The Dividend Cafe - The Dividend Cafe Monday - April 29, 2024

Episode Date: April 29, 2024

Today's Post - https://bahnsen.co/4dd0xsl Economic Front The big economic news last week was the 1.6% annualized real GDP growth for Q1 when +2.5% had been expected. The 3.4% of Q4 (again, all these numbers are annualized, which is just how they get discussed) was not going to repeat itself, but 1.6% vs. 2.5% projected and 2.7% in the Atlanta Fed’s GDPNow model was a big step down. The positive side is that manufacturing appears to be picking up, New Orders are on the rise, and low inventories now mean more manufacturing later. Net exports were the biggest drag (-0.9%), and, as is almost always the case, consumption was the largest contributor (+1.7%). Capex contributed just +0.4%. The Personal Consumption Expenditures (PCE) was up +2.7% year-over-year last month, matching expectations. Personal Income rose +0.5% in March, in line with expectations. 54% of people worked at firms with less than 500 employees in 1980. That number is just over 46% now. The fertility rate in the U.S. dropped to 1.62 last year, the lowest on record. Our fertility rate has been below the 2.1 replacement level for 17 years now. Links mentioned in this episode: DividendCafe.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. Well, hello and welcome to the Monday edition of Dividend Cafe. We have had some fun things going on in the markets and there is overall a handful of things I want to cover. I'd rather just get right into it today. I'd recommend you go to DividendCafe.com. There's links that you will find there to all sorts of fun things, including a couple media appearances from Friday, one on Yahoo Finance, where I

talked about a lot of these subjects I'm about to talk about now, one on Forbes TV, where I talked about a lot of these subjects I'm about to talk about now. One on Forbes TV, where I talked about the results in the earnings sector, the earnings of the energy sector, rather, that came out Friday. But most importantly to me today is to give you our normal around the horn action. The Dow was up 146 points today. It opened the morning up and all markets had had a pretty good up week last week, including on Friday as well. And then the market did give back about 200 points with around an hour to go in trading. And then all of a sudden that rallied right back. And so you ended up without much of a interruption up in the range of 150 points all day long and closing at that point as well with just a couple of little zigs and zags along the way. One of the things I think is so interesting is to report, as you will see in the news from over

the weekend, that Google announced late last week their decision to join the other Magnificent Seven compadre, Facebook, otherwise known as Meta, in paying out a tiny dividend, a teeny, teeny, little, tiny dividend. And the reason I bring it up, even though we do not have skin in this game, is the fact that these were unmentionable ideas in Silicon Valley for so long. And yet now joining the kind of world, if you will, of dividend paying companies, I think it suggests that there's some interesting things at play. It's such a modest amount of money, it's not worth overthinking. that there's some interesting things at play. It's such a modest amount of money, it's not worth overthinking. And yet I would point out that the cultural permission structure for Silicon Valley to begin dividend payments seems to be slowly changing. The downside of a big spurt in earnings

growth, when you have companies that grow quite significantly in a given calendar year is what's called base effect. Then the next year, it's very hard to kind of grow off of that level. In fact, you could end up with a declining rate of earnings. That's what you face in the Magnificent Seven later into this year. Essentially, again, these things are pretty well projectable. They're not perfect. No companies ever come in exactly at the targeted amount. But S&P 500 companies, based on their public disclosures and requirements and just the

kind of sophistication of their own business modeling, there is an incredible correlation between a lot of these forecasts and reality. And it's never perfect, but it's never that far off. And right now, by the end of the year, the Magnificent Seven is expected to be at about 14% annualized earnings growth, where it had been running over 30%. So it's just, again, the kind of base effect of their contribution to earnings. The 10-year today was down, excuse me, the bonds were up, the yield was down about six basis points. So it closed at 4.61%, bringing you a little bit of a rally in the bond market on the longer end of the curve. Interesting thing in markets, although a lot of this is disproportionately the impact of Tesla,

which is technically a consumer discretionary name, but you had consumer discretionary as a top performing sector up 2%. And then you had utilities as the second best performer, which was 1.4%. And then the worst performing was communication services, down 2%. So you had some risk on, some risk off, but all, again, blending together to a pretty good up day. The S&P and the NASDAQ each up a third of a point, of a percentage point. I got a couple emails. If it had just been one, I may I may let it go but I think it was two or three which was enough for me to say that's a pretty good question after all last week I'd gone through a breakdown as to what the market the stock markets reaction had been to different kind of

geopolitical and military events over time and some people would ask well how is gold hung up is it hasn't gold held itself out there as kind of a good volatility buffer in the aftermath of uncertainty? Gold being this sort of anti-fragile asset, as it is often perceived to be. And so we went back, looked at some of this data. After the Hamas attack on Israel in October, gold was up 12% in the next few months. After the Lebanon war from prior time period, which was also equally significant, it was down 10% in the first 90 days. Gold was up 5% after the Iraq war started in 2003. It was down 5% after Russia invaded Ukraine last year, or two years ago now.

