The Dividend Cafe - The Dividend Cafe Monday - December 2, 2024

Episode Date: December 2, 2024

Today's Post - https://bahnsen.co/4iiTYHk Market Reactions, Economic Updates, and Policy Implications: December Kickoff In this episode of Dividend Cafe, David Bahnsen reflects on a successful Thanksgiving weekend and assesses the recent positive trends in the market, particularly in November. He explains the impact of the election, economic optimism, and the Federal Reserve’s stance on the market's performance. Bahnsen also provides insights into various sectors, including technology, financials, and utilities, and notes the impressive breadth of the market. He previews his upcoming year-end white paper. The episode also discusses changes in the bond market, emerging market performance, and addresses a question on Bitcoin's speculative nature. Additionally, there is a focus on current economic data, policy changes, and potential future market impacts. The episode concludes with a tribute to the late Art Cashin, a legendary figure on Wall Street. 00:00 Introduction and Thanksgiving Reflections 00:28 Market Performance in November 01:15 Year-End Research and White Paper Preparation 02:25 Daily Market Recap 03:10 Sector Performance and Market Breadth 04:50 Emerging Markets and Bitcoin Insights 06:21 Policy Updates and Economic Data 13:32 Housing Market and Fed Expectations 15:23 Bitcoin Speculation and Final Thoughts 17:40 Tribute to Art Cashin 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, the first Dividend Cafe of December. I am David Bonson, the managing partner at the Bonson Group. I do hope you and yours had a wonderful Thanksgiving weekend. We are into the month of December. It is 20-something degrees in New York City.

Winter is here. Christmas lights are everywhere. It's beautiful. And it was a wonderful Thanksgiving, and I hope you felt the same. The markets have been on a little tear. The month of November, you had the small cap index, the Russell 2000 up 11%. I don't mean 11% year to date. I mean 11% in the month of November. The Dow was up over 70% in the month of November. The S&P was up over 5%. So it was a huge month. And obviously, a lot of this is related to market

reaction to the election, ongoing optimism about the state of the US economy, ongoing optimism about corporate profitability, about margin expansion, about the Fed's easier posture. So there's a lot of optimism in the air, and that's a thing worth highlighting. I'm in my mode now where almost everything I'm absorbing is going to be fueling my thoughts as I get ready for the end of the year white paper, driving some of our perspectives, themes, driving some of our perspectives, themes, and expectations going into 2025. So we have a whole month to go and a lot can happen in markets in one month. Indeed, a lot happened in markets in the last month.

But nevertheless, there is a lot to say about what 2024 has been, even with one twelfth of it still to go. And there'll be a lot to say as we go into 2025. Some of you that are newer to Dividend Cafe may not know that it's been an annual tradition for a long, long time that I will do a year behind, year ahead, white paper, podcast, video, all the things, really trying to summarize a lot of the great takeaways of the year that was and provide as much perspective and forecast as is coherently possible for the year ahead. And I'm in full blown research mode on that project. Okay, let's just get right into today because it was actually a pretty boring day. Dow was down 128 points. It opened down 100.

At one point, it did briefly get down 200, but stayed right around the down 100-ish mark most of the day, 28 basis points on a percentage basis, which the S&P was up almost a quarter of a percent and the NASDAQ was up almost 1%. Communication services were the leading sector, up nearly 1.5%. Utilities were down over 2%. Wreaths, I believe, were the second worst performing sector.

So you had kind of a give back in some of the yield-centric defensive type sectors, for sure. An interesting thought, by the way. First of all, that 7% on the Dow in November was 3,000 points. So we were basically at 42,000 at the beginning of November and basically at 45,000, just a hair shy at the end of November. So that's a pretty substantial move in the market. And the breadth of the market was healthy. First of all, technology has not even been the leader. Financials and industrials have been the leadership sectors.

Technology has not given up a lot. It's still been kind of middle of the pack, upper middle of the pack, in fact, but not the source of market return with other sectors actually leading. the source of market return with other sectors actually leading. 77% of companies right now in the S&P 500 are above their 200-day moving average. So you have very strong breadth in the markets. The sectors that have lagged, unsurprisingly, are defensive-oriented sectors, consumer staples and healthcare. And obviously, that excites us quite a bit because we love the idea of going into the new year with some very dividend-centric sectors being quite attractive on a valuation basis, even as some other dividend-oriented sectors have led the way this

year with financials, energy, and other things like that. What else do you want to highlight for the day here? The bond market today, the 10-year, ended up flat. The yield was at 4.19%, well below the 4.5 it had flirted with just a week or two ago. But it was up five basis points earlier in the day as bonds were selling off. And then that kind of reversed course middle of the day. Emerging markets, interesting because you don't see this very often, asset classes that do pivot to some degree around the U.S. dollar. Emerging markets equities were down in the month of November, but emerging markets bonds were up quite a bit, and they had been a leader in the fixed income space throughout the year. So you have bonds and equities in the emerging market space, both of which, of course, are levered to the dollar or inversely levered to

