The Dividend Cafe - The-Dividend Cafe - Monday September 9, 2024

Episode Date: September 9, 2024

Today's Post - https://bahnsen.co/4dWntMb In this episode of Dividend Cafe, Brian Szytel steps in for David to discuss recent market trends and the current economic landscape as of September 9th. Brian highlights a significant market rebound following last week's downturn and analyzes recent employment reports and their market impacts. He also covers the Fed's monetary policy direction, market internals, and inflation rates in the US and China. Additional discussion points include Boeing's labor deal, consumer credit and wholesale inventory data, housing market conditions, and various relevant news items such as the Google antitrust case and upcoming political debates. The episode concludes with energy market updates and an ongoing lawsuit involving the Dakota pipeline and Greenpeace. 00:00 Introduction and Market Overview 00:49 Employment Reports and Market Reactions 01:38 Federal Reserve and Interest Rate Speculations 03:05 Sector Performance and Company News 03:55 Global Economic Indicators 07:07 US Housing Market Update 09:04 Energy Sector Insights 11:20 Upcoming Economic Events and Conclusion 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. Welcome to Dividend Cafe. This is Monday, September the 9th, and Brian Seitel with you here today. It's a treat for me to be here on Monday because we get to do the longer format Dividend Cafe, which I've always loved reading when David writes it and then also being able to write it. So it's a treat for me to be here. David's returning from some travel time. But with that, and it's also nice because two things. One, we got a nice NFL weekend and I hope you all enjoyed it as much as I did. And then the second thing was we had a really nice up day today after what was ultimately the pretty down week last week.

We were actually, we ended on Friday the lowest for a week that we've had in about 18 months. And on the NASDAQ, it was the worst week in about two years. So some lower markets last week following into some gains today. Last week, we were looking at employment. Both the ADP report was below expectations and and then the nonfarm payroll report on Friday was also below expectations. We printed 142. We were expecting about 160,000 new jobs, and so that was a little weaker.

And markets sold off. That said, I think there was some recovery today just because of how oversold it was, one, and then two. Inside of that nonfarm payroll report, there was a couple of good things, too. We had the actual unemployment rate tick a little lower from 4.3 to 4.2, but then you had actual wage gains that were up 0.4% on the month versus a 0.3 expected. So it wasn't all bad, and I think markets acknowledged that today here with some gains on the day. There wasn't a ton of other catalysts, frankly, for today's move higher. Otherwise, we had, again, the narrative at this point is where's the Fed at as far as being, are they behind the curve? Have they kept restrictive policy on now too long,

and which will ultimately have employment really fall out of bed and then potentially a recession and that's what the market is trying to grapple with and the odds between whether they're going to cut 50 or 25 basis points on september 18th keep changing dramatically today we're basically a 70 30 that they'll start with a 25 basis point rate decrease which i think is fine i actually think between the two, it'll be more market friendly for them to start off slower, as counterintuitive as that is, versus going with 50. Doesn't mean that where they should or shouldn't. And frankly, with over 100 priced in by the end of 24, which is going to be here about that fast, and then with another 125 priced in by the end of 2025,

whether we start at 25 or 50, the end place is about the same. And I don't think markets are caring all that much, frankly, at this point. The two-year yield, by the way, on the treasury is at 140 basis points wide over Fed funds. So it's screaming that the Fed needs to start and to get on with it here. But that'll be positive for GDP and for the economy and for borrowing and all these sorts of things if those rate cuts come without an actual slowdown in the economy. So that'll be, we'll have to wait and see. As far as market internals go, we're actually quite positive. Even with last week's sell-off, 70% of stocks in the

S&P 500 are in an uptrend above their 200-moving-day target. And even though technology has come back inside of that, you still have sectors like financials and REITs that have over 80% to 85% of their stocks inside of those sectors above 200-day moving averages and then in an uptrend, which is considered historically pretty positive. A couple of news out on the day, Boeing struck a deal on labor. They're trying to avert a strike in their big Seattle factories, but they agreed to 25% wage increases over the next four years, which is pretty significant for that big industrial company and bellwether for America. And so that was a decent amount of news on the day. There was inflation numbers out of China. On headline, they were at 0.6%,

and then core was 0.3%. And if that were in the US, those numbers would be considered high from an inflation standpoint. In China, it's a different deal. And they're really, at this point, printing some low numbers. These are something that we saw in the 90s, really, on some of this stuff. And so they're dealing with a deflationary market. There's a declining real estate market in China. It was far overinvested from public money coming in to build infrastructure, and that has now stopped. And so they're dealing with basically a bubble collapse in real estate. We know how that ended here in the US. And they're dealing with weaker consumer demand and lower inflation and all these sorts of things. And it just really wouldn't surprise me if you had the government step in with stimulus here momentarily

to try to bring up that economy and stop what is turning into deflation. You also have a declining population rate over time there too. So some headwinds there to deal with. But all of those things are in the world's second largest economy. So it isn't without other repercussions. Currencies are tethered to this thing, whether you're looking at the yuan versus the dollar or the yen, those things matter. Commodity prices, when you have that big of an economy consuming less, all those things are tethered together. And so it's meaningful. You had some public policy out, not a ton really on the day. Last week, at the end of last week, President Trump talked about his desire for lower energy prices as a primary policy tactic that he'll implement to open up

drilling and things like that. Basically, a repeat of what his first term was if he were to win the presidency. And while that would be good for prices, meaning prices would be lower, it may not be good for actual energy stocks. And that's what we did see in his first term. So keep that in mind. There was an antitrust suit against Google over a myriad of different reasons from the Justice Department that started today. And then we had, of course, or we will have, get out your popcorn because we'll have the Trump-Harris debate tomorrow night kicks off at nine o'clock Eastern in Philadelphia.

