The Dividend Cafe - The Dividend Cafe Monday - November 4, 2024

Episode Date: November 4, 2024

Today's Post - https://bahnsen.co/3Ao6vbh Market Insights & Election Uncertainty: Navigating the Week Ahead In this episode of Monday's Dividend Cafe, David Bahnsen, Chief Investment Officer and Managing Partner at The Bahnsen Group, discusses market activity, public policy, the Federal Reserve, housing, and economic data ahead of the upcoming election. He highlights market volatility and the uncertainty surrounding closely contested elections, with battleground states showing tight polling results. He addresses current economic indicators such as job creation, bond yields, and the performance of different market sectors. Bahnsen also comments on China’s housing market, the expected Fed rate cut, and the contrasting perspectives in economic growth between the U.S. and Europe. The episode concludes with an invitation for listener questions and a note on potential election-related updates later in the week. 00:00 Introduction and Overview 00:38 Election Impact on Markets 02:06 Market Volatility and Polling Analysis 08:20 Jobs Report and Economic Indicators 09:35 Federal Reserve and Energy Sector Update 10:17 GDP Growth and International Exposure 11:09 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 another Monday Dividend Cafe. I am your host, David Bonson. I am the Chief Investment Officer and Managing Partner here at the Bonson Group. And every Monday, I try to bring you here in video and podcast form a trip around the horn regarding markets, regarding public policy, the Fed, housing, economic data, so forth and so on. It's one of the highlights of my week to have the opportunity to review a lot of key data information, do different levels of analysis and bring it all to you. Look, everybody is in an election frame of mind right now. So

there are plenty of things over the weekend we just had that were taken over by election stuff. And then obviously tomorrow being the election and into the evening as results start coming in, I don't know what I'm gonna do Friday's Dividend Cafe on at this time because if we have an election result, I may want to break some of that down. If we don't have one,

I may wanna break down what it means to not have a result. I may be so sick of everything by like Wednesday or Thursday that I skip election coverage altogether. Friday, we'll see. But what we do have today is a very interesting market. And I want to start by pointing out that markets themselves are at a reasonably benign level. I mean, it was down 250 today. It opened down 50, went down a couple hundred more throughout the day. At one point it dipped worse and then it came back. But the Dow is at 41,800. It was down 60 basis points today. The S&P and NASDAQ reached down about 30-ish basis points

on the day. Nothing extreme. But the VIX, which measures volatility in the S&P 500, the MOVE, which measures volatility in bond yields, and the CVIX, which measures volatility in currency, they're all quite elevated. And that is very, very normal going into the uncertainty of an election. This, from a polling standpoint, I don't know that we're going to have results that are the closest we've ever had. It's going to be very difficult to get as close as we were in the year 2000 when President Bush ended up beating Vice President Gore by 538 votes in the state of Florida and winning by just enough electoral college votes to win the presidency. That was an awfully close election in terms of electoral college. I don't know if it gets that close or not, but it could be even

closer. Some of the polling scenarios have it that the winner may be at exactly 270 votes, which is the bare minimum needed to prevail in the electoral College. So I just can't tell you whether or not it will be as close, but I can tell you polling going into the election is the closest we've ever seen. And that there are battleground states, more or less all seven that are right at the margin. And I'm referring to Michigan, Wisconsin, Pennsylvania, Nevada, Arizona, North Carolina, and Georgia. And so I think that at this point, my view over the last several weeks has become almost universally consensus that it's a coin flip.

And when you hear a new poll or a new model or new analysis, I want to be very clear about two things. model or new analysis, I want to be very clear about two things. At this point, just remember that anyone presenting data has a presupposition, has a bias, has an agenda. And remember that anyone receiving data has the same. That there are people presenting things that may or may not fit into something that they're contorting, and then people are hearing things. There's this sort of selection bias about what is deemed legitimate, not legitimate. And the key mantra to know what people think of polls at this late hour is, how do you know if a poll is a good and reliable one?

If it says what you want it to say, that's where we are at this point. I'd tune everything out. It's all noise. I promise you, nobody knows. The people at the very inside of the Trump campaign and the people at the very inside of the Harris campaign do not know. They have data points that encourage them. They have data points that discourage them. They have a theory of the case, but no one knows. So that's where we are. So market volatility is higher because there's uncertainty and that's what it is. The put call ratio. Okay. In other words, how many people are buying puts, which are essentially a option derivative that is done for protection versus calls, which is an option derivative done for offense. That ratio did get to a multi-month high on Friday, not uncommon. So people putting on a little bit of

hedging, a little bit of protection. And I don't know if we know the president-elect on Wednesday morning or not. And as I've been saying for some time, I just take for granted that there will be some degree of volatility and uncertainty until we do know more. By the way, the largest company, S&P 500, doesn't release their earnings for a little over two weeks. We know that they've been on fire. The rest of the semiconductor space, this is fascinating, 75% of the names in the semiconductor space are below their 200-day moving average. The NASDAQ 100 did not make a new high in that big October rally that reversed at the very end of the month. The NASDAQ 100 never got above what it had done in early July. So there are signs of some of the froth, even if it's not at the top part of the capitalization scale, breaking down. But we'll see, because everything's hung in there. There's nothing

