The Dividend Cafe - Tuesday - April 1, 2025

Episode Date: April 1, 2025

Markets and Tariffs: Daily Recap and Economic Updates In today's episode of Dividend Cafe, host Brian Szytel provides an overview of market activity on April 1st. Despite a mixed day with the Dow slightly down due to a significant drop in a major healthcare stock, the S&P and Nasdaq saw gains. Interest rates on the 10-year and 2-year treasuries fell, and there’s a high expectation for rate cuts in 2025. Economic indicators like manufacturing PMI and construction spending showed positive trends. The episode also covered the complexities of tariff impacts, tax legislation, and the potential market volatility stemming from political developments. The host concluded with a cautious outlook on forthcoming reciprocal tariffs and their implications. 00:00 Introduction and Market Overview 01:05 Interest Rates and Economic Indicators 01:27 Market Volatility and Tariffs 02:34 Manufacturing and Construction Insights 03:21 Labor Market and Employment Data 03:42 Q&A: Tax Bill and Deficit Concerns 05:30 Tariff Implications and Future Outlook 06:27 Conclusion 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 Tuesday, April the 1st. Brian Sightel with you here on a fairly flat day in markets, at least on the Dow, which was only down about 11 points. The S&P was up a third of a percent. NASDAQ was up 0.87%.

So we ended up lower this morning, significantly futures were lower and we opened that way and then we regained a little momentum here towards the end of the day, gave a little bit back and again ended up closing flat on the Dow and then up again on the S&P and NASDAQ. So it was a little bit of a reversal from some of the growth to value. We actually had some from value back into growth. The Dow was down largely because of one very large healthcare pharmaceutical name today. And so that dragged that index down, but overall a fairly positive day in markets and the 10 year treasury was down about four basis points.

So we closed at 4.17 on the 10 year. So again, interest rates tend to be pulling back down here. The two year is now at 386 and Fed expectations, by the way, Fed futures are now a 75% chance for three rate cuts in 2025. So interest rate paradigm has moved lower. The growth forecast for Q1 GDP has moved lower. Employment is hanging in there, frankly, just fine. But you could say some softening in there, I guess, is due.

Not a whole lot, but all that to say it's market volatility regarded tariffs as what has been transpiring lately. We know that the point that we had in there today, which I thought was a good one that David had in there, was not that the volatility isn't bad and that it's not because it's not related to tariffs. Of course, it is related to tariffs. It's that on any given year, the average volatility is around 13%, meaning there's a drawdown every single year of about that much. So a 10% pullback is garden variety, especially when you're starting out at 23 times forward earnings on the year.

Just some, any form of bad news when you're priced to perfection like that is, is warranted for some pullback. And frankly, if all we get is 10%, that's a pretty uniform and pretty orderly pullback to say the least. We may see more out of this thing before we're through it. Frankly, if all we get is 10%, that's a pretty uniform and pretty orderly pullback to say the least. We may see more out of this thing before we're through it. Obviously tomorrow is April 2nd, where reciprocal tariffs are supposed to kick in. And we've been hearing about this for quite a while now. This is what Trump has called liberation day. And there's just going to be a lot of data that comes out from now until then.

But to see markets up a little bit on the day, I think was a positive thing. On the economic side, you had a final number on manufacturing PMI. That was a 50.2. Remember anything over 50 is expansionary. So that's good for manufacturing. We were expecting 49.8. And so the number was a little bit better than expected on manufacturing. Construction spending was double what was expected.

We got a 0.7% increase. We were only expecting 0.3. So there's a lot of pent up demand. There is just a need for housing and it's just been an underdeveloped and underbuilt housing market for a couple of generations now. Inflation and input costs into housing did not help as well as high interest rates, but to see construction spending up is definitely a good sign for the economy.

That along with manufacturing, those are both two good things. Job openings on the day came out at 7.6 million. We were expecting 7.7. That's about in line. The total number, by the way, of unemployed is sits at about 7.1 million. So this labor market continues to be fairly balanced, more of the same on the employment side, which is that it's hanging in there fine. On the Q&A side, it was, the question was more about a tax bill and is there a

concern for an increasing deficit that lower taxes would ultimately create? And the answer is that on the supply side, economic standpoint, which is where I lie and how David answered the question, having lower tax rates means a bigger private market and bigger economy, which ultimately grows more and ultimately produces more tax revenue. So the more you end up taxing something or taking away from it, the less you end up getting from it. And that's the law of diminishing returns on that side of things.

But that's not to say that spending doesn't need to be reined in. It really does need to be. And so the combination of competitive tax rates that fuel a growing economy and support that large private capital in private markets is ideal, but then a reduction in fiscal spending and fiscal deficit spending. So that's what we need. The problem with the latter is, of course, it's not popular with voters, which means

it's not popular with politicians. And so that's a very tough needle to thread. But that's the way that I would answer. Frankly, if we get into too late in the year, the problem with having a tariff volatility is that the approval rating for the current administration has been going lower. And what we don't want to see happen, regardless of your political affiliation, to markets I'm just talking about is there to not be a tax bill that is completed through Congress here over the next couple of months, while there's still that volatility going on.

The market has not assumed that can happen. And if you start losing seats in the house or the Senate, frankly, then that becomes in jeopardy and that would not be a good thing for markets overall. So with that, I'm optimistic there will be a tax bill that comes through. And as far as the tariff side and how this will shake out, I wish I could tell you I was optimistic, I'd be lying to you if I said I was just because there's too big of an unknown with how this thing will go. My sense of it is the worst case assumptions won't happen and the

best case assumptions won't happen. And we'll end up somewhere smack in the middle and whether that's good or bad over time, only time will tell. But if it brings back some manufacturing jobs to the United States and decreases some trade deficit, then I suppose that could be a marginally good thing. I just know that will come with some offsetting costs. And at the end of the day, relationships and trade treaties and policies and standing and

all these sorts of things around the world were decades in the making to strengthen. And the concern is that they can be tarnished in a short period of time. If the dissemination or the style in which policy is submitted isn't received in a good light. So I think there's a risk there. With that though, I will let you go for this evening. Again, we'll have a lot of talk about tomorrow with the reciprocal tariffs and everything that comes down the pike. I'm sure the market will be volatile and on its toes, ready

to react one way or the other. Whether we get something definitive out of all this, I'm sure the market will be volatile and on its toes, ready to react one way or the other. Whether we get something definitive out of all this, I'd be highly surprised if we did, meaning that we just have a solution and an actual set tariff policy rate. I think there'll be negotiations, I think there'll be back and forth, and so this thing is likely to go on for some time. But anyways, I encourage you to reach out with your questions, please, and we'll talk to you soon.

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