The Dividend Cafe - Thursday - June 5, 2025

Episode Date: June 5, 2025

Market Recap and Upcoming Economic Indicators - June 5th Edition In this episode of Dividend Cafe, host Brian Szytel from Newport Beach TBG HQ discusses the market's downturn on June 5, with the DOW closing down 108 points, the S&P down half a percent, and the Nasdaq down eight-tenths of a percent. Bond yields slightly rose, with the 10-year yield up three basis points to 4.39%. The episode examines recent economic data, including higher-than-expected initial jobless claims and a decline in Q1 productivity, attributing some of the economic softening to tariffs and trade balance shifts. Brian also touches on the complexities of international trade deals and the implications of Treasury bonds on financial institutions like Silicon Valley Bank. He wraps up by discussing the anticipated non-farm payroll numbers coming out soon. 00:00 Introduction and Market Overview 00:45 Economic Indicators and Employment Data 01:37 Trade Balance and GDP Insights 03:13 Treasuries and Interest Rates Discussion 04:29 Intergovernmental Debt Explanation 05:12 Conclusion and Upcoming Events 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 Brian Seitel at the Newport Beach TBG HQ here in California. It is June the 5th. And thank you for being with me here today. We actually had a down day in markets and it closed right near the lows, not quite on the lows for the day, but we had positive momentum in the morning and then just slowly

did a stair step on the way down to a negative territory. The Dow closed down 108 points. S&P was down half of a percent. NASDAQ was on eight tenths of a percent. Bond yields were slightly higher. Ten year was up about three basis points, but we're at 439 now on yields slowly, but surely inching lower on interest rates. And the two year is now down to 3.9%.

So you've got some lower interest rates across the board. Some of that has to do with some softening economic data, not falling off a cliff, but there was some weaker numbers on the employment front. We had initial jobless claims that came in higher than expected at 247. We were expecting a 230 print. And I've written about this a few times, but anything south of 250 is considered okay. Once we start getting over 250 consistently, so where I think the Fed starts to pay more attention as far as a softening labor market for now, we have yet to see that, but it is inching up. We were in the low 200s, then 220s, then 230s, and now we're into the 240s

here. So we'll keep an eye on that. Productivity in Q1 declined more than expected. It was down one and a half percent, and a lot of that had to do with just a slowdown in some import export around tariffs, but nonetheless that's the lowest number that we've seen here in a couple of years, so middle of 22. And then the trade balance for the month of April narrowed more than expected. It was negative 61 billion. That was a big drop around imports again around tariffs. Actually that will be a positive thing on GDP calculation because

the imports detract from that number. And so remember on Q1 GDP we had a negative 0.2% print and what is expected now at least of the Atlanta Fed is something around a 3.8% positive number for Q2. And a lot of that will have to do with just oscillations around imports that stopped in Q1 and then re resumed in Q2. There was some comments today around why there hasn't been more deals announced from country to country on different trade deals. Look, your guess is as good as mine. What I would say normally, these deals take a very long time to put together because they're

very complex and there's a lot of different products and a lot of different considerations. But there's been some announced. I suspect there'll be more. The big one that matters is China. And since there was a positive phone call between Trump and President Xi and China today, at least there's some positive momentum or some progress happening there. And I think that's what markets care about more than anything else. But it'll be a political story.

This is going to be about Trump claiming victory over deals that get done. Time will tell whether it actually drives tariff revenue or if it actually starts to balance the world trade paradigm. I'm skeptical on those things, which is why I think we'll be a little bit underwhelmed and I think we'll end up in a similar spot to where we already were. But of course, with some deals that are announced along the way. The question in there was about treasuries and way back when there was Silicon Valley bank troubles and should they really be given a zero risk weighting? When there's a printing press at the US government so they can repay the debt with dollars that

they can make up, then I don't know that there's a risk of default. No. Is there a risk of duration, meaning price movement on a treasury bond if rates go up? Yes, because the prices of those bonds will go down. And that's what happened on the loan book and the balance sheet of Silicon Valley Bank, where you had interest rates that went from 0% and everything was marked as such,

which is price to perfection. And then interest rates went from 0% to 5%. And the mark to market value of all of that debt, treasuries and loans had to be marked down. And of course, on a leveraged institution, that's when you get issues and that's what happened in the collapse of that bank. So not that bonds were gonna default,

that wasn't what we were talking about. It's just talking about devaluation and the calculation for that is duration, which measures the decrease or increase of bond prices versus every 1% increase or decrease in the interest rate movement. And it's actually a fairly complicated formula, so I won't go into the exact notation now, but you can Google it if you're interested. There was another question there about intergovernmental debt. This is just one government agency owing another one debt.

And so if the government borrows money from Social Security Trust Fund to the General Fund and owes it as an IOU back and it's able to do that. It's basically a shell game of shifting assets around. It's not Apple's to count that as a total debt to GDP ratio when the government just owes money on an accounting basis to itself. And so that was excluded, which is what took that number down from about 123% of debt to GDP of the US government to 100% even. Neither of those numbers is a good thing, so I suppose it's a little bit moot, but that's the difference in the distinction between how we're calculating and how we're defining some of those things.

So on an otherwise frankly weird trading day, where it was just lumpy all day and we ended up closing slightly negative, tomorrow we have a heavily anticipated non-farm payroll number that comes out. So this is the major read on unemployment. We're looking for the unemployment rate to come out and be in line. And then like last month where ADP disappointed, and then you had a big surprise to the upside on non-farm payroll. It'll be interesting to see if that occurs again here this time, but we'll get that number for you fresh tomorrow. We'll be back with you with Dividend Cafe as always before your weekend. And I encourage you to reach out with your questions. And if I don't speak to you, please have a great evening. Talk to you soon.

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