The Dividend Cafe - The Dividend Cafe Wednesday - September 4, 2024

Episode Date: September 4, 2024

Market Analysis and Economic Indicators: September 4th Update In this episode of Dividend Cafe, Brian Szytel provides a market update from Palm Beach, Florida, on September 4th. The discussion covers the aftermath of a significant market drawdown driven by weak manufacturing data and a sell-off in the technology sector, particularly semiconductors. Notably, the yield curve, which had been inverted for over two years, has now become flat, raising discussions about potential economic contractions. Szytel also highlights the sectors likely to perform well in the current economic cycle, such as staples, healthcare, and energy, and notes a trend towards dividend growth in these sectors. Additional economic indicators discussed include the lower-than-expected new job openings (JOLTS report), unchanged layoffs, increased factory orders, and mixed regional economic activity from the Fed's Beige Book. Upcoming data releases, like the ADP employment number, initial jobless claims, ISM services numbers, and the nonfarm payroll number, are also anticipated. 00:00 Introduction and Market Overview 00:46 Yield Curve Dynamics 02:40 Economic Indicators and Sector Performance 03:40 Job Market and Upcoming Data Releases 05:02 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, September the 4th. Ryan Seitel with you from our Palm Beach, Florida office here on a fairly benign trading day, which is nice since yesterday was quite a drawdown. It was actually the third largest drawdown for 2024 yesterday and not a lot of catalyst that moved it. There was some weaker manufacturing data out yesterday and then really just a sell-off in technology, particularly semiconductors yesterday. So today some follow-through. We closed off the lows. We were actually

negative on all three indices, but the Dow managed to close up slightly about 38 points or so. The NASDAQ and the S&P were both just slightly negative. So there you have it for today. The 10-year was actually down seven basis points, closed at 3.76%. And as I wrote about today, for the first time in over two years, or just a little over two years, the yield curve, which has been inverted the entire time, has finally uninverted here, just slightly. We're actually exactly flat. So the two-year as of right now is at 376. The 10-year is at 376. So there you go. It's a 0.00 flat twos to tens yield curve right now. And historically speaking, and media talks about this and people have written about it, so I wanted to address it, but we've talked about an inverted yield curve being a symptom of the

economy being that something isn't quite right in that the bond market is signaling that the Fed is too restrictive, basically, because short-term rates are higher than long-term rates. And historically, that has led to a recession. It actually doesn't lead to a recession, but it's indicative of an economic funkiness, I guess, and that at some point there would be a recession. But almost always, it un-inverts right before we go into recession. So the proximity towards an economic contraction once the yield curve un-inverts is much closer. So all that's fine, but it still doesn't point to anything definitive on timing. And so I wanted to just air that out to readers and listeners and that, you know, these things are signposts. They're not precise

calculations or anything like that. I can tell you that the economic data that we have and that we are getting across the board is not indicative of contraction, but that doesn't mean that we won't have one at some point, but that's just acknowledging the inevitable. So I don't know if I'd give that a whole lot of your brainpower of your thought there, but nonetheless, we closed flat and we've been inverted for two years and today, intraday, it went the other way. So we were uninverted. So that's meaningful. I think what's more productive right now is to just look at where we are in the cycle, which is later, and then also look at which sectors tend to outperform in those time periods historically. And those are the defensives. So things like staples,

healthcare, technically energy is in there. Those things all tend to outperform. And it is also a thesis that we have at TBG, but it's much more oriented around the dividend growth potential of those particular sectors. And the bottom-up analysis has driven us to them, the valuations, the free cashflow, those things. But nonetheless, to take that for what it's worth, the MAG-7, the relative outperformance to the rest of the market has been cut in half since the July 16th high in the market. And so that rotation that we've talked about from some of the, frankly, overvalued sectors into some of the less overvalued sectors is still ongoing. And the last two, three days, including today, it continues on. Staples were

the better performer on today's market as well. So all that to say, in the economic calendar, we had the new job openings number lower than expected, significantly lower. And technically, June was revised lower as well. So there's less new jobs. This is called the JOLTS, J-O-L-T-S. The new jobs opening numbers were a little lower. The layoffs, however, were basically unchanged. So we're not saying layoffs, we're just saying less new jobs opens, which is more of a forward-looking indicator, but it is also just indicative of a normalized employment market, and that's what the Fed was after. We had factory orders today that were up 5 versus 4.7, so generally good news there. The Beige Book from the

Fed from their last meeting did indicate more precincts reporting either flat or negative economic activity, slightly negative. So of 12, nine were slightly flat or negative and three were positive. So you can read into that as you will. I think we're pretty set for a September 18th rate cut nonetheless that we've spoken about many times. But a little softening here in some of the numbers. Tomorrow, we'll have the ADP employment number, we'll have initial jobless claims, and we'll have some ISM services numbers out. And then, of course, Friday, we'll have the non-farm payroll number and unemployment rate adjustment. So that'll be the most heavily anticipated number for this week. With that, I shall let you go for the evening. I wish you all a great night and reach out with your questions. We love to get them. Thanks so much. 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

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