The Dividend Cafe - The Dividend Cafe Wednesday - December 11, 2024

Episode Date: December 11, 2024

Market Updates and Inflation Insights - December 11th Edition In this episode of Dividend Cafe, Brian Szytel provides an overview of the market's performance on December 11th, highlighting the overall positive day with specific gains in the S&P and Nasdaq, despite a minor drop in the Dow. The core discussion centers around new CPI data indicating a consistent inflation rate, with headline CPI at 2.7% and core CPI at 3.3%, still above the Fed's 2% target. Szytel explains the impact of shelter costs on these figures and the anticipated future convergence that may align with Fed targets. Additionally, he discusses the upcoming FOMC meeting with a likely 25 basis point rate cut and the speculation about future rate cuts in the coming year. He also offers insights on inflation-protected treasuries, advising they may be a safe investment but without significant upside in the current climate. 00:00 Introduction and Market Overview 00:25 Inflation Insights and CPI Data 01:44 Economic Growth and Spending Trends 02:30 Upcoming FOMC Meeting and Rate Cuts 03:23 Inflation Protected Treasuries Discussion 04:10 Conclusion and Viewer Engagement 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 Wednesday, December the 11th. Brian Seitel with you here on what was generally a positive day overall in the market. The Dow actually did close lower by about 100 points, a little less. But the S&P was up eight-tenths of a percent. The NASDAQ was up a considerable 1.77%. So it was a bigger rally in technology names. Skewing those numbers, you did have the 10-year up four basis points.

So we closed at 427. And all of this was really around the bigger news which happened to be inflation so we got a fresh read on cpi both headline and core came in right in line with consensus we got 0.3 percent for the month of november that's right what was expected that puts headline at 2.7 percent year over year and if you strip out food and energy it puts core at 3.3% year over year. So still elevated above a 2% threshold that the Fed wants to see, but it has been frankly pretty steady. So I think that the market got what it was looking for today overall. And I've said this a few times, but inside of that number, there's a shelter component that makes up a big portion of it.

It's almost 40% of what goes in that number. And the calculation is a year-over-year figure. And so it's still capturing some elevated inflation levels from a year ago. Whereas if you look at the six-month Zillow rent index, it's much lower, by about a point and a half lower. So that matters. So those two numbers converging, what is being calculated inside of CPI and what actually is, which is his rent and cost of living going up or down, there's still a disparity there that as it converges, I believe will get us back towards our 2% target. what they are because the economy is growing. People have jobs. There's roughly 4% wage growth right now. And so people are spending, obviously, coincidentally, it's the holiday season. So people are spending probably more than they normally do or more than they should. But that's what's

happening right now. And it's all flowing through. You also have some excitement around a new administration. Partisanship aside, just a new administration coming in with new policies, pro-growth, deregulation, things like that, the tax rate likely will stay either the same or even get revised slightly lower, maybe on the corporate side at least. So some of those things are stimulative. And all that to say inflation is close to the 2% target, but just not quite back there yet. So what that means is for next week, which the FOMC meeting will conclude on the 18th, which is a week from today, there's a 95% chance they're going to cut by 25 basis points. So that's a done deal. That's what you'll get. But for

January, there's only about a 20% chance that they're going to cut again. And so I think what you'll see is the cadence of rate cuts will move from what felt like being behind the curve a little bit this past, call it quarter, to being, you know, more on the curve, which is instead of a monthly clip of rate cuts, you might see it move to something like a quarterly clip. And that's still pricing in about 1% of rate cuts for the next year. So that's what's more or less baked into markets right now and what I'm seeing on my screens that I can share with you with regard to inflation and where interest rates are. The question in there today on inflation-protected treasuries,

do I think they're a good buy right now? Look, for safety of principle and an income, sure, I think that makes sense. It's a treasury position inside of a high-grade fixed income portfolio. If the idea is, is there some secret upside to them or something right now, particularly I'd say no, just that inflation has already the delta on where it was to where it is. It's such a big difference. It's already kind of come down. So I think if you get normalized inflation, then their total return on something like a tip versus just a treasury is going to end up being somewhat similar. But that can change. And if you get a resurgence in inflation, then of course, that inflation protected treasury will help you. But I think

that the marginal difference will just be a little less. So there you have it on the day. And we'll be back with you tomorrow on Thursday with D on the day. And we'll be back with you tomorrow on Thursday with Dividend Cafe. And I appreciate your questions. Please reach out with them. Thank you and have a great evening. 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.

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