The Dividend Cafe - Thursday - October 15, 2026

Episode Date: October 15, 2026

Brian Szytel recaps a volatile market day marked by value outperforming growth, dividend payers beating growth-oriented stocks, and equal-weight indices outperforming cap-weighted, alongside notable bond-market swings following hotter-than-expected CPI and a sharply higher PPI print. He reviews key economic data: initial jobless claims in line, retail sales far above expectations, and improving manufacturing readings (Philly Fed and Empire State), suggesting a strong consumer and near full employment. On inflation, headline PPI rose 1.3% m/m and core PPI 0.7% versus lower consensus forecasts, implying core PCE may run around 3.2% y/y, keeping pressure on the Fed to continue hiking, with additional hikes priced in. He argues the bond market signals concern about slowing growth rather than runaway inflation, noting low inflation break-evens and a very flat yield curve, favoring shorter-duration, income-oriented assets. In Q&A, he addresses SpaceX/Starlink’s potential impact on Verizon, emphasizing rural competition risk but highlighting existing telecom infrastructure, dividend coverage by free cash flow, and monitoring rising capex needs. 00:00 Market Whiplash Recap 02:09 Economic Data Rundown 02:40 PPI Shock And Inflation 03:45 Fed Path And Bonds 04:45 Yield Curve And Strategy 05:16 Verizon Versus Starlink 07:04 Wrap Up And Disclosures 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 back to Dividend Cafe. This is Brian Saitel with you, your host this evening. On quite a strange day, I would call it, in markets. A lot of cross currents going on here. And rightfully so, there was a whole handful of different economic metrics and news out on the day that had moved both the stock market and the bond. market and I'm recording this a few moments here before the close for another meeting here but we went from a very down day on the NASDAQ to what is essentially flat here slightly positive

even the Dow was up most of the day already and is up 550 points here as I'm talking but you know that's a 1% move higher in the Dow and about a third of a percent move higher in the S&P and a flat to slightly negative NASDAQ so very very much a value over growth type of day and dramatically So dividend pairs outperforming growth-oriented companies handily over a percent on the day, and the equal weight is outperforming the cap-weighted considerably. So interesting day, you've got basically short-duration assets performing well, long-duration assets in the stock market, that is, performing less well. On the bond market, it's interesting because yesterday you had CPI come out hotter than expected,

albeit by 10th, but still. And you had the initial reaction on the 10, you had to shoot higher by 15 basis points, only to close lower, so 25 basis point move by 10 basis points. I know those numbers can probably stand a little mundane or boring, but just understand that's a lot of volatility for the bond market, trying to understand and process what we're being told about inflation. Consumer stuff yesterday, slightly hotter than expected. Producer stuff today, these are the PPI numbers,

far outweighed expectations by double. And so a much hotter read on the producer side on the day, I'm going to walk through some of these numbers for you here. The other piece of information, though, that we had was severalfold, and I'll walk through those as well. First off, initial jobless claims were in line. That's 200. Then we had retail sales quite a bit hotter by more than double.

We've got a 0.8% number versus 0.3 expected. So we've got strong consumer and basically full employment. Those things are good. Then you had a Philly Fed index stronger than expected and accelerated. So you've got some strong manufacturing. And then you had an expanding index. Empire State Index, albeit not quite as high as we thought. And so most of those things that I just said are basically positive on the economic side. Now let's talk about inflation. So PPI numbers

out today, you had headline producer prices of 1.3% for the month. So if you were to annualize that, it's a double digit inflation read on the input side. So obviously unsustainable, completely high. That said, we know what's in it, which is a lot of energy. And so that's going to move the needle. but still the consensus on that number was only for 0.5%, so more than double. When you take out food and energy, the core PPI number was still hotter. It was 0.7 when we were expecting 0.3. And if you look at year over year numbers also hotter than expected across the board. So what the Fed looks at most is a combination of reads from consumer, that's a CPI, and from producer, which is PPI.

And they come up with their PCE number. When you look at core PCE, while it isn't out. yet. And so there's calculations still to be had when I back with the napkin math my way into it. I'm going to come up with about a 3.2% year-over-year number. And that's above where the Fed was last month at 3. And then it's still above where they need to be at 2. What does this all mean? It means inflation is running higher than they want and they're going to keep raising rates to get it down. And I've already written about that. There's already another rate hike priced in for the end of the year and then another in first quarter. And again, that's going to remove all the easing,

I suppose that we saw in last year for 2025. But the interesting thing, like I said, is more to me at least in the bond market because what it's signaling now on the long end of the curve isn't so much that we're dealing with runaway inflation. It's that we're dealing with a hiking cycle and most likely peak growth that we're seeing in this expansion. It doesn't mean growth is going negative.

It doesn't mean recession. It means that the rate of increase of growth is going to slow. And that's what it seems to be worried about because if you look at the five-year break-evens on inflation, it's only 2.35%. So the bond market's not saying, oh, man, I'm really concerned that inflation's going to get out of hand. It's more looking at it and saying, I wonder if growth can really keep up here if they're going to raise rates. That's my read on it, so take it for what it's worth. But you've got a very flat yield curve, so short rates at 475 and the 10 year at 506 is 31 basis points difference of eight years, you know, 2 to 10.

that's very basically nothing. And so in that environment, what wins the day? Shorter duration assets, technically, if it's going to stay flat like that. And I would even go so far as to say income-oriented, shorter duration assets, because I think a higher rate of return is going to need to come in the form of income.

So that's my round the horn for you. I know it was a lot to chew through. Question in there today was company specific, actually, and it was about a telecommunication company that is Verizon and news from SpaceX that they're going to start borrowing bandwidth and compete in the mobile, you know, carrier competition between those two to three T-Mobile, AT&T, and Verizon basically have, you know, a hold on that market.

SpaceX, obviously with Starlink is coming on stage. What does that mean for these businesses? Are the models broken? Short answer is we had our analyst that covers that name do a full write-up on this, and it was fascinating, and she did an amazing job, and her name is Laura Hugh. And really what we're saying is in the rural areas, yes, but where you've got large-scale build-out, and just the amount of KAPX that these companies like, for example, Verizon already have in the ground, it's going to be hard for that to be supplanted.

And we also feel like the free cash flow of the business is covering the dividend and will likely continue to do so in the near future. And in the meantime, we're getting a six and a half percent income yield while we let those two things and three things all sort of play out. So short answer is, you know, we're not selling out of Verizon name for now. And this is something we feel comfortable with, albeit we're keeping an eye on it. And ultimately, that's going to take time. What we're actually concerned with is that the competition is going to push up capital expenditure needs. And that's expensive, obviously, for these big telecommunication companies.

And that ultimately could hurt free cash flows coverage. And that's where we're paying attention to most in that. But it was a really thoughtful question and really thoughtful work that Lyra did on this name. And I actually quoted her in there so that you can read through in a more thoughtful way, the description of what she's looking at in the name. versus what I can just blurt it out. But I'm going to let that do its work for me on that front in the Q&A section and ultimately let you get back into your evenings.

I appreciate you listening here on two days in a row of inflation numbers as we walk through this. Again, markets are hanging in there fine. Bond markets are now on the rally side. So we'll be back with you tomorrow. We're the full written version of Dividend Cafe. And if I don't speak to you, have a lovely evening. Thank you very much.

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