The Dividend Cafe - The Dividend Cafe Monday - May 13, 2024

Episode Date: May 13, 2024

Today's Post - https://bahnsen.co/3UXaYJe Markets opened to the upside and then spent the first half of the day declining (but not by much) and the second half of the day around that declined spot. 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 the Dividend Cafe. We have a full agenda for you today going around the horn to talk about all of our favorite topics. The Dow's eight-day winning streak has finally come to an end. The Dow is down a whopping 81 points today, just 20 basis points. The S&P was barely down, just down a couple basis points. And the NASDAQ was actually up on the day, 29 basis points. It was a pretty boring day, actually, overall. The best performing sector was technology. It was up less than half a percentage point. The worst performing sector was industrials, and it was down less than half a percentage point. And so there was plenty in between, kind of a flat range. The market spent

the first half of the day slowly dropping, like I said, down about 100 points. And then it spent the second half of the day just being down 100 points, not really moving a lot from there. But again, this comes off of an eight-day winning streak. And it was one of the subjects I covered in the Friday Dividend Cafe, if you missed that, in terms of understanding what has happened in the market over the last couple of weeks. I think it's worth noting. A few other quick market comments. I was unaware of this until reading a report this morning that 70% of the companies in the S&P 500 are above their own 200-day moving average right now. But it has been there. That has not varied at all since November, late November of last year. The 200-day moving average average over 70% of companies, and it had

gotten above 80% at one point. It came back down to 70% in April, but it's not gone lower than that. That's very interesting to me, the resilience of the breadth in the market in terms of that relative strength. Speaking of relative strength, again, this stuff doesn't mean a whole lot to us, but I just wanted to give you as a kind of point of fact that consumer discretionary is up 2% on the year as a sector, and markets are up around 9%. This is the worst that the consumer discretionary sector has done relative to the

market in several years. And so just a few different data points as we think about where markets are and where they're headed and all that good stuff. The 10-year bond yield today closed at 4.49. That was down 1.6 basis points on the day. So bonds have had quite a rally here in the month of May. In terms of public policy, by far, I think the biggest market relevance in policy matters today was around the Biden administration's announcing of intentions to quadruple tariffs on Chinese electric vehicle imports. Now, you may know that China doesn't really export a lot of EVs to the United States. The American consumer base is not a big part of China's electric vehicle market. So there's more of a strategic thing going on here. There were other sectors and items that saw large tariff increases as well. There were no tariffs that were reduced or let alone eliminated.

But again, just kind of a positioning around the Biden administration's policy with China as it relates to tariffs. I think President Trump announced like a 2 million percent tariff or something. It was a 200 percent tariff on Chinese imports. And the Biden administration effectively announced 100 percent tariff, which is up from 25, hence the quadrupling. All of these things really are kind of semantics because the bigger issue is that much of what they've done is move the manufacturing to Mexico and then trying to get the cars that are largely from China done in Mexico to come in to the United States at a lower tariff level. And that's really where the policy debate is. And what a tangled web we weave when first we practiced to do industrial policy. The federal judge on Friday blocked the Consumer Financial Protection Bureau's plans for an $8 limit on what late fees can be

from a credit card company. And so that had been passed by CFPB, had been blocked, it had been upheld by a lower court, and then now was blocked on Friday by a federal judge. And this is possibly going to get tucked in to much broader judiciary action as the Supreme Court is sort of ruling. They've already heard the case and expected to make a ruling soon, probably next month, on what could affect the overall existence of the CFPB. I think you know what I think about it all. China's CPI on the year was up only 0.3% for the whole last 12 months, basically at deflationary levels, technically positive, but barely. Other economic news that I find very interesting, 11% of tech sector jobs were in

California pre-COVID just a few years ago. And that number kind of hung through the first year or so, COVID, it's now 8.5%. So those of you that understand the way math works know this is not a two and a half percent reduction. It's almost 23% reduction of the percentage of tech jobs that are owned by California, if you will. A really big move down worth noting. All right, a handful of things I want to go through quickly on real estate. Real estate data firm Adam that I follow quite a bit sent a report that one out of 37 homes, which is 2.7%, are seriously underwater. Seriously underwater is defined as a mortgage that is 25% or more the value, the estimated resale value of the home. One out of 37, 2.7% is a very, very low number. It had been about 6% before COVID, and that itself was a

