The Dividend Cafe - Thursday - March 27, 2025

Episode Date: March 27, 2025

Navigating Market Reactions and Trade Policies In this episode of Dividend Cafe dated March 27th, Brian Szytel discusses the market's modest downturn amidst a choppy trading session, with most indices falling by roughly a third of a percent. He highlights the impact of President Trump's enacted 25% tariffs on the automotive industry, particularly affecting imports from Mexico and Canada, and speculates on potential leniency in global reciprocal tariffs set for April 2nd. Szytel also explores the long-term economic implications of these tariffs, compares current market conditions to historical trade policies, and emphasizes the significance of the financial sector's resilience. Additionally, he addresses a question about transitioning from corporate tax to wealth management, emphasizing the importance of people-centered service in the field. The episode concludes with a brief overview of recent positive economic indicators including Q4 GDP revisions, jobless claims, and housing market strength. 00:00 Introduction and Market Overview 00:42 Impact of Tariffs on the Automotive Industry 01:39 Historical Context and Economic Implications 02:59 Financial Sector Performance 05:12 Wealth Management Insights 07:47 Economic Calendar and Final Thoughts 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, March 27th. Brian Seitel back here with you for my last reporting day here of this week, at least, on what ended up being a fairly modest down day in markets on a choppy session. We actually had flirted with Positive Territory a couple of times throughout the day, but most of the indices were all down about a third of a percent.

So Dow was down about a third, S&P down a third, NASDAQ was actually down half a percent. So it's still more heavily weighted towards some of the technology sector there in the downturn here. The tenure did move up just a basis point, so pretty flat on rates too. And actually a modest session given what transpired because you had President Trump, after I recorded yesterday, enact a 25% tariff on the automotive industry and fairly broad based. It included automotive parts, which is a big deal. If you look at which countries import and export the most into the US, where the US imports the most from,

it's Mexico and Canada. So those are the two most affected countries. Although South Korea, some of the European countries out there like Germany are also high on the list. Japan, for example. But he did mention some leniency on his global reciprocal tariffs that are supposed to be enacted on April 2nd, so perhaps

there's a carve out for some of the more automotive effective countries in this particular tariff that could get more leniency in the reciprocation side. Time will tell on that front and frankly I'm just gonna tell you time will tell on what will actually get enacted or what will get negotiated and then how markets will react to it and then how that will affect prices and how it will affect global markets. This whole thing is an experiment that really hasn't been floated with for over 100 years at this point.

This was going back to the 20s and 30s. It obviously didn't work out well then, although the world is a dramatically different place. The dollar was not the reserve currency, and the US was not a superpower back then either. So this is a different animal, and how this will all shake out. Being the largest and by far, the most consumption led economy in the world,

with also a reserve currency status, when you're starting to negotiate anything, does give you a little more cards on your side of the table But that doesn't mean it won't come out with the cost because there will be a cost And as I wrote about whether it's from higher taxes to try to normalize trade or settle an imbalance between a trade deficit Or it's from a higher domestic labor cost as you bring jobs back for manufacturing either way It's hard to imagine something that doesn't have a higher price at the end. So the reason I wrote the dollar amount of being a total of 300 billion is because

ultimately that's about 1% of GDP. And so if you bake all of this out, it's coming from somewhere. Then that's where I would start. But as far as this becoming some sort of a tit for tat entrenched global trade war that ruins relationships irrevocably, I don't subscribe to that yet, although it has every possibility of turning into that. Let's hope that it doesn't.

In the meantime, though, when you look at markets being down not quite 10% from the highs, I talked about the benign credit spread market yesterday a little bit, and that was a good sign that there wasn't something more sinister that sort of lied beneath the surface. I'd also say the same thing about financials. The relative strength and outperformance, both relative to everything else, but then also just in absolute terms in the financial sector does not speak to a recession frankly at all. So that was that's one of the most cyclical sectors that rolls over first when you start to get towards an economic slowdown. And that's just not what we're seeing. 90% of the names in

the financial sector are still very much in an uptrend. And some of the positive catalysts behind this have to do with deregulation. Think of Dodd-Frank and 2.0 and increase in M&A activity that has yet to be seen. There's been zero IPOs essentially, very little M&A, but there's some pent-up demand there, no question, because it's been left for dead here for a couple years. And then you do have some insulation from tariffs and trade. Financials are indirectly affected by, like I said, the economy, how much credit they can extend and what credit conditions are. But as far as a direct correlation to what import-export tax rates are set, they're less affected there.