I'll be watching that. I'm sure most Americans will. The economic front on the day, we had wholesale inventories print at 0.2. They were actually revised from a 0.3. So we had a lower number. This speaks to more consumer demand, more spending as inventories get drawn down. And then right after that number, around three o'clock Eastern today, we had the consumer credit number out, which was double what the expectation was. I think those two things are linked, by the way. But the wholesale inventory number was that was driven by consumer demand, because the consumer credit being a $25 billion print versus a $12 billion expectation,

meaningful amount of consumer spending out there. And again, wages, I think those things are tied together. We have wages that were a little better than expected. Consumers have jobs. They're making a little bit more. Inflation is coming down. And so their buying power is a little higher with real rates lower. And you're seeing that in some credit expansion. And that's all positive for the U.S. dollar, by the way.

So the dollar was up today about half of a percent. The housing market remains in this sort of stuck place. We've talked about it for a long time. Supply went to basically almost zero. It was so anemic. Supply is now building and it's coming back up because rates have come down. And so people are finally starting to list houses. There's been a pent up demand for people to move at this point. And so you're seeing the supply start to hit the market again. And as I've spoken about, I believe that will set a price discovery level at something lower than what we have seen. Although the longer it takes to get back to normal, maybe the less that actually occurs as far as price is getting a little softer.

We're still about 25% lower in supply on the market than we were pre-pandemic, if that gives you an idea. But active listings are up about 36% nationally. So it's pretty stunning on how much supply is coming into the market. And there are some cities that it's just really gone off the charts. So if you look at Tampa and Florida, it's up 90% listings of homes for sale, existing homes. San Diego, California, up 80%, me up 72%. So as that much new supply hits the market, I would suspect that those cities that are having the largest amount of increase would probably have some softer prices over time. Time will tell, of course. There was a New York survey of consumer

expectations out today, which I don't follow a ton, frankly. It showed a one-year inflation expectations at 3%, which was unchanged, which is fine, basically in line on inflation expectations. There was a couple of Fed presidents out today, both Waller and Williams, talking about employment, talking about the need to start reducing the restrictive policy, neither of them committing to whether it would be 25 or 50 in Fed land, as they often do. We do have a consumer price index number on Wednesday. And so there's no sense in really saying anything until we get that inflation number. But if it's anything in line or below, then I think it's a done deal as far as the following week when they're going to lower rates. It's just a matter of how much at this point.

On the energy side, we had prices move a little higher on the day. Energy was up about a percent and a half, oil was. You had last week with the sell-off in markets generally, of course, energy stocks were down too. They were down about 5.6%. But if you look at inside of energy, I think it was noteworthy to see the midstream space perform so much relatively better. This wasn't always the case. Those midstream pipeline companies are transporting energy, particularly liquefied natural gas, through their pipelines to where it's produced and to where it needs to go and get refined. And technically, lower prices should mean more demand, which should mean more fuel flowing through those pipelines, in which

case their amount of revenue, the reoccurring revenue would be higher, not lower. That was always the thesis. We did not see that play out in 2015 and 16 because the balance sheets and just the financials of those businesses were levered. It was a completely different paradigm. They're much healthier now. And most of those stocks, the big five inside of the space were down sub 2% and a down 5% week last week. So it's nice to see that. I believe that's the way it should be. They should be less cyclical. And they're finally starting to act like that, which I think is good. OPEC delayed a production increase by two months to support prices and energy. And then you have a drawdown on inventories that was bigger than expected. And then also a tropical storm

in the Gulf that may develop into more of a hurricane, all of which supported prices and energy today. There has been a decade-long battle between Energy Transfer, which is a large midstream company, and the founder, CEO Kelsey Warren, with Greenpeace over the Dakota pipeline. Kelsey Warren with Greenpeace over the Dakota pipeline. Not necessarily that they have the right to protest or something or to lobby against it. That's free country. More of the tactics that were used. Frankly, some of them weren't legal. It looks like he's going to win, in which case it's going to serve Greenpeace about a $300 million judgment potentially, which is more than they can afford. So you may end up with a bankrupt U.S. division of Greenpeace out of that lawsuit, and we'll see how that unfolds. Tomorrow, we've got an NFIB small business survey out.

So we'll be watching that. And then, of course, like I said, we've got a CPI number on Wednesday, which will be the more heavily anticipated number on the week. But with that, I'm going to let you go in the evening. I appreciate you listening and watching and reading, as I always do. And as I said, reach out with your questions. We love getting them. I'll be back with you tomorrow and we'll sign off for the evening. Thank you very 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. No investment process is free of risk. There is no guarantee that the investment process or

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