The Dividend Cafe - The Dividend Cafe Wednesday - October 23, 2024

Episode Date: October 23, 2024

Market Downturns and Rising Interest Rates: Insights from Dividend Cafe In this October 23rd episode of Dividend Cafe, host Brian Szytel discusses the latest downward trends in the equity market, with the Dow down 409 points, the S&P down nine-tenths of a percent, and the Nasdaq down 1.6 percent. The primary factors contributing to this are rising bond market yields, now at 4.25% for 10-year bonds. The episode explores the impact of these changes on various sectors including housing, where existing home sales have declined by 1%, hitting numbers last seen in September 2010. Additionally, the Beige Book Survey indicates flat or slightly declining economic activity in nine out of twelve precincts, and the Bank of Canada has cut rates by 50 basis points. Brian also anticipates upcoming economic reports on initial claims, flash PMI data, and new home sales. 00:00 Market Overview and Key Indices Performance 00:21 Impact of Rising Bond Yields 01:05 Housing Market Analysis 02:28 Personal Anecdote on Real Estate 02:58 Current Real Estate Market Dynamics 04:14 Economic Indicators and Predictions 04:51 Upcoming Economic Data and Conclusion 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, October the 23rd. Brian Seitel with you here on a basically across the board down day in the equity market. The Dow is down 409 points on the day. The S&P was down nine tenths of a percent. The NASDAQ was down about 1.6%. And the story remains similar to what it has been the last few days, which is interest rates in bond land. So the bond market yields have just risen. 10-year yield was up another four basis points. We're now at 425 on 10s. We were at 365 about 40 days ago.

So that's a decent move up in yields. Most of that is related to better economic activity and better growth numbers, better labor market numbers. So it's not all bad. But you're starting to get to a point now where interest rates are starting to rise enough to cause some downward movement in the stock market. Obviously, there's other things like the election and other uncertainties that exist as well, like earnings coming out and things like this. On the economic side, we had existing home sales down 1%. We're at an annualized basis of 3.84 million. We've been hovering right

around 4 million now for about a year. So housing remains to be stuck. This is an ongoing story. Interest rates have risen significantly for mortgage rates, and there's not a lot of activity. But to put it in perspective, the amount of existing homes that were sold in the month of September of this year is the same number as September of 2010. So 14 years ago. So number one, that's a long time ago. 14 years is a long time. And then number two, if you think about what the housing market was like in 2010, if you remember about that, as I do, completely different real estate market than now to cause

such a low number of existing home sales. You had essentially no demand back then. Who wanted to buy a house, right? They only go lower in price. That was the feeling back then, if you remember. This was after the financial crisis. Housing market had crashed, the bond market, the stock market. We were in recovery mode with Bernanke, the helicopter Bernanke, basically trying to flood the market with dollars and prop up the economy. And of course, after a couple of years, it had started to work, I guess. Stocks had started to move higher, but 2010 was still a very tenuous time in real estate. I remember back then, I had already owned several homes over the years, but

I bought a new home in Park City, Utah, just as a vacation house for my family because Fannie Mae had listed it as a foreclosure and the price was so low that I frankly just couldn't believe it. So I just paid cash for this house. I closed from Fannie Mae in 10 days. And I don't remember there being many other bidders at that time either. That tells you how bad that market was. So I say all these things anecdotally because the amount of transactions happening right now with such a elevated price market in real estate is the same number of homes being sold as it was back then. And now completely opposite paradigm, which is

that you have no supply. Back then you had all the supply, now you have no supply. I believe there's still plenty of demand. I just believe that demand is on hold. It's pent up. People aren't going to trade in their three and a half percent mortgage rates for six and a half percent rates to maybe move up a little bit in house or to buy a new home. And so that's where we sit. That all said, prices now are still up 3% year over year. And so prices are not falling, they're holding in. 3% over the year isn't very much, it's probably around inflation, but it isn't declining. But I believe without transactions occurring, it's really hard for you to put an accurate price bid mark on what real estate really is trading at. Should we see lower

interest rates, which of course I believe we will the next 12 months, that should start to free up and more transactions happening should start to set a different price. Hard to say exactly what that will be. My guess is slightly lower than what it is now, but time will tell. On top of that, we had the Beige Book survey. This is a survey the Fed has to judge economic activity. There's 12 different precincts in the country. Out of the 12, nine of them reported either flat or slightly declining economic activity. It's about the same as we've seen. Doesn't mean bad necessarily, just flat. And so this is a survey that they use going in to their next meeting, which is November 6th and the 7th. So that's the beige book for today. You also had the Bank of

Canada, outside of the US obviously, cut rates by 50 bps on the day. Tomorrow, we'll have initial claims. We've got flash PMI data and then some new home sales to go through. It's a little bit more, a little more going on for you tomorrow that we'll walk through in Dividend Cafe. In the meantime, reach out with your questions, okay? Have a good 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 Thank you. process or investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors. All data and information referenced herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices,

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