The Dividend Cafe - The Dividend Cafe Thursday - December 5, 2024

Episode Date: December 5, 2024

Market Recap & Investment Strategies: December 5th Edition In this episode of Dividend Cafe, recorded on December 5th, Brian Szytel discusses the day's market activity, noting a modest downturn with the Dow closing down 248 points. He reviews key economic data, including the U.S. trade deficit and initial jobless claims, and highlights positive overall economic sentiment. Federal Reserve Chairman Jerome Powell's comments on interest rates are explored, alongside implications for different investment sectors. Szytel also addresses questions about the tax efficiency of dividend growth portfolios, providing insights into optimal placement of various asset classes in different types of accounts. Listeners are encouraged to stay tuned for the long-form edition and to reach out with further questions. 00:00 Introduction and Market Overview 00:51 Economic Indicators and Job Market 01:56 Federal Reserve and Interest Rates 02:38 Impact on Various Sectors 03:35 Dividend Growth Portfolio Strategies 05:36 Conclusion and Upcoming Content 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 5th. Brian Saitel with you in our West Palm Beach, Florida office. On what ended up being a bit of a down day modestly. We actually had positive territory in the morning and was essentially a flat market through mid-morning and then gave way and just traded a bit lower all the way through into the close. We ended up down 248 points on the Dow, about 0.2% down on both the S&P 500 and the NASDAQ. So a bit of a down day, still positive momentum though. We've been higher on the S&P 500 and the NASDAQ. So a bit of a down day. Still positive momentum, though.

We've been higher on the S&P 11 out of the last 13 sessions. So I'll call that a positive environment overall. But there you have it. On the yield spectrum, 10-year was down a basis point. We closed at 417. So kind of an uneventful day overall in the trading markets. There was a couple of economic pieces out. The U.S. trade deficit did narrow for the month of October. There was some resolve in a port strike that happened, and then just simply the old imports fell more than exports, and so that number came down a little bit. We still were down at a deficit of $73.8 billion. So there's no need to get too excited about it, which is a little better than expected, but still a pretty big number here if you annualize that number. Initial jobless claims were a little weaker than expected.

We got a 224 number. We thought it would be closer to 214. So a little worse on initial jobless claims. But frankly, anything that's sort of floating around this lower tier of the 200,000 range is just fine and healthy for the labor market. And that's where we've been now for many months. So not a whole lot has changed there. We're still looking good on the employment side. In fact, most of the stuff and data that we're looking at in the market and in the economy is more skewed to the positive side. And I wrote about that a little bit today.

Jerome Powell was out today talking about the economy in the U.S. being at a very good place, his words, that he will allow him to be more cautious and take his time on lowering interest rates to be less restrictive. That's fine. That's already known. The market had priced in eight rate cuts by the end of 2025. And now we're at four. So assuming they're 25 basis points, that's 1% lower on Fed funds. And so you're into the threes. And that should get us closer to that terminal

rate where the Fed funds rate is maybe 1% higher than inflation. If inflation is somewhere between two and two and a half, Fed funds is around three, three and a half. I don't know what's so wrong about that. That's a pretty normal environment. And frankly, it's a pretty good environment. And while there'll be sectors in the markets that are hoping for interest rates to move lower sooner than later, you can look at private equity firms that are hoping for lower interest rates to facilitate leveraged buyouts. There's a lot of that money sitting and waiting. You can look at different real estate transactions that are hoping for interest rates to get back lower than cap rates. Right now they aren't, and that

makes those deals difficult to pencil. On all the commercial real estate loans that are maturing, there's a maturity wall there. All those things are real. You can even look at the Treasury Department that has trillions of dollars of treasuries that are rolling over at higher prices. And again, the rates won't move lower in an environment where there isn't a reason for them to. So if you have strong economic growth and those other areas, while they're feeling some pain, haven't felt enough to actually dislocate, then I think interest rates will just move lower in a slower fashion. And so they'll have to wait. But in the meantime, there was a question in there about owning a dividend growth portfolio in different types of accounts, different between a joint account or a trust account or an IRA or a Roth IRA,

and which one was better and just had a few questions about it. And so I walked through it a little bit. Look, we can own a dividend growth equity portfolio in any of those accounts. It is a tax efficient tax structure because the income is largely taxed in capital gains rates, which are lower than ordinary income rates. So there's something to be said about just owning it in a taxable account, like a joint or a trust account. You've also want to have exposure to growth equity, dividend growth equity in your retirement accounts. And ideally, we like to place inefficient assets from a tax perspective in your retirement accounts. You can think of things like credit, high yield fixed income, private credit, those things that produce a higher ordinary income tax

in the output that they have. We would put those in retirement accounts, things that are more tax efficient, like a dividend growth equity portfolio or municipal bond portfolio. Those things would go in joint accounts and in trust accounts, things like this. Maybe a higher growth vehicle with more upside to it would be more aggressive. We could potentially put that in a Roth IRA. But again, it all is dependent on the individual investor because someone with $500,000 split between an IRA and a joint account is different than someone with $50 million split between different types of trusts and revocable trust accounts and different types of retirement accounts and qualified plans. And so the design

of optimizing all of those different placements of asset classes is just completely specific to each unique situation. It's kind of hard to answer in a blanket way, but I think you catch my drift, which is inefficient stuff goes in retirement accounts, more efficient stuff from a tax perspective goes outside of those accounts. Dividend growth equity, to his question, is in the middle. It's actually a fairly efficient paradigm. And so they can go either way.

Hopefully that's helpful to you. In the meantime, we'll have Long Form Dividend Cafe in your inbox tomorrow, as usual. If I don't speak to you, I hope you have a lovely weekend ahead of you and reach out with additional questions. 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

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