The Dividend Cafe - Thursday - December 4, 2025

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. This is Thursday. Brian Sightel is with you from our West Palm Beach, Florida office here in a bright sunny day, and I'm recording this just a few minutes before the close here as I head to the airport to get to the California office for next week. But I want to be a bright sunny day, and I'm recording this just a few minutes before the close here as I head to the airport to get to the California office for next week. But I want to to get this out your way. It was somewhat of a directionless day in markets. It was a really pretty benign day overall. The S&P was about flat. Nasdaq was also about flat, as was the Dow, slightly negative on the Dow, maybe 50 points or so. Interest rates on the day went up here, a few basis points. We closed at 411 on the 10 year. That's up about four basis points. So what's going on? There's a lot of talk on AI and how that will continue to unfold, but most of the talk is related to Fed policy. It's related to the balance sheet that they're managing and the size of

Starting point is 00:01:03 it, quantitative tightening. And it's related to the next Fed chair, which is likely to be announced at some point. Remember, that new Fed chair won't take office until May of next year, but it's likely announcement of who that will be would come sometime before that. A lot of talk has been between whether it will be Kevin Hassett. That's the most likely frontrunner at this point. And we'll give you some more data as soon as we get it. But in the meantime, what I wanted to write about today was a little bit about the balance sheet. It hasn't gotten as much attention as I think it probably should. We know that since June of 2022, the Fed hit a peak of about $9 trillion just under on their balance sheet. And since then, they've been reducing it through a program called quantitative

Starting point is 00:01:43 tightening, QT. So as bonds have matured, they have not reinvested those proceeds, but let them run off. And they've even go so far as to reduce the balance sheet originally. And I've just been letting that runoff take place here over the last couple of years. And we've, what has happened is they've gotten it from $9 trillion down to $6.5. And actually, they've done that in the light of taking interest rates up 500 basis points as well. And the economy has performed just fine the entire time for the most part. There's been a couple bumps in the road. But it's actually been pretty astonishing in how really a soft landing was achieved this time around. Now, I don't want to get ahead of myself, so I suppose I can knock on my desk here. It'll be interesting that

Starting point is 00:02:21 the timing of Powell handing over the reins to the next fed chair may just come at a time when you're starting to see overnight repo markets stress a little bit with liquidity. And so what that means is you've got corporate tax payments and treasury settlements happening at the same time. This pulls cash from the market. And historically, the Fed steps in once you get below about 10% of GDP roughly in those markets. Remember, banks have to keep a certain amount in reserves on their balance sheet. And so unless those requirements are changed or liquidity comes back in, then you get a stressed credit market and you start seeing things like LIBOR slash SOFER change a little bit. And we've seen that as that overnight borrowing rate has crept up about 12 basis points. But all that to say, what does that

Starting point is 00:03:07 really mean? What I think it means is that you'll eventually see the Fed turn, not just from QT. They're actually stopping quantitative tightening this month, by the way. So that's going to end. And their goal at that point would be to not let the balance sheet run off nor add to it, but just keep it the same, call it $6.55 trillion. But the interesting thing is that I don't think that they'll have much time between when they stopped letting it run off to when they're going to start adding back to the balance sheet because that liquidity squeeze that we're starting to see develop is going to require the Fed to inject capital. They do that through adding to the balance sheet and injecting cash into the system in the overnight repo market and the bank reserve side of things. And you

Starting point is 00:03:48 could see that happening even as soon as this month. It's hard to tell exactly. But my point is just you're going to go from quantitative tightening with a slight positive quantitative easing again within probably the month or so time period. And at the same time, you've got a December FOMC meeting that ends next week. They're likely going to cut rates 25 basis points. That's all but fully priced into the market at this point. So there's just an interesting time going on with Fed policy. As I've written about before, when you have interest rates coming down by FOMC policy, at the same time, you are actually reducing the balance sheet. Those two things can be counter to what another. So I always viewed as the end of quantitative tightening as

Starting point is 00:04:28 inevitable and frankly thought it was going to happen much sooner than it has. It's lasted this long. So we'll give that some more time, but a lot of things interesting happening on in the Fed, and that's what's been in the news mostly. On the economic side of things on the calendar today, you had initial jobless claims actually print a number that was the lowest since 2022. So there's 191,000 claims. Remember, for a very long time, we were in that sort of two, 220s for a while on weekly claims, and then we crept up into the 240s, when labor weakened a bit, and now we're back into the low 200s. But to see it in the 190s is a number we haven't seen in a couple of years now, three years call it. So mixed signals. You're getting labor market

Starting point is 00:05:09 that is oscillating. There's some weakness that has been shown with different numbers, and then also there has been with basically non-farm payroll reports. But a lot of that stuff has been delayed. So when you get these weekly numbers that start to get fresh reads, It's a little bit of a head scratcher when you see a number like that, be fairly strong. So that's where you have it. And actually, that's what moved interest rates a little higher on the day, if you want to know. It's because labor looked a little bit better. And so the odds of that Fed rate cut went a little bit lower.

Starting point is 00:05:36 Still going to happen, but that's what's going on beneath the surface. On the year, the Dow is up about 13%. S&P is up about 17. The Azdak is up about 22. So this has been a good year overall. And we're getting into that sort of Christmas holiday season where things should start to slow down. But in the meantime, that's what I have for you for today. I appreciate you listening very much, as always.

Starting point is 00:05:58 Have a wonderful night. Reach out with questions, and I'll talk to you soon. Thank you. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC, member FINRA and SIPC, and 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.

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The Dividend Cafe - Thursday - December 4, 2025

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