The Dividend Cafe - Tuesday - February 11, 2025

Episode Date: February 11, 2025

Market Confidence and Capital Activity Boosts: Feb 11th Update Brian Szytel provides a market update on a directionless trading day where the Dow closed up 123 points, S&P remained flat, and Nasdaq fell by a third of a percent. 10-year Treasury yields rose to 454 basis points, and small business confidence remains above historical averages, indicating robust economic health. Discussions covered the increase in capital expenditures, IPO market, and mergers and acquisitions activity. Brian critiques SPACs while noting a positive resurgence in capital market activities. He also comments on Jerome Powell's testimony regarding interest rates and inflation. Financials emerge strong in the market, contrasting with weaker performance in semiconductors. 00:00 Market Overview and Key Indices 00:28 Small Business Confidence and Economic Impact 01:30 Corporate Activity and Capital Markets 02:08 SPACs and Financial Sector Insights 03:38 Federal Reserve and Monetary Policy 04:39 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, February the 11th, and Brian Zytel with you here giving you some market updates on somewhat of a directionless day overall in markets for most of the day. We actually closed up about 123 points on the Dow. S&P was flat. NASDAQ was down about a third of a percent.

The 10-year was up three basis points on the day, so we're at 454 now, so just above the 450 level. Not a lot in the news. There was a small business survey. The NFIB for the month was just slightly below expectations. It still remains pretty handily above the historical average, signaling confidence in small business. That's a big deal.

It had been under that average for something like three years and popped above it here the last couple of quarters and it's, it stayed there. The more confident small business owners have, the more that they're willing to hire, the more that they're willing to invest in their own business and grow things, and it's good for the economy overall. In fact, that was my theme in the what's on Brian's mind today, which is none of this is to paint a rosy picture, to pour sugar in anyone's ear. There's plenty of things I could give you on the negative side as well.

But the fact that there's confidence on the business side, that the consumer is very strong, that the labor market is very strong and that you're starting to see real talk about an increase in capital expenditures in corporate boardrooms. And this is seen in the survey we had today in small businesses, but it's seen in large businesses as well. This is a theme that we've had. It's starting to show up in things like the IPO market, which has been really dead here for a couple of years, literally the lowest, I think in my entire career,

23 years. So that's starting to pick up. And then you're seeing more mergers and acquisitions, that M&A activity. And along with that, you see an increase in loans, leveraged buyouts, need debt to finance. And so you're seeing a pickup and bond issuance, private credit, of course, things like this. All that is capital market activity.

It's positive for the economy. It means that there's some animal spirits out there that people want to invest for the future and grow business. And those things are all very positive to me. I think they're a little underappreciated. I personally think SPACs are, I wouldn't use the word worthless, but just a poor use to raise capital. It's essentially going public in a streamlined fashion to get something

trading that'll raise capital in the public markets without an underlying business to invest the money in. And then you have a period of time to go find a business to buy. I just think once you have the money, it tends to water down the scrutiny that one might pay for something to get the best deal. Especially if there's a timeline on it and there's a rushed need to put money to work that you've already raised. It just seems a little backwards. But all that to say, that aside, there is a one and a half billion dollar pipeline of about 15 of these deals lined up. That market boomed in the 2021 era. You had basically 0% interest rates and you had very high markets and a lot of

positive things in the capital market activity. And so you had a lot of these specs get issued. Most of them performed horrifically as time has gone by. Now they're starting to resurge a little bit. And I think it's actually a positive for capital market activity to be picking up. So those are my comments on the corporate side for today. All of that bodes well for the financial sector and it's no surprise that particular sector has the highest number of names trading above its 200-day moving average

of any other sector in the S&P 500. The worst by the way is semiconductors, which I think is counterintuitive to what some might think. Broad strength in financials. There's also a steepening yield curve and there's also deregulation there as well. You had Jay Powell start his semi-annual two-day congressional testimony. I'm sure he loves these. He cited a slower pace of rate cuts, again, with inflation still being elevated. So more of the same there. He did cite the need for sooner rather than later on balancing the budget.

They're always a little hesitant to talk anything fiscal given their separation from monetary and fiscal policy, but he did mention a little bit about that. He did shy away from talking about tariffs, although he did talk a little bit about them being potentially, or at least have an effect on inflation and, uh, surprisingly mentioned that they were a ways off from ending QT. I think there are ways off until they aren't. And I still believe that'll happen here by the summer, but we'll have to see. It's tough if you're in, if you're decreasing interest rates, but then

also running off your balance sheet, those two things are at odds with one another. I suppose you can get away with it for a period of time, but eventually if you're trying to make policy less restrictive, you've got to pick a lane and cut rates and also stop letting the balance sheet run off in other words. So there you have it for today. I'll be back with you tomorrow on Wednesday. Wish you well and reach out with questions.

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