The Dividend Cafe - The Dividend Cafe Thursday - December 12, 2024

Episode Date: December 12, 2024

Market Overview and Utility Sector Insights – December 12th In this episode of Dividend Cafe, Brian Szytel discusses the latest market movements and economic indicators. Key topics include the Producer Price Index (PPI) numbers, which recorded a slight increase, leading to a minor sell-off in stocks and bonds. Szytel provides an analysis of initial jobless claims, emphasizing the importance of employment data. Additionally, he addresses the attractiveness of the utility sector, highlighting its evolving role from a defensive sector to one benefiting from rising demand and limited supply. The episode concludes with a focus on dividend growth and the potential for increased supply to meet higher demand in the utility sector. 00:00 Market Overview and PPI Numbers 01:18 Employment Data Insights 01:42 Mixed Market Reactions 01:58 Utility Sector Analysis 03:23 Future Outlook 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 Thursday, December the 12th. Brian Seitel with you here on another inflation-oriented day, I guess, in the market, we got PPI numbers out on the day. That's the producer price index numbers. And markets were down a touch, about a half a percent across the board on stock. So the Dow was down 230 points. S&P was down 0.54%. NASDAQ was down 0.6. And the 10-year was actually up six basis points, hence the sell-off in equities and the sell-off in bonds. PPI came out just higher than expected by about a tenth. We got a 0.4% print for the month. We were expecting a 0.3%. At least that's on headline. If you strip out things like food and energy, it was right in line, rising at about 0.2%. So some of it will follow through from yesterday. Both of the numbers on

CPI and PPI are not speaking to an advancement or resurgence, inflation necessarily. They're speaking to more of a normalized number, but something above the 2% target on the Fed's wish list. If we stay in this high twos to low threes with continued strong growth, with continued labor market resiliency, then I suspect that rates will move lower, but again, at a much more slower and measured pace. And that's what's being priced into markets right now. That said, we did get initial jobless claims above consensus at 242

versus 220. The employment picture is something to pay attention to as well. Anything below that 250 level, I believe is in the clear zone. I think if it gets above that level, then the Fed pays more attention to it. And again, these are weekly numbers. So just keep that in mind. We get a lot of fresh reads into these jobless claims numbers. So with that, we have mixed bag, I would call it. Sell-off in stocks and bonds, PPI, a little bit higher than expected or higher than we would like.

Ideally, we'd like inflation and disinflation to ramp up. Some of the policies and some of the things into next year may do just that. In the meantime, here we are. There was a Q&A in there about the utility sector that I'd written about quite a while ago as being attractive just from the backdrop of things like AI and data centers. The comment was more related to just what was once a defensive and sort of interest rate sensitive sector and boring and mature has become a little bit more sector du jour lately. And that's good. I mean, I would look at it more on an individual name basis, more on a bottom up side. Again, we're focusing on the dividend growth paradigm and the benefit from rising demand with limited supply. There's only a certain amount

of utility companies in the country, obviously all U.S.-based and focused. They're trading above, meaning they've moved up in price. So this isn't anything that isn't known by the market. ETF flows are picking up and above other defensive names like healthcare, staples, energy. So it's being noticed and that's being priced in the names. In my comment to the question that was asked, what does it mean for the market overall? And my answer is that I believe that necessity becomes the mother of all invention. And I think it will expand where there's demand, supply can ramp up with more facilities, maybe even new technologies that do to produce more electricity, more reliance on cleaner burner fossil fuels like natural gas. All of those things will come

into play to meet that higher demand from both the corporate side and the domestic side. In the meantime, the name that we have is focused on that dividend growth side of things and reaping the reward of those rising revenues in the form of return of those profits back to shareholders as dividends. So there you have it for the day. Again, I wish you all a lovely Thursday evening. Reach out with your questions, as always, and I will talk to you soon. Thank you.

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