The Dividend Cafe - The Dividend Cafe Monday - June 24, 2024

Episode Date: June 24, 2024

Monday Market Rundown This episode of the Monday Dividend Cafe, recorded in Grand Rapids, Michigan, covers market updates including top performing sectors and notable changes in technology and cryptocurrencies. David discusses the concept of 'TBG day' where multiple key sectors align positively. The episode also provides an overview of recent AI investment trends, citing a survey showing a slowdown in spending due to various concerns. Additionally, David shares political insights that may affect markets, updates on used car prices, existing home sales data, and predictions regarding Federal Reserve rate cuts. The episode concludes with positive notes on the oil sector and encouragements to access more content on the Dividend Cafe website. 00:00 Welcome to Monday Dividend Cafe 00:45 Market Rundown and TBG Day 03:45 AI Investment Insights 07:53 Political Landscape and Market Implications 11:27 Economic Indicators and Predictions 13:23 Conclusion and Final Thoughts 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 D then got back to Grand Rapids where I am for a number of client meetings and speeches and events over the next couple of days. And we just had the market close moments ago. And I want to give you the normal Monday rundown. I was on a plane from Atlanta to Grand Rapids yesterday, Sunday. And so I was able to do a lot of things with today's Dividend Cafe that I love doing over the weekend. I think you'll find there's a lot of info. I'm going to try to cover all of it here in the podcast and video. One of the things I want to do just to talk about today's market action is today is what we like to call in our investment

committee a TBG day. You have these every now and then. In 2022, we had them all the time. But a lot of the things that are aligned with what we do were all up today and on the same day. And you'll often have one of them in a given day. But today, energy was up huge. It was the top performing sector up 2.75% on the day. Financials were up nicely. Utilities and consumer staples, which are more dividend oriented sectors, were up big. And then a lot of things that we tend to be less prone to. Big cap growth got hammered today.

The NASDAQ was down over 1%. prone to. Big cap growth got hammered today. The NASDAQ was down over 1%. The worst performing sector was technology, which was down over 2%. So you're not going to see very many days where there's almost a 5% spread in one day between technology on the downside and energy on the upside. But when you do see it, it's very likely going to have been what we call a TBG day. The bond market didn't actually do a ton today, which is surprising in how a lot of the dividend-y sectors performed. The 10-year yield was down two basis points. So the bond market was up, but not a ton. And that yield on the 10-year closed to 4.23. It had started at four and a quarter. So just interesting. I think this was the third day that, for example, NVIDIA was down. Crypto,

this has been going on for about a week now, but Bitcoin is down over $7,000 over the last week. thousand dollars over the last week about half of that was today alone and it's now down just a tad shy of 20 percent from its all-time high which which was a full three months ago it hasn't made a new high all the way since march even when a lot of this other mag 7 and and uh big cap tech and nasdaq and other things have been making new high after new high. It wasn't. So it feels to me like there's certain things happening in that lower quality risk side of the market. But again, today was just one of those days. Now, I've said a lot lately about the breadth of the market and the top heaviness. Candidly, 72% of the names in the S&P 500 are above their 200-day moving average. So it isn't that bad.

I mean, that's actually pretty good. The point of top heaviness is not so much about a lack of breadth from other names doing well, because a lot of things have been doing well. It's just the spread between how well those things at the top of the food chain had done and where the middle ground lies. And not only do we consider that to be unsustainable, but ultimately problematic for indexers. For those who didn't get a chance to check out Dividend Cafe on Friday, where I dedicated it to the subject of artificial intelligence and laid out sort of 10 principles or precepts that represent our point of view about investing in AI. First of all, I encourage you to read the

Dividend Cafe or listen to the video or podcast that was done on Friday. It seems to be one that's getting a lot of feedback and we very much appreciate that. And there may be some elements there that will be useful to your understanding about this AI investment moment. But one of the things I said in there was an analogy to make the point that right now all the AI investing opportunity has come in what I would call the backbone of AI. And the analogy I used, and I made it up as I was writing on Friday, was that if AI were food, all the money is being made by the companies that make ovens. But the actual companies that deliver food are in that actual food fulfillment business restaurant that they're not really part of the AI story yet.

So I thought it was a clever analogy. And then it just so happens on Sunday night, scrolling through a couple little real things on Instagram, and one of the more well-known VC tech type investors, Chamath, his last name, I'm going to get it all wrong if I say it, but if you saw him, you'd probably recognize him and he's the real deal. But he used an analogy that I liked even better, but it was pretty close to mine. So on one hand, I felt kind of smart. But on the other hand, I do think his analogy is even better, was that when refrigerators came out, naturally refrigerators, refrigeration companies, appliance makers, they made great money.

But who really made a lot of money was Coca-Cola. And in other words, there are other products out there that are going to benefit from the product being used. You could argue, and I'm making this up right now as well, Facebook existed as a desktop application before there was an iPhone. But does anyone think Facebook would be Facebook if it wasn't for the iPhone? And so that's the thing I would say is that there are companies that are coming that we don't know what they are right now, who they are right now. There will be users of AI that will be a much more interesting story than merely just the backbone. But right now, the backbone's all there is. That's where the bid has come. And in my opinion, has bubbled substantially. I'm going to try to move this along a little bit.

