The Dividend Cafe - Thursday - March 13, 2025

Episode Date: March 13, 2025

Navigating Market Volatility and Economic Fundamentals In this episode of Dividend Cafe, Brian Szytel discusses the ongoing market volatility and significant drawdowns, with the Dow closing down 537 points and other major indices also experiencing declines. Despite a better-than-expected Producer Price Index (PPI) report, market concerns have shifted to foreign policy, fiscal policy, trade, and tariffs. Brian explores whether these fluctuations could lead to a recession, noting the continuing strength in employment and resilient economic fundamentals. He also examines the impact of tariffs, particularly compared to the first Trump presidency, and advises listeners to focus on long-term goals rather than daily market movements. Closing thoughts emphasize the benefits of buying shares at lower prices during market corrections and maintaining a long-term investment perspective. 00:00 Introduction and Market Overview 00:30 Economic Indicators and Market Reactions 01:39 Interest Rates and Housing Market 02:37 Impact of Tariffs and Trade Policies 04:12 Market Corrections and Investment Advice 05:33 Final Thoughts and Client 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 Thursday, March 13th. Once again, Brian Seitel with you here in West Palm Beach, TPG office on this unfortunate drawdown day in markets. So the volatility here continues. We had Dow closed down about 537 points. We didn't close at the lows for the day, but we're pretty close to that.

And the S&P closed down about 1.39%. NASDAQ was down almost 2%. So the ongoing volatility persists. And today we actually had better than expected read on producer price index. So these are the PPI numbers, the wholesale inventory input numbers. They were better than expected by two-tenths on headline and three-tenths on core. So typically that has led to positive markets rather than negative, especially after yesterday's CPI number that was also better

than expected. And the reason is that the shift really in this market narrative is away from both employment and it's away from inflation and it's just solely focused on volatility around foreign policy and fiscal policy and trade and tariffs. So that's the reality that we're in. All that to say, and I think this is an important point because the question that I get the most is this turning into a recession or is it some sort of lasting drawdown and larger thing we need to worry about. And frankly, anything can turn into that.

You can't discredit that from happening. But two things, one, fundamentals are still sound. So the economy is still doing positive things. That's good. The employment is still resilient and we have full employment with unemployment low. Those things are good. The interest rate paradigm is moving lower. In fact, now there is three interest rate cuts priced in for 2025.

And it's gonna get us closer to that terminal fed funds rate that I've spoken about a lot, which is essentially somewhere near 1% over inflation. So if you think inflation will be two and a half by three and a half percent Fed funds probably does enough to alleviate some debt overhang and refinancing, which is a risk. And it probably does enough to get mortgage rates down to a level in which people can start to move around the country again, and it should unfreeze some of the housing market.

Lower inflation numbers and then concern around growth impacted from foreign policy, yeah, those things aren't ideal. The silver lining is that it may get us to a neutral rate on Fed funds sooner than later. But all that to say on today's move, we we got 10-year treasury down about four basis points. So you did see some rates come a little bit lower on it. But I wanted to unpack what tariffs actually are on the table because the other question that we get quite a bit is it wasn't inflationary and didn't move the markets lower in the first Trump presidency.

So why would it or why is it in the second? And just understand the magnitude we're talking about is much different. All in, the tariffs that we talked about during 2017 and 18 were more likely to equate to something around $30 billion. Depending on the time of day and which day, what is being talked about now is closer to maybe $150 billion. So it's five times that. talked about now is closer to maybe $150 billion. So it's five times that. And this equates to real impacts on inflation on prices, but also what effective a tax is on the consumer and take away from GDP because of that. So I estimate this somewhere around a half of a percent of GDP, and it would

take into the government, something around 3% of total tax revenue. into the government something around 3% of total tax revenue. So those numbers are meaningful and they can be done, but the trick is they will be tougher to get done if GDP is going to slow too much. And so I think that's what markets are starting to price in here. They're trying to understand what would be the worst case outcome and scenario and trying to find some price discovery around it. There was also initial jobless claims that were more or less in line. We got a 220,000 number.

We were expecting 225. Resiliency in labor, digestion in markets, around tariffs. This technically did close 10% lower, just right at 10% from all-time highs on February 19th. So that puts it in a correction territory. The last thing I'm just going to say, two things. One, just please remember that every year in history, historically, we've had more than a 10% correction in any given year. It's a normal thing. This isn't something abnormal. The average drawdown on a given year is 13.3%. So we're just at 10%. So yes, volatility,

but also not outside of the range of what is considered normal from that standpoint. The other thing is, as far as timing the market or pulling money out of it or deploying money into it, I wouldn't try to trade around some of the headline risk and the daily volatility at all. I really would look at fundamentals of why you would be doing that and to solve what goal or what sort of income need or return paradigm that you're after. In that light, there's no reason why money shouldn't be put to work in a period of time when stocks have traded lower. You'd be buying more shares at a cheaper price, and that's always a good thing.

So I would focus on that. I'd also try to focus less on a day-to-day trading standpoint and much more on how those fundamentals may drive your behavior versus the up and down of what may be in a headline. So that isn't advice necessarily on a single person. It's general advice about how markets work. Pay attention less to the day-to-day, pay more attention on long-term goals. That's what I have to say there. So with that, we have a client dinner here in West Palm Beach. And so I'm going to let you go. I appreciate your questions. Please reach out with them. I know we've got dividend cafe in your inbox tomorrow on Friday. And if I don't speak to you, I wish you a lovely weekend. Thank you very much.

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