworthy. I hope you got a lot out of it. At the dctoday.com written, I'm not going to go through it here on the podcast, but someone had sent a question in

and ended up having kind of like five parts to it. And I broke them all out as five different questions. So you got a little longer written in the DC Today. Some of the questions and answers you may find interesting because people kind of leaned into some of the doomsday stuff. And what if our nation implodes? And what about hyperinflation? And what about the dollar and other stuff like that? There's a common kind of sociological thread. And I have a strong heart for answering those questions with as much sense and conviction as I can. And I hope you'll look at those answers

if you're interested. That's all I got. Thank you for listening to and watching the DC Today. Another DC Today coming next, excuse me, tomorrow, Thursday. And then of course, we'll have Dividend Cafe on Friday. Thanks for listening. Thank you for watching.

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