After 9-11, which you would think was kind of the mother of them all for impact to the United States, it was flat three months later. And after the 1990 Gulf War started, when the U.S. attacked Saddam Hussein there in Iraq, the first Gulf War, it was flat 90 days later. So going through a number of these really kind of major headline events of geopolitical terrorism and uncertainty all within the last, you know, 35 years, you have a couple where gold was up, low double digits. You had a couple where gold was down. You had a couple where gold was flat. Not a huge indication or correlation either way. Differing circumstances creating a different result.

Fund flows have started to pick up into equities in both the way we measure it with ETFs and mutual funds. I normally would view that as a negative, as a contrarian. But I have not found fund flows to be a very reliable indicator at all. I think sentiment is a better indicator right now to try to detect a sense of contrary spirit. And I think a lot of this has to do with the mechanical challenges in tracking ETF fund flows to begin with. But nevertheless, we did notice that fund flows were negative throughout last year, even as the market was rallying. And then

this year, it has started to pick back up. On the public policy front, this is a thing that really upset me on Friday and put me into kind of my old COVID and markets research mode. The Wall Street Journal, and not just the journal, which is a very respectable paper, and the writer who wrote it is a very respectable journalist and Fed coverer. And I know Nick and think highly of him. rumors and sources, no names, no quotes, no attribution, suggesting that certain people in the Trump administration, if they were to win in the presidential election in November, were intending to blunt Fed independence in the second term and take away or limit the Fed's ability to control monetary policy, allow the president a voice in what interest rates should be,

and so forth and so on. I reached out to several people in my Rolodex that are very connected inside that, that actually served in the Trump administration, that are advising the Trump campaign now, that are, in some cases, not all likely to be a part of a new administration if it were to happen. Nobody had any idea what he was talking about, no idea where the story came from at all. So I personally wouldn't ever bet against anything in terms of what could be said or not said out of the Trump campaign, and particularly former President Trump himself. But as far as a matter of policy,

because I do consider it a very dangerous idea that the president might be trying to play a larger role in directly implementing monetary policy. I don't believe there's any substance to the story whatsoever. And I don't think that increasing their exposure to political influence would be a good thing. That's not to say I don't think it exists now, because I do. What I'm simply saying is that if I think there's a problem, I do not believe we help the problem by trying to make it worse. The big economic news, Friday, the GDP growth came in annualized at 1.6% for Q1.

2.5% had been expected. 3.4% is what real GDP growth was in Q4. So you had a number that was quite a bit lower than where we were last quarter and quite a bit below what expectations were. Then when you look under the hood a bit, it was a pretty good number for the consumer and a pretty good number for fixed investment. But the net exports, which is exports minus imports, basically subtracted almost 1% from the number. That kind of attracts for most of the attribution.

And that tends to be a little more lumpy and a little less of a forward-looking concern. Manufacturing does appear to be picking up. New orders are on the rise. Low inventories now, which are also a slight detractor to GDP, generally will mean there's more manufacturing to come. We will see how some of those things play out. So there's now a full 100 basis points taken out of the Fed funds futures curve. What that means is simply that the market was expecting 150 point lower Fed funds rate by the end of the year, and they're now expecting a 50 basis point lower. So that 100 basis points that is no longer in the futures curve is real life money and a real life

reallocation of expectations, something we've talked about quite a bit. The Fed does meet tomorrow all day, FOMC, Federal Open Market Committee meetings, and they will come out with their ruling on Wednesday. We're right now at 100% in the futures market. There'll be no rate change at all. But of course, I wouldn't at all be surprised if there was significant volatility around both whatever J-PAL says and how he says it and the color of his tie. I will leave you... Oil prices today were flat on the day. I will leave you oil prices today were flat on the day. And someone and asked David asked us if we would view Social Security or pension payments as part of a fixed income allocation in the way we thought about asset allocation of portfolio. And the answer you can find in the Ask TBG section at DividendCafe.com. It's on the homepage, as well as in today's email of this entire DividendCafe.com. It's on the homepage as well as in today's email of this entire Dividend Cafe entry. I'm going to leave it there. I'm running off to Florida very early tomorrow morning for some meetings next couple of days. I look forward to this Friday's Dividend Cafe and then splitting

the load with Brian here for the next couple of days while we contribute Tuesday, Wednesday, Thursday in your daily email, daily recap. Thanks for watching. Thanks for listening. And thank you for reading Dividend Cafe. 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.

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