The Dividend Cafe - Tuesday - February 18, 2025

Episode Date: February 17, 2025

Dividend Cafe: Market Insights and Tax Reform Impacts In this episode of Dividend Cafe, Brian Szytel reports from the West Palm Beach, Florida office on February 18. He discusses the day's market performance, noting minimal changes in the Dow and NASDAQ, a slight increase in the S&P, and a rise in the 10-year Treasury rate. Highlights include an improvement in the Empire State Fed Manufacturing Survey after two months of declines and a weaker-than-expected NHAB Home Builder Survey due to tariff impacts. Brian also explores the diversification in market sectors for 2025, focusing on the stability of conservative sectors like energy, materials, and financials, compared to the volatility in technology sectors. The episode concludes with a discussion about carried interest tax treatment, highlighting its political implications and potential effects on private equity manager compensation. Brian mentions his upcoming travel to California for meetings but assures listeners of continued updates from Palm Beach. 00:00 Introduction and Market Overview 00:35 Economic Calendar Highlights 01:19 Sector Performance Analysis 02:32 Carried Interest Tax Discussion 03:57 Closing Remarks and Upcoming Events 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 18th. Brian Tytel with you from our West Palm Beach, Florida office. On a fairly quiet day in markets, overall, the Dow eeked out a small gain of about 10 points, but it was essentially flat. S&P was up a quarter of a percent. NASDAQ more or less flat. You did get a move up in rates. Ten-year Treasury was up seven basis points.

We closed at 456. So basically hovering around this 450 level on tens feels to be a fairly comfortable spot for markets, and that's where we've been trading here for the last couple of weeks. On the economic calendar, we had a manufacturing survey, the empire state fed manufacturing survey that was better than expected. This is after two months of negative numbers in that same index. So two months of declines has turned into a nice positive number. So you've got some resurgence in manufacturing. These different surveys that are regionalized like this can be fairly volatile. So we take them with a nice positive number. So you've got some resurgence in manufacturing. These different surveys that are regionalized like this

can be fairly volatile. So we take them with a grain of salt. It's one read out of dozens and dozens. Nonetheless, it was a positive one. On the home builder survey today, the NHAB home builder survey, weaker than expected. The reason that was cited was largely around tariffs because they can affect input prices.

Copper, timber, these things that go into building homes can be altered. The prices of them changed if there's an additional tariff on them. Talking today about just the breadth of the overall market and some of the broadening of different sector performances. Ultimately, it's mostly positive, at least for 2025 so far. There are about half of the names in the MAG7 that are negative on the year. So you've gotten some divergence from some of the technology sectors. I've written about this a few times into some more of the conservative sectors of the market, things like energy materials and particularly financials leading the market and then also

staples, healthcare and utilities. So more of those defensive names, it's essentially and then also staples, healthcare and utilities. So more of those defensive names, it's essentially more of the more reasonably valued portion of the market. And some of the higher value part while it's up has been more volatile and has lost leadership in how it's trading. So we've spoken about that for a while

and it's not necessarily about being early on something or being bearish and hoping technology names go lower. That's not at all what I'm saying. I just think that the returns for 2024 look pretty good across the board, but I think some of them that came in certain sectors that were overvalued will be easier to give back versus some of those other more defensive sectors that'll have a little more staying power, if that makes sense. A good question and answer in there was included on carried interest. It's obviously been in the news about potentially tax reform. It's taxed currently now at capital gain tax rates.

This is an incentive fee, essentially that private equity managers get based on the performance of the equity of the different vehicles and investments they're making. So on one side, it is derived from a performance, a positive performance is needed to have the income. And so that would normally be a gain, like a capital gain type of investment. That's the one side of it. The other side is because it's structured like a fee, maybe it should be treated as ordinary income. Currently, it's treated as capital gains. I suspect that's where it will stay, at least for now. They did change the time period of it from one year being long-term to three years, and that was in Trump's previous tax reform.

So there was a little bit of give and take with it, but since it really doesn't equate to much indifference in tax revenue for the government, we're talking about $6.5 billion if you change it between the two over the course of 10 years, it really is a political tool and used for other things versus actually driving revenue to the government. Of course, it could affect some incomes as some of these folks, of course, but I just think that with the market being dynamic and these folks being dynamic, that however these things change, people will tend to structure investments and structure portfolios and incentive comp and compensation

That is ultimately the most tax efficient for themselves as they should So all is that to say I'm gonna let you go here for this evening I will be traveling to California the end of this week Thursday and Friday to Newport Beach for meetings But I'll be here in Palm Beach the next two days and so I'll have dividend cafe for you tomorrow and Hope to hear from you soon. Please reach out. Thank you. The Bonson Group is a group of investment professionals

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