Nonetheless, when you start to see, or if you start to see a breakdown there, then that could be something more lasting for the economy, but that's not what I see now. Definitely notable, the outperformance of the equal weight S&P 500 versus the cap weighted tech heavy index. It's huge. Okay, 15% year-to-date alone is the highest that we've seen in many years. 2022 was another example of that, but this is right up there as far as that delta between the two sectors.

And to me, when you look at what's performed well, which is staples, financials, energy, materials, healthcare, that's pretty broad in the economy. That's not speaking to economic slowdown to me. That is speaking to two sectors only, which is just consumer discretionary and technology that were so overvalued and so over owned. The last marginal buyer had already taken place.

There's just selling that can occur and the stuff was expensive. And so that's what's selling off here. A question today, it was a real one that came in two days ago. I ended up doing a call with this gentleman to give him more color on it, but wanted to know about moving from

the corporate tax side of things at a large tax firm, one of the big ones in the country, over to wealth management. Wanted to know what my take was on it. I'm always honored to be able to answer these questions for people interested in the field. And my answer that I wrote as best as I could to him before the call that I scheduled

was that people that I see not successful or that come from other industries that have a high intellectual and cerebral ability to focus on finances, whether it's taxes or whether it's investment banking and mergers and businesses buying and selling one another, these complex transactions, there's a certain sort of intellectual sexiness associated with that. And when you come into wealth management, the shift is less on that

and more on people. It's everything related to and catering around reals, peoples, and businesses, goals, objectives, fears, concerns, legacy and succession planning, all these really important things. And you have these amazing tools like a state and tax and investment management and financial planning and insurance and all these tools at your disposal to solve all of those things.

But at the end of the day, what should excite you about wealth management is working and serving other people. And if it's solely based in finance, then I believe you'll be disappointed. And I've seen that many times. I've tried to drive that home to anybody looking at our field because it's the truth and that doesn't mean it can't be as exciting and fun. It's actually in all those things and you can't put all capital market

knowledge to work and get into the weeds with all of it. I love all of that stuff. But what needs to excite you at the core is serving other people. And for those that want that sort of accountability, you gotta remember people take their money about as seriously as they take their health and their family.

This is not a small task to steward someone's basically most cherished or one of most cherished possessions and what they toiled for their entire lives and be responsible for it. Not everyone wants that level of accountability just like not everyone wants the accountability to prescribe people a certain medication to save their lives or to operate them on the operating table. There's a certain downside risk that you take when you manage other people's money and you have to be comfortable with that and it's a 24 hour a day 7 day a week job so again that's not for everyone either.

So that's where I can describe it. Hopefully that's helpful. I know some of you that call in with questions about what we do and why and all these different things. Maybe that provides at least a little bit of color. The economic calendar did have a couple of things. I don't think these things were enough to offset what could have been worse news on implemented tariff policy, depending on what you think of global trade and free markets. But the economic side, there was a revision, a final one on Q4 GDP that came out slightly ahead of consensus at 2.4. That was better than 2.3. Jobless claims are right in line. So I won't hammer that point home.

The employment market still remains fine, and pending home sales advanced more than expected. Housing still has some strength behind it, even in high interest rates. So I chopped three of those, a three out of three are abating a thousand on the positive side for the economic front. And maybe that was some offset

to what could have been more market jitters over tariffs. Either way, like I said yesterday, we're about 3% or so off of the lows of this thing. And so we'll give it another day tomorrow and then another week next week to see where we go from there. With that, it will be my last day with you here this week. But I hope you reach out with any questions anytime, including the weekend. And we'll get back to you as soon as possible. I hope you have a good evening, and I'll talk to you soon. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC,

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