The Dividend Cafe - The Dividend Cafe Wednesday - December 18, 2024

Episode Date: December 18, 2024

Market Reactions and Real Estate Insights: December 18 Analysis In this episode of Dividend Cafe, Brian Szytel discusses the market downturn on December 18 from the New York City office. He provides an overview of the two-day Fed meeting, which resulted in a 25 basis point cut in interest rates to a range of 4.25% to 4.5%. The market reaction was majorly influenced by the revised dot plots and press conference, leading to a significant selloff, particularly in the Dow, S&P 500, and Nasdaq, as interest rates shifted higher. Additionally, Brian touches upon real estate market trends, noting a decline in housing starts and a rise in new permits, and offers insights into handling real estate investments. He assures listeners that despite market volatility, the fundamentals of well-allocated investment portfolios remain sound. 00:00 Introduction and Market Overview 00:14 Federal Reserve Meeting Insights 00:33 Market Reactions and Analysis 02:15 Investment Strategies and Portfolio Advice 03:11 Real Estate Market Discussion 04:13 Economic Indicators and Housing Data 04:48 Conclusion and Next Steps 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 18th. Brian Saitel with you in our New York City office today in the heart of Manhattan. in the heart of Manhattan. On what ended up turning up to be quite a down day, actually, overall in stocks and bonds, we concluded our two-day Fed meeting and set interest rate policy, or Powell did, 25 basis points lower to a range of four and a quarter to four and a half on Fed funds. That was completely expected. It was a unanimous decision. There was one dissenter only who wanted to hold rates the same. But what moved markets, and frankly, more towards the end of the day, was the dot plots and then the press conference. So I mentioned this yesterday, but there was four additional rate cuts expected for 2025, and that was moved lower to just two.

two. There was consideration for it maybe moving to three, but I don't know that there was a lot suggesting that only 50 basis points more would come over the course of the next 12 months. That's what disappointed markets. And the reasons that they're slowing things down are all frankly good rather than bad. So that's not necessarily what caused the sell-off in the Dow. The Dow was down 1,123 points on the day, so that's a 2.5% move. S&P was down almost 3%, and the NASDAQ was down 3.5%. Rates went up across the curve. You had the 10-year up 11 basis points on the day. The two-year, by the way, was up 14 basis points. So rates moved considerably higher, more so on the short end of the curve, because the Fed basically suggested that they're going to cut rates less. We knew that was going to happen, the extent of which I think was a little bit more than markets had priced in.

And so you get these sort of big drawdown days. And what I wrote in there is that the silver lining to this is when you have the reason for a lower trajectory for interest rate cuts, being that the economy is doing better than they thought, that the labor market is balanced, and that they've worked on inflation, they feel pretty comfortable with where inflation is headed, those aren't necessarily bad things. So again, that's not what caused the sell-off. What caused the sell-off is that markets get ahead of themselves. They get priced to perfection. They get priced around certain assumptions on interest rates, and then there's disappointment. So as far as how that relates to readers and to listeners in your portfolios, I don't think it means much at all. Fundamentally, I think things are fairly sound still. And so, so long as what is in the portfolio

is rooted in an asset allocation based on real life goals and objectives, I think that those things are fine. And that's ultimately what you need in this environment. I think the things to be avoided are things rooted or based in assumptions that multiples will expand from here, or that interest rates are going to go down so much as to warrant the extreme valuation that has already been priced in. And that's what I wrote yesterday. And it's what happened today with a different part of the market selling off more than the other. So there you have it on the day. Again, I don't know that you need to read into today as some sort of a long-term dire equity market or anything like that. Most of what we're talking

about here is airing more on the positive side than otherwise. Okay. So with that, there was a question on real estate. We get this often. We do a lot of real estate analysis for clients, both with the holdings that they have. Obviously, we have access to investments, both in our dividend portfolio and the alternative sleeve and in some of our direct investments that we have. But for those that have real estate holdings that have appreciated meaningfully, that are looking to exchange them, looking to sell them, looking for resources, whether it be lending, whether it be transactional, whether it be a 1031 exchange, or whether it be a DST, like a Delaware Statutory Trust option for those

exchanges, all of those things are part of what we do day in and day out. And as far as recommending an individual real estate agent to sell a home in one city somewhere in the country, my only comment was just those are really local markets and likely we'd want to source something very local to that transaction. But all those other key components we very much do offer and do often in-house. So that's the answer to that question. On the economic front, obviously, we already spoke through the interest rate side on the Fed meeting. Housing starts were below expectations. The starts were down 1.8% for the month, mostly driven by multifamily weakness. That said, the new permitting for future builds was above expectations. It was up 6.1% for the month.

So that's a more forward-looking indicator into real estate. And part of that, I'm assuming, is based, rooted at least in some interest rate assumption on mortgage rates too that shifted higher today. So we'll have to read into the next month's numbers here to see how that goes. In the meantime, I'm going to let you go for this evening. Reach out with your questions, and we'll have Dividend Cafe with you for you in your inbox tomorrow, which will be Thursday. And I'll be able to go through it with you again. And with that, I'll let you go. Thank

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