The Dividend Cafe - The Dividend Cafe Thursday - October 31, 2024

Episode Date: October 31, 2024

Market Recap and Investment Strategies - October 31st Edition In this Halloween edition of Dividend Cafe, Brian Szytel discusses the down day in the markets, highlighting a 2.76% drop in the NASDAQ and a 378 point drop in the Dow. Key economic updates include a flat interest rate, PCE inflation numbers aligning with the Fed's targets, and lower than expected jobless claims. Brian also elaborates on the investment methodology, focusing on a blend of quantitative screens and in-depth fundamental analysis. Additionally, he emphasizes the undervalued utility sector, which is poised for growth due to increased electricity demands from data centers. He concludes with a personal note on Halloween festivities. 00:00 Market Recap: Halloween Edition 00:45 Economic Indicators and Inflation Insights 01:18 Employment and Wage Trends 02:12 Investment Methodology Explained 03:55 Utilities: The Underappreciated Sector 05:06 Closing Thoughts and Halloween Wishes 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. It is Halloween on October 31st. Brian Seitel with you on a down day in markets overall. In fact, a bit of a doozy, at least in the NASDAQ. The NASDAQ was down about 2.76% on the day. So it's a more tech heavy index. There's a lot of earnings coming out right now in that sector, particularly, and that drove down some of that index. The Dow itself was down 378 points, which in percentage terms is about 0.9%. So it's a down day in markets. Interest rates were flat. That's been the topic lately. The 10-year was at 429. So there's your short recap, at least in the broad equity market. On the economic calendar, we had an inflation

read. It's actually what the Fed likes to use, one of their favorite barometers, which is PCE, headline completely in line. Headline came out at 0.2% month over month, and headline PCE is now just 2.1% year over year. So the Fed's target is two on CPI, and so we're basically there, and that's what PCE is telling us. If you strip out the food and energy component, just because energy has come down, and frankly, food has too, both of those things have come lower. It was 0.3% for the month. So nonetheless, inline numbers on inflation for PCE. We had initial jobless claims that were lower than expected, which is a good thing. 216 versus 228. The continuing claims, which really had been rising steadily and were

more to watch, were also lower than expected. So that's a good thing. Some of these things were just affected by the hurricanes, Helene and Milton that came through the eastern side of the U.S. And so there was some lumpiness in some of the employment numbers last month or so. There was an employment cost index that was up just 0.8% for the quarter. This is a decelerating number that we've seen. And so what that means is while the labor market is normalizing, and I would call it almost normalized at this point, also our wages, wages are cooling as well. So wage growth is slowing. So there you have it on the economic side. That's your market recap for the day. There was a good question I had that came in on Monday this week from a gentleman I actually

met with in our West Palm Beach office and a very astute guy, but he was asking more on our methodology on the front end, mainly around the quantitative side. So did we set certain targets, certain dividend yield, certain growth rate of dividend, certain valuation number we're trying to stay under, and particularly an earnings yield? Are those some of the metrics? They are the metrics. So we do do that. And you have to, because you have to narrow the playing field a little bit. There's thousands of companies out there. If you looked at just the S&P 500, there's of course 500. And so we're trying to narrow it down on the businesses that can grow dividends. We start out with a quantitative screen like that. Yes. But because each sector is just totally

different. So if you looked at REITs versus MLPs versus financials versus tech stocks, they're all totally different. You can't really use blanket figures like that. So we start with that. But really, the heavy lifting comes down to the analyst team that we have go company by company. So narrow down hundreds of companies down to maybe 60 or that we have go company by company. So narrow down hundreds of companies down to maybe 60 or 70, 80, something like that. From there, we can go sector by sector and select a couple of companies via each area that we may want to invest at. Again, we're just looking at businesses from the bottom up. So the financials are dictating which sectors and which industries they happen to be in. There's some overlay protection on concentration risk, of course.

And there's a whole lot of other things that go into this. I'm trying to give a simple answer to a fairly simple question. The front end work, that quantitative side, 5% to 10% of the time we spend, it's not a huge component. The main part of it is that the deep dive on the fundamental side. It's the bottom up research. It's all the different things that we have to go through to vet companies that we want to own. So there you have it. The other thing I mentioned in there was just about utilities a little bit. Obviously, nobody talks about utilities.

You've got really fun things like cryptocurrency and AI and all these things to talk about that are more interesting. But the utility sector, which is frankly usually underloved and under-owned, is actually poised to really accelerate here over the coming 12 months. We have a name that we've owned for quite some time that has grown its dividend handily and done things that we wanted it to do because of this paradigm. But if you think about just the electricity need, when we talk about all these neat things like artificial intelligence and the data centers behind them, the draw from electricity is enormous. It's doubled, frankly, just over the past two years. And so some of these utility players that are near some of these areas, think like West

Virginia, which is the area of the utility where we own, which happens to be the largest data center area in the US, frankly, really benefiting from that draw of electricity. And so the utilities, which were usually boring, are starting to pick up from an earnings per share perspective. And that should happen and continue over the next 12 months. You also get a nice dividend stream with them. You get growth of dividend with them. So we like the space. Wanted to point it out. There you have it on the day. I'm going to let you go. I wish all of you a lovely Halloween. If you have kids, I've got an 11 and 13 year old. So I think one's a princess and one's a superhero. So I'll be golf carting them around the country club neighborhood where we

live tonight. And that'll be my evening at least. But with that, I shall let you go. And I wish you all a great evening. Thank you. 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 investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. Thank you. 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.