The Dividend Cafe - Thursday - February 6, 2025

Episode Date: February 6, 2025

Market Updates and Economic Insights - February 6th In this episode of Dividend Cafe, Brian Szytel covers the mixed day in the market with the Dow down by 125 points but gains in the S&P and Nasdaq. He discusses interest rates, which have come down across the curve, and the progress of the current earnings season, highlighting a 15.5% year-over-year growth rate. Notable sectors include technology and consumer-led sectors like retail and consumer staples. Additionally, Szytel reviews the U.S. Treasury's stance on not influencing Fed rate decisions, the implications of energy production on inflation, and the potential end of quantitative tightening. Other economic indicators such as jobless claims and productivity numbers are also discussed. He concludes by wishing listeners an enjoyable Super Bowl weekend. 00:00 Market Overview and Earnings Update 01:39 Interest Rates and Treasury Insights 04:13 Economic Calendar and Jobless Claims 04:55 Super Bowl Weekend Sign-Off 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 Thursday, February the 6th. Brian Tytel with you here on a fairly mixed day in the market. The Dow was a little lower by 125 points, but both the S&P and the NASDAQ were both higher. The S&P was up about.3, NASDAQ about.5. Ten year closed at 4.44, so meaningfully below that 450 level, and yields have come down across the curve as of the past few weeks. Earning season is well underway. In fact, we're basically to two thirds having reported at this point, this was a really big week.

And because it was a big week, it actually moved the average growth rate of earnings that have been announced up 2%. So we're now at a 15 and a half percent year over year growth rate on earnings that's a little better than expected. And it's about 2% higher than what was expected a week ago and about 3 about 2% higher than what was expected a week ago and about 3.5% higher than what was expected a quarter ago. So earnings have delivered,

they continue to deliver. Again, we still have 40% or so to go so these numbers can change a little bit. But some of the bright spots, there has been some technology bright spots, but there's also been a lot of lumpiness in the tech earnings. There's been several different misses with some really big names, but the staples space has been consistently better than expected. And some of the retail, basically most sectors that are real consumer led. So retail, consumer discretionary staples, things like that have really done well. Again, it's a very strong consumer. The country is employed.

There's wage growth slightly above inflation at this point. And so people are spending money. It's showing up in services and it's showing up in some of these earnings reports as well. So again, I think for the week tomorrow, we'll have non-farm payrolls out. So that can definitely shift things a little bit in what I'll say here. But for the news for this week was really interest rates coming down. And non-coincidentally, Scott Bessent, the new secretary, treasury, was out last night and then again today talking about they have no

intention of trying to jawbone the Fed or J-PAL into lowering the Fed funds rate the way they want it or the ways they see it. And remember, Trump did that in his first term. Didn't have an effect necessarily that we know of, but that was part of the rhetoric. He said that's not going to be part of their rhetoric, but what they're trying to do is get longer term rates to come down. They don't technically control either of those things. The Fed controls the short end directly. It also can control some of the other parts of the yield curve because they can use their balance sheet to buy or sell securities, treasuries and mortgage

government, mortgage backed securities. So they can do that, but that's not direct. That's indirect with supply and demand metrics. The treasury, same thing. They have to issue debt to make the world turn and to make America turn on every day. And they can choose maturities to issue bills, bonds, notes, different periods across the spectrum, and that'll affect interest rates and things as well. But I think what he was really saying is we're not going to talk about you should

go to Fed funds at 2 percent because of course they have no control over that. It would just be rhetoric. But they basically are saying that they want QT to end in what I read into that, which is if you're going to say I want to shoot for 10 year rates to go lower, having the Fed sell 25 billion of treasuries a month and 35 billion of mortgages a month is effectively targeting more of the mid-level of the curve with more supply. And that's counter to what the goal is there.

The plan is if we can increase energy production, it'll lower inflation because prices will come down a little bit. It gives the Fed more room to lower interest rates and that lowers interest expense. And also it can help with the deficit, which is called 7% of GDP at this point. It's a huge number. So all these things are tethered together and that's what they're trying to do. And they're also targeting a 3% growth rate in the economy. So it's his 333 program or what he's shooting for.

Three million barrels of increased production on oil 3% GDP all those things are tough to get exactly and that's a tough needle to thread But either way my point is that quantitative tightening? I believe the days are numbered because I think they're gonna end here shortly in this call it summertime or fall sometime this year Economic calendar today was fairly quiet. A couple of things, we had initial jobless claims that were a little bit higher than expected. We got a 219 versus 214. I'll call that about the same. You've had a slightly rising trend in jobless claims, but not anything worth writing home about. There was a US productivity preliminary number for Q4 that was essentially in line with projections.

It was up 1.2%. But the better news inside of it was that the unit labor cost inside of that number was lower than expected, up three versus 3.4. Kind of porges just right on that. You want a little bit better inline productivity and a little lower prices. And with that, I'm gonna let you go this evening

and ultimately head into your Super Bowl weekend and whether you're a Chiefs fan or an Eagles fan I wish you the best because neither of those two teams are my team so I'll watch and pick one and go from there. But I hope you have a good weekend if I don't speak to you. We'll have the Dividend Cafe in your inbox for tomorrow that's the long-form version more topical for you to enjoy over the But I hope you have a good weekend if I don't speak to you. We'll have the dividend cafe in your inbox for tomorrow. That's the long form version, more topical, for you to enjoy over the weekend and reach out with your questions as always, okay?

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