very low number compared to the financial crisis, where, of course, we were somewhere around 50%. And that was a huge correction of housing prices with an excessive amount of debt that largely had to get worked through with foreclosures and whatnot. But right now, it's just a very low amount that are underwater, largely in lower income cities throughout the South. 40% of Americans, by the way, do not have a mortgage. It's the highest we've ever had. And 57% of Americans who do have a mortgage are paying less than 4%. I think those two data points give you the best explanation as to why the economy has been far more resilient than many expected in the wake of the Fed's tightening cycle, that there are so many not paying higher mortgage rates, it's been difficult to have a negative economic impact from the mere

existence of higher mortgage rates. Another data point that's kind of pertinent as we get ready for the CPI number, the Consumer Price Index, coming out this Wednesday, is that we know in the data point in 2022, the single family homes saw their cost to rent grow 14%. And then over the last 12 months, we have a 3.4% number, but the total shelter number with CPI is still hanging in there around 6%. How could that possibly be when new rents are so much lower? It is because the amount of people that are staying in their current spot, as opposed to taking a new lease where the lower growth of rent costs would be reflected, has come down so much. There is such a high number of people renewing leases, largely, I think there's no data to support this, it just seems very intuitive, largely because there's a certain percentage of people, I've read studies that suggest it's about 18% a year,

that do not renew a rental lease because they go on to buy. The amount that are currently because they go on to buy. The amount that are currently leaving a lease to go in many studies is somewhere around 9%. About half of the people that normally would be leaving after a lease expires are renewing. That's a huge data point. Again, intuitively, I would suggest it's related to people not going out to buy a home because of high mortgage rates and high prices. But what that's doing is skewing the numbers of the amount of people that are then just taking an automatic rent escalation instead of doing a new rent where the Fed data, the BLS data grabs a lower amount. And I think that is a big factor of why the shelter contribution to CPI has been so stubborn, even when market prices are lower, is simply because of the amount of people that are renewing

and therefore not reflecting new rents, which are themselves not growing in the way that they had been. Out of the Fed this weekend, you had Michelle Bowman say Friday that she's still waiting, you know, to see more reliable data that inflation's come down to 2% before she wants to move interest rates lower. Neil Kashkari, which I thought was very interesting, he sometimes bugs me a great deal. I think he's a very, very smart guy. I met him a number of times, by the way. He ran for governor in California. I want to say it was in 2012 or 2014. It was sometime back. But nevertheless, yeah, it was 2014. He is now the Fed governor in Minneapolis. And he talked this weekend about the implied inflation rate in the 10-year TIPS market being the best proxy for monetary policy.

And this is just something I've been saying for a long time. I'm far more interested in what market actors are doing, especially over longer-term barometers. barometers. The five-year is great too, but the 10-year is even better for what they're actually paying in terms of inflation expectation, the way it is priced in something highly efficient and robust like our TIPS market tells me a lot more about inflation expectations than anything else. It was interesting for me to hear a voting Fed governor say the same thing. Oil, not quite back to $80, but up over 1% of the day, still hanging out in the mid-79s. Another great week for midstream energy last week, earning season for the midstream energy sector largely came to a close. The sector was up over 2% last week, up over 14% on the year.

Pretty much good full-year guidance across the board. CapEx guidance didn't go up a ton. There were some modest increases, but nothing hugely concerning. Overall revisions, where there were some, were positive. So a good week in oil and energy. And then in the Ask David section of today's Dividend Cafe, you will see somebody ask about hyperinflation. And if there isn't this broad hyperinflation, you know, why are certain elements going higher? And I address how we can think about inflation that is specific or targeted to certain areas like restaurant prices or even more particularly insurance and how to think about that in the context of the overall price level. So great question that came in and my answer is there

at dividendcafe.com. So yes, Wednesday the the CPI report will come out for the prior month, and I assure you it'll be a largely obsessed upon data point in terms of what people expect for bond yields, for Fed action, and so forth. So this Wednesday, big data point coming on CPI. My prediction is it'll either be a little bit low or a little bit high or right at expectation. You heard it here first. With that said, questions at the bonsongroup.com. And please do reach out with such. And thank you very much for listening. Thank you very much for watching. And thank you very much for reading the Monday edition of Dividend Cafe. We'll talk to you very soon. Thank you. representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and

information are subject to change without notice. This document was created for informational purposes only. The opinions expressed are solely those of the Bonson Group and do not represent those of Hightower Advisors LLC or any of its affiliates. Hightower Advisors do not provide tax or legal advice. This material was not intended or written to be used or presented to any entity as tax advice or tax information. Tax laws vary based on the client's individual circumstances and can change at any time without notice. Clients are urged to consult their tax or legal advisor for any related questions.