the dollar, I should say, move in opposite directions in the month of November. There's a question in the Ask TBG today about Bitcoin and what I think the catalyst will be to a big sell-off. And I'm going to get to that in a bit. But there's a chart at DividendCafe.com that I think is very helpful, summarizing this really speculative mood around Bitcoin that's been so positive and people wondering why. And it goes back for five years now of a basic perfect correlation between, I mean, not perfect, but really, really tight correlation between Bitcoin's price up and down and the Nasdaq's price up and down.

And I will let people draw their own conclusions. It's not rocket science. Big news stuff, not necessarily supermarket centric, but worth highlighting. Obviously, I'm sure if you had your TV on, you've heard that President Joe Biden did on Sunday night pardon his son, Hunter Biden, who'd been convicted on two different felony charges, one related to gun possession and application and one related to tax evasion. And sentencing was due in a week or two, and President Biden pardoned him. And then as we are now past the phase of most of the cabinet appointments and major staff

positions, with only a few to go, some of these are more newsworthy. And that includes President Trump nominating Kash Patel to serve as the FBI director. And we'll see how that goes in terms of Senate confirmation. So on the policy front, I'm going to spend a little bit of time here, if you don't mind. And I'll go quickly through economic front and housing and oil and energy and the Fed and all that in a moment. But look, we know that the tariff declarations thus far have largely not centered around protectionist economic agenda items. So far, like last week's threat of tariffs against Canada, Mexico centered around drug trafficking, around border control,

to Mexico, centered around drug trafficking, around border control, basically domestic policy issues. And I think it's entirely possible that if this rationale doesn't move to a protectionist domain or more overtly such, that you may see some announcements before the inauguration ever comes that allow the president-elect a certain victory lap and also the spare of the markets having to go through any experimentation around some of these tariffs if they need not be implemented. We will see. Bloomberg wrote a big article last week wondering about why markets were not taking the tariff threats more seriously. President Trump again made news more recently, I talked about it on Fox

Business this morning, that he wanted 100% tariff on countries that are taking steps towards disintermediating the US dollar in their trade, the so-called idea of a BRICS currency. I don't think this stuff is very serious, neither the threat of a BRICS currency, let alone needing to put 100% tariffs on against those countries. But I think it speaks to where the president feels empowered to use threats of tariffs to try to achieve other policy means. And I don't know that there's a great deal of awareness around the fact that trying to decrease the trade deficit and strengthen your dollar, your own currency,

are not totally compatible. And you could argue we're kind of pulling in different sides of the rope here. But again, I wouldn't take it seriously enough to worry about the precision of this understanding of trade or capital flows. I think that there is a different agenda at play. And the only thing I would say is whether it's on purpose or an accident, there's no question the conversation in 2025 around trade and tariffs is going to involve currency. And so there is a lot of room for some of these policy objectives to be met using currency, both with counterparties or ourselves, as opposed to tariffs.

But right now, I think a lot of things are getting thrown out there, and markets have been incredibly tolerant of it. The response you saw of Justin Trudeau coming to Mar-a-Lago this weekend, the prime minister of Canada, president of Mexico, Scheinbaum, neither have exactly come and said, oh, Mr. President-elect will give you everything you want, but both seem to be taking a very cooperative posture. And I think it is entirely possible that there will be no tariffs imposed on them after the inauguration because a lot of the policy objectives will end up seeing meaningful,

a ball down the field progress without that happening. We'll see. Now, on those lines, Jameson Greer was appointed U.S. Trade Representative. He was the chief of staff to Robert Lighthizer in the first term. Robert Lighthizer at this point now did not get commerce secretary, did not get treasury secretary, did not even get trade representative. And all my sources are now indicating that the president's decided to not have a spot for Bob Lighthizer in his new administration. That surprises me a great deal, but it does perhaps indicate to markets that there is a different posture coming around tariffs. I don't expect that to be the case

rhetorically. So I'm really having to look to what, and markets have to look to what will be, not what gets said, because I have no doubt a lot of things will get said and that the media will respond to them. But I don't know that that means that all these things will be substantive and market impacting, and let alone policy real. Now, I don't know they won't be either. And I've said that time and time again. But that's the tension, I think, that we're all kind of dealing with here. Scott Besson, the new Treasury Secretary, I think has been rather clear that the primary use of tariffs is going to be as a negotiating tactic. And there just seems to be a lot of things falling in line for a president like Trump where some of these things may not actually have to happen. We'll see.

