The Dividend Cafe - Tuesday - April 7, 2026

Episode Date: April 7, 2026

Brian Szytel hosts Dividend Cafe from West Palm Beach on April 7, noting low market volume and heightened geopolitical risk tied to U.S.-Iran tensions and the Strait of Hormuz, with markets down about 1%, 10-year yields up slightly, and oil prices higher. He shifts to fundamentals, highlighting forward operating margins near 19.7%, the highest in index history, and argues that while higher energy costs may pressure margins, profitability provides resilience despite a roughly 7% pullback from highs. He discusses convergence in EPS growth between the “Mag 7” and the other S&P 493, helping explain rotation, with multiple compression in Mag 7 and expansion elsewhere. Economic data showed durable goods orders missing expectations. On AI layoffs, he says lower Fed funds aims to spur demand but can’t address structural, technology-driven labor shifts. 00:00 Market Open And Headlines 00:21 Geopolitical Risk Moves Markets 00:54 Earnings And Margin Strength 02:23 Mag Seven Rotation Shift 03:17 Durable Goods Economic Check 03:42 AI Layoffs And Fed Policy 05:46 Wrap Up And Next Steps Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividing Cafe weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Good evening and welcome in to Dividin Cafe. Brian Saitel here with you as your host here from our beautiful West Palm Beach, Florida office on Tuesday, April the 7th. We had an update yesterday in markets, although really it was the lowest volume day of the year. So there just wasn't a lot of news necessarily and certainly not much activity. We had more geopolitical risk on the headlines. We've got a deadline between the U.S. and Iran on further damage to that country if the Strait of Hormuz isn't opened and different rhetoric back and forth and markets are upside down because of it here.

We've got markets that are down, call it 1%, pretty much across the board. And you've got 10-year yields up about two bases points with energy prices at least on WTI, up about 3%. Brandt is up a little less than a percent. So some of this movement around geopolitical headlines, this is the story that we've been talking about now for at least five weeks. But I wanted to shift gears a little bit out of the war and start talking about fundamentals. I touched on some of the low volume yesterday, which to me, since there's just a lack of conviction on those kind of weak up days until we get through this, but the actual numbers inside of what earnings are going to come out this quarter are still fairly robust. So if you look at something like operating margin,

I remember talking and writing about this when they were 16% and then 17% and saying that they were basically at all-time highs at that point. They've now even moved higher in a forward basis. And we're looking at about 19.7%. That's the highest that it's ever been in the history of the index. And it's much higher than it was in the late 90s during that sort of productivity boom and tech era. Nonetheless, those big margins are likely to have some pressure. Oil is such a big input cost into all businesses. in every form. And there's some margin pressure combined with some other things that can cause

them that Delta to slow down. But it's unlikely that it would reverse back all the way to a level that would be indicative of really declining corporate profits. And that more or less makes the market somewhat resilient. You get pullbacks like today, not an enjoyable day. The market's down 7% or so from highs. This isn't really been a real market-moving event. And some of the reasons is because of this big buffer of profitability inside of businesses now. AI coming online could also enhance some of the margin to offset some of the higher energy prices and increase in productivity. So those things are good. If you look at earnings, EPS growth for the Mag 7 versus the remainder of the 493 stocks in the S&P 500, there is this continued

rotation going on in market. But if you look at where EPS growth is going to come in between the Mag 7 and versus the rest of the market, it's for good reason. The delta was huge. It's 30% plus between the two sectors. That thing is converging now to be almost lockstep with one another. So Mag 7 versus the remaining 493. Still amazing that seven companies are doing that. But nonetheless, you can see the growth rate in that chart that I've included to somewhat converge 20, 25% a quarter.

Still really robust and good in both. But the fact that the market has now favored the latter part of the other sectors outside of Mag 7 is because of that delta change, that convergence between the two. You've had multiple compression on mag 7 and multiple expansion on everything else. In other words, the economic data on the day, there was a few things, but really the only notable one for me was durable goods. You had a miss. There was a consensus for negative 1.1, and we got a negative 1.4. This is equipment spending.

It's big investment. It's definitely a forward-looking indicator. So something that we pay attention to, and it was a miss on the day. One number doesn't make a market or anything like that, but something to pay attention to. And then the question in there today was, about AI causing layoffs and would the Fed funds going down offset it or is that more pushing on a string. The reality is monetary policy affecting balance sheet or the Fed funds in this case is to try to spur demand. It doesn't always get what it wants, but that's the idea of it anyways. You're

lowering the cost to borrow money by lower interest rates and that would reward capital less inside of a savings account and theoretically more inside of another type of investment. Do you usually see multiple expansion. It usually does weaken the currency a little bit, which causes exports to increase a little bit as we saw more widgets at cheaper prices across the world. And yeah, with lowering borrowing costs, it is supposedly going to spur more borrowing and investment. We just have to say all those words because we just know from the era of ZERP zero interest rate policy from 08 to 15, post-GFC, we had barely got back to GDP growth of 2% with 0% rates. and it was called literally the jobless recovery,

so it didn't affect the employment market like it was supposed to. So that's my disclosure right off the bat to the question there, is that in and of itself, even if it worked, is debatable. The other thing is, will AI cause a real disruption to employment? That's also debatable, and I just think over time in human history, with every technological advancement, there has been a shift in employment in different mechanisms. If you remember, factories, machines, replacing,

workers and so on and so forth, there's just been this evolution of labor and it keeps moving up on the skilled component and what is desired and needed from the human side as the artificial or machine side gets more and more advanced. And I believe AI is just another version of that. There's no reason why it wouldn't be. But yes, pushing on a string, I guess, would be one way to say it. But Fed funds would not be able to change that because it's not a demand issue we're talking about. That's a structural issue happening in the labor market because of a new, technology. So Fed funds really would be the wrong prescription. So that's what I've got for you today. I hope some of that was received well and resonated with you. If there's questions on any of it,

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