falling off dramatically. By the way, energy was top performing sector today, up 1.87%. Utilities, which got hit pretty hard Friday, were the worst performing again today, down 1.21%. again today down 1.21. The 10-year bond yield closed at 4.28. So bonds rallied a fair amount today as the 10-year yield came down eight basis points. I think I've said enough about the election tomorrow. There was a renowned pollster Saturday night, Ann Selzer. I was on a video call with her on Sunday and she's got a great track record and polls for the Des Moines Register and had Harris up in the state of Iowa over Trump by three points. Vice President Kamala Harris up three. Another prominent poll in Iowa had Trump up 10 points. So it was this huge outlier caused a lot of people wondering what was going on. And what I would say is two

things can be true at once. It could very well be a really, really wrong poll. And she is a very, very well-respected pollster. But there are different models, different metrics, different inputs, different assumptions. And no one knows. No one knows that this is just a really bad poll that's going to be very embarrassing. Or if it's indicative of other demographic changes, trends, adjustments in other states. I don't think there's very many people that believe Trump's going to lose Iowa. He won the state by eight points in 2020. But does this poll indicate something around the country? I just don't think anybody knows. And that's what I want to emphasize. I also want to point out too, that some of the crazier things you may hear people predicting and assuming right now, I talk about this a lot with money management, that

portfolio managers or commentators that don't have skin in the game will often do something that I refer to the asymmetry of the prediction. Because if they're wrong, if it's outlandish enough and they're wrong, no one's going to remember, pay attention. And if they're right, they're going to all of a sudden gain a lot of notoriety for making this way out of the box call. You're seeing a lot of that right now. People position themselves to take credit for seeing something that they haven't been saying all along, but now all of a sudden they want to say in the last day or two, knowing that if they are wrong, they don't have much downside

because everyone's going to ignore them. Just keep that in mind. All right, the jobs report Friday was a big deal. Only 12,000 jobs created, 100,000 less than expected. Obviously, the two hurricanes and the Boeing strike played in, but the far worst thing of the data was that the July-August jobs reported were both revised downward by over 100,000 jobs. And then from my vantage point, long term, another 200,000 plus people leaving the labor

force in the month of October. So not a lot of great news in that jobs report. But do I think that the October number is going to get revised higher later? I do. The lumpiness out of the hurricanes, it just is what it is. Three-month averages are what you have to look at. Manufacturing declined again in October. This is becoming month by month, very predictable news. China's housing market prices are down 9% year over year for existing homes. They're down 6% year over year for existing homes. They're down 6% year over year for new homes.

The U.S. and China housing market are very different. Both have a lot of problems, but different types of problems. They have too much supply. We don't have enough supply. We both, though, require a lot of activity in the construction sector as part of our economic expectations and activity. For different reasons, both those things are not looking good. The Federal Reserve right now, basically 100% odds

of a quarter point rate cut on Wednesday. The Federal Open Market Committee begins their meetings tomorrow. Oil up 3.2% on the day. It was down 3.5% last week. The S&P was down 1.5% last week. Utilities were down almost 3% last week. Midstream only down 1%. Midstream energy still has been a very defensive and offensive sector throughout the whole year, really. I would point out midstream was up for the sixth month in a row in the month of October. And MLPs, which is a big subset of midstream, were down for the second month in a row. but overall midstream was up for the sixth month in a row. Against doomsdayism, GDP per capita in the United States, when I graduated high school,

was $48,000. It is $76,000 now. So we've grown 58% in the 35 years since I was in high school per capita. We at that time had a 10% better GDP per capita than Europe. We now have a 23% per capita better GDP than Europe. It's worth understanding that both on a relative and absolute basis, we are not as bad off as people often say. I was asked where our philosophy of international exposure fits into our dividend growth strategy. The Ask TBG question is on the homepage, dividendcafe.com. I encourage you to check it out. I'm going to leave it there. There may very well be a special lecture report that comes this week. We'll see how things go. It won't be tomorrow because we're not going to know anything by press time tomorrow. Even in clients' weekly portfolio holdings report

that comes out Wednesday morning, it will be submitted way before we get any poll results. Since I'm watching election coverage tomorrow night in New York, it's going to be a very late night because time zone wise, you're not even going to have polls beginning to close in the West Coast until after 11 o'clock at night in New York. So just a couple of days ahead of us should be fun. Yeah. Look, thanks for listening. Thanks for watching. Thank you for reading the Dividend Cafe. Reach out with any questions.

Hope you've had a chance to vote. Hope you have a relaxing evening with your family and your TVR. Thanks so much. 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. Securities are offered through Hightower Securities LLC. Advisory services are offered through Hightower Advisors LLC. This is not an offer to buy or sell securities. Thank you. way be liable for claims and make no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information or for statements or errors contained

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