There is an unpredictability to this. That's the party line at the moment. He did name, by the way, another appointee over the weekend, I should say, the National Institute of Health Director, NIH, Jay Bhattacharyya. I always say this wrong. Let's just call him JB. I think a lot of you know who I'm talking about, who I read extensively in my COVID and markets days, was one of the co-authors of the Great Barrington Declaration and Stanford University academic who has been appointed while still requiring approval to be the director of the NIH. The economic day is pretty boring. Durable goods orders were up 0.2% in October. That was less than expected.

Orders on the year up 2.7%, but without auto or without all transportation, which is auto and air, only up 1.5%. So take that how you want. Definitely the PCE, the Fed's preferred inflation indicator, is showing a year-over-year number much closer to their target at 2%. CPI isn't quite to the 2%, but it really, in my mind, is if Shelter were properly weighted and properly calibrated. But the piece that lingers that has both political and economic ramifications is the aggregate price movement since 2020. You do have overall prices higher, about 22%. Serial, 30%. Certain grocery store items are routinely around that 25 to 35 level. Electricity is up 32%. Auto insurance

up about 50%. So there are prices that over a five-year period have moved a lot higher. The year-over-year number has definitely slowed. Fascinating statistic on housing, the lowest percentage ever since the data's been measured of new home purchases being done by first-time homebuyers, 24% of every home bought this year, only 24% were bought by someone buying their first home. And that is the lowest in history. And total housing volume is not going to get higher, meaningfully higher, without that percentage getting higher, new homebuyers needing to lead the way. But obviously,

right now, blocked out of a very healthy economy, good wages, good jobs, but just an affordability issue. The no real changes in the futures market on Fed funds expectations, 62% chance of a quarter point cut in December. I did see today that a prominent Fed governor forecasting that they believe a cut will happen next quarter. Oil just up a little bit today, still barely above $68. MLPs, by the way, were up 4% last week. The overall midstream sector was only up about 1%, a little less than 1%, but MLPs had a big spike. MLPs were up 14.6% in the month of November, which is the biggest month MLPs have had,

November of 2024, since November of 2020, the last presidential election month. And in that month, they were up by 20 something percent. So apparently MLPs seem to like presidential election months. There's a link in DividendCafe.com in the Against Doomsdayism section. There's a whole article from Human Progress that really highlights a lot of rational arguments for aspiration that ought to cheer you up. Frankly, it always cheers me up, but it's fascinating to read. So yeah, someone had asked what I thought would be the derailing of Bitcoin. And I just want to reinforce, I don't have a prediction on the derailing of Bitcoin. I don't have any care in the world as

to whether or not it goes to $200,000 or $20,000 from where it is. It's a confidence game. And so other people have to be confident in it to hold value. And whenever things holding value is 100%, not 50%, but 100% dependent on others continuing to maintain their own confidence. My study of history says that doesn't usually end well, but there's been arguments about, well, federal government reserve, a strategic reserve of Bitcoin. It's one of the dumbest things I've ever heard and is mostly being promoted by rank grifters and charlatans.

The person who asked this question said, well, is the blockchain itself a tool that now is driving this? But again, the blockchain would apply to a lot of cryptocurrencies, not just Bitcoin. And I don't think the blockchain as a mechanism for transaction denotes value of the underlying thing being transacted. So it's a pretty cool deal right now. There's a lot of vibes, whatever the cool people are saying. You hopefully can detect where I rank in the cool metric.

But just be aware that there is a ton of leveraged buying taking place with Bitcoin right now. I don't mean like you could think of margin buying, but usually when you're buying something on margin, you're buying like an underlying business. This is a speculative thing. And I don't really have any prediction, but I don't expect that it ends very well. So the catalyst to that is outside of my ability to forecast for the very reason that it is driven by something so speculative. It can fall by something so speculative too. And then kind of fast forward in that fall

because of the leverage underlying the purchases, the speculative praise behind it. I'm going to leave things there. We definitely went around the horn a bit. If you have any questions, please reach out to questions at thebondsongroup.com. Late today, Art Cashin was taken home. And I just want to say, rest in peace. Art is someone I met several times, but was not a close friend, but someone I thought the world of. I read him every single day of my life when I worked at Payne Weber and then UBS. He had been at that firm over 40 years. He'd been in the business over 50 years. He was a director of four operations at the New York Stock Exchange.

And Art was an absolute legend on Wall Street and one of the most likable people that Wall Street ever had. And just a sage of wisdom, of calmness, of humor, of maturity and poise. And I don't know. Wall Street is worse without him. I know that. I would just want to say it was a life well lived and rest in peace, Art, and my condolences to his family, who he loved dearly. Thanks for listening. Thank you for watching. Thank you for reading the Dividend Cafe. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC, member FINRA and SIPC, and with Hightower Advisors LLC, a registered investment advisor with the SEC.

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