The Dividend Cafe - The Dividend Cafe Wednesday - November 13, 2024

Starting point is 00:00:00 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's November the 13th, which is Wednesday. Brian Seitel with you here in our Newport Beach headquarters at the Bonson Group. On a fairly flat day, really, in markets, the Dow ended up closing at 47 points. S&P was flat up a point. NASDAQ was down about a quarter of a point. So fairly quiet in markets. Volatility has come down. It was down about 5% on the VIX. And the 10-year yield was up about two basis points. Part of that yield being sanguine, I suppose, was related to a CPI number that we got out. So the consumer price index was right in line with consensus.

Starting point is 00:00:49 We got 0.2% on headline for the month of October, and we got a 0.3% number on core, stripping out food and energy for CPI. So it's important. It's another read on inflation. There had been some worry or some angst over inflation heating back up because growth in the market has been heating back up post-election and even before that, really the last couple of months, not related to the election. So there you have it.

Starting point is 00:01:16 Inflation came out in line and I think calmed things down a little bit, supported where things are and so on. The couple of things to note about where we've come here in the market, and I'm saying this stuff because I think it's important for listeners to, if they haven't already, revisit where they are from an allocation standpoint to equities. Yeah, stocks are higher now. I mean, we're trading at 23 or 24 times earnings. Things are more expensive than they were, and I wanted to go through some of this stuff. So for 2024, the S&P 500 has made 50 all-time new highs. So in context, we technically, over the history of say 50 years, make new highs almost every year on average. It's about 18 times

Starting point is 00:01:58 a year. There's a form of a new print. Okay, so take that for what it is. Markets have been better this year. Got it. Bond yields from where they bottomed just a couple of days before the Fed started reducing the Fed funds rate by 50 basis points, meaning that was the low of yields, are now up 75 basis points since then. That's a big move on the 10-year. Okay, so rates have come up. They've come up because growth expectations have been higher. And on top of that, things like bond yield spreads. So investment grade or high yield spreads are basically at all-time lows. That's a sign of a very healthy and functioning credit market. We're now about 90% done with third quarter earnings.

Starting point is 00:02:38 We are coming out just above expectations at about 8.6% earnings per share growth for the quarter. And margins, corporate margins are all time high. So all of that sounds, frankly, almost too good to be true. But then on top of that, if you put in things like monetary policy, lowering short term rates, which is stimulative in fiscal policy, also likely lowering tax rates or at the minimum, keeping income tax rates the same and lowering corporate tax rates, which is what's on the docket here, and also set to deregulate some things, to lower some regulations. Both of those things are stimulative. So you have lower interest rates on the Fed side. Yeah, fiscal policy, that is more stimulative. We can argue about how they're

Starting point is 00:03:21 paying for it or how they will pay for it. When I say they, I mean we as a country, we're running deficits north of a trillion and a half a year and so on and so forth. But aside from what should or shouldn't be, this is just what is. And so it's a backdrop that is overly positive, frankly. And that's what's going on in markets. That's what's being priced in. That's why things have moved up. So it's not just election related. It's all these other things that are going on. The question now becomes for listeners and for everyone is, can we still put money to work? Is there still value out there anywhere to put money to work and feel good about it or not? And my point is, yes, you can, and we do. And frankly, you should. But I think that there's a caveat to being very active when you do it, very selective, and avoiding momentum chasing and avoiding index investing at this point. And I know that's talking our own book here a little

Starting point is 00:04:21 bit, being that we are active in dividend growth managers, fine. But I don't really care because at this point, I think some of this stuff will be harmful for people that are trying to chase multiples of just expanding. I don't know that trying to go from a 23X on the market to 25X is a real sound investment strategy. I think you really need to be selective here. And so I want to drive it home, even if I've already said it before. I think leaning into allocation towards other asset classes like bonds, particularly with interest rates haven't come up, bond prices are lower now, yields are higher. That's something to take advantage of. So when you're building portfolios or thinking about markets or investing in general, it isn't just a stock story. This is an important focus on bonds, and it's an important focus on adding more alternative exposure to the portfolios. And if you can do those things, sensible equities along with those other asset classes, then no

Starting point is 00:05:17 question that you can still find good value out there for building investment portfolios. So all that to say, I wanted to touch on some of those fundamentals to put things in perspective and then really answering the most common question I get, which is, should we wait on the sideline or put money to work and so on? And it's scary and all those things. So I hope that was helpful. I'm going to let you go for the evening. I do appreciate your questions, so please reach out with them. And I shall be back with you tomorrow, Thursday, on Dividend Cafe. Have a good evening. Thank you. All data and information referenced herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary and does not constitute investment advice.

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The Dividend Cafe - The Dividend Cafe Wednesday - November 13, 2024

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