There's so much to go through. I found this quote from Lucidworks, a survey they did of 2,500 business leaders. I don't have my readers. Forgive me. I want to get this right. 2,500 business leaders involved in AI decision-making to uncover the 2024 reality of generative AI adoption. While enthusiasm remains high, the study reveals a notable slowdown in spending, with only 63% of companies planning to increase AI investments in the next 12 months. Well, 63% of companies saying they're going to increase AI spending is a lot, but a year ago, the number was 93%. And the slowdown is driven by growing concerns around cost of implementation, data security,

and also just the accuracy of AI generated outputs. That's one survey in one company. 2,500 is a pretty representative number. But I was grateful that Peter Bukvar, a friend of mine and economist who puts out a daily subscription research product that I subscribe to, this was something that was in his daily report today. I was grateful he included it because I actually think that my whole focus has been on valuation, not fundamentals thus far. And God help that place if the valuation and fundamentals weaken at the same time. Okay, I've already given you the movement of the day to go deeper into all the ramifications and markets and economy of the political fall environment, obviously culminating in the November election.

A heavy focus on presidential because that's where all the excitement is, but then looking at the Senate and the House as well. There's a big debate this Thursday night. It's not just that it's the earliest you've ever had a presidential debate. Neither party's even had its convention yet. But it's the earliest by three months. So you're going to have a more extended presidential cycle. I continue to believe that there's some certain clear momentum and trajectory and regularity in certain polls. But nevertheless, everything being close enough

in the electoral college context, I think it's going to be very difficult to call and we'll stay that way all the way through the election. But I've said for some time that Arizona, Georgia, Nevada, and then in the Rust Belt, Michigan, Pennsylvania, Wisconsin, these six states represent where the election will go. I stand by that. Former President Trump has held a consistent lead in Arizona, Georgia, and Nevada. He's up in at least two of the other three states as well in the polling, but it's very, very tight. And if President Biden were to win Michigan and Pennsylvania and Wisconsin, and President Trump would win the other three, and then the one congressional district vote around Omaha and the state of Nebraska, because President Trump would win the other three. And then the one congressional

district vote around Omaha and the state of Nebraska, because they are one of the only two states that portioned by congressional district, their electoral college, then you would end up at 270 to 268 in favor of President Biden. If that one congressional district in Nebraska were to go to President Trump, you would be at a 269-269 tie. And again, maybe President Biden wins other states. He's currently losing in the polls. Maybe President Trump is going to run away. If Minnesota and Virginia and New Hampshire are really at play, we'll see. It could very well be not as close in the electoral college as some may expect. But my best bet right now is that it will be, and we'll keep an eye on that.

I am paying a lot of money for institutional research and political commentary and analytics right now in this fall that very much form how I am viewing things in the political realm and how it plays into some of the macro perspective, sector perspective that we have in our investment process. And I think public polling is great and fine, and especially when you're looking at the averages of polling. But there are a couple of resources I've taken on over the years and developed a relationship with that I consider indispensable to my process. And I'll try to share as much of those, the takeaways from that, that I think are useful to you as possible in the months ahead as it pertains. It's all highly objective, not just from these resources.

They would not be good if they were not objective, but even my presentation here is objective. First of all, anyone who actually knows me knows that this is hardly an election I'm super excited about. Okay. Second of all, my interest in this with Dividend Cafe is purely markets and economic oriented. So everybody has other sources of political news they can go to. Dividend Cafe is not going to become a place of political commentary, but I want good political information that feeds what I'm doing by way of economic commentary. And that's what you'll get from me going forward. Okay. Wholesale used car prices are now at their lowest level since March of 2021. They're down 24% from the peak. That's one element of very significant deflation

that followed what was quite significant inflation that I have always used as a case to make my point that this was such an intensely supply-oriented bout of inflation. Existing home sales, the numbers came out on Friday. They were down 0.7% in May. They're down 2.8% from a year ago. That's volume of sales of existing homes. On a national basis, the median home price is up 5% year over year. I don't think there's such thing as a national median home price, but when you do all the math and that's what it spits out,

it's somewhat practically insignificant, but nevertheless, data is data. 34% chance right now of a Fed cut in September. I think that will continue to go lower. I maintain my view that the Fed will cut 50 basis points this year out of the Fed funds rate, whether that's one quarter point November with another quarter point in December or half a point all in December. One way or the other, I still believe you'll see half a point cut out of Fed funds by end of the year, but I don't believe they will start that in September. Some disagree with me. Right now there's a 78% chance of a cut by November and a 95% chance of a cut by December. That's in the futures market. Oil up big. The midstream sector had a major conference last week. Very positive things being reported on balance sheets, on leverage, on dividend growth

intention. Very, very interesting environment. And then the Against Doomsdayism and Ask TBG special stuff, you'll have to go to DividendCafe.com to read it because I'm running out of time for the recording. So I'm going to leave it there. Thank you very much. I love our Monday edition, Dividend Cafe. I hope you do too. Thanks for reading.

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