The Dividend Cafe - Tuesday - March 18, 2025

Episode Date: March 18, 2025

Market Update: Mixed Economic Data and Market Volatility - March 18th In this episode of Dividend Cafe, Brian Szytel recaps the market happenings of Tuesday, March 18th. Following two days of gains, the market experienced a pullback with the Dow down 260 points, representing a 2.25% decline for the year. The S&P and NASDAQ also recorded losses. Szyte discusses a continued rotation from growth to value stocks and the impact of geopolitical issues. Key economic indicators such as housing starts, building permits, import prices, and industrial production are examined, illustrating a mixed economic outlook. The episode also addresses the U.S. trade deficit and its implications, along with insights from research analyst Rene Aninao on hedge funds and market correlations. Upcoming Federal Reserve talks and potential tariff announcements are anticipated for the week ahead. 00:00 Introduction and Market Overview 00:58 Economic Indicators and Housing Data 02:47 Trade Deficit and Fiscal Policy 03:29 Global Currency and Investment Dynamics 04:08 Hedge Funds and Market Correlation 05:41 Conclusion 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, March the 18th. Brian Seitel with you here on some give back today in the market following two days in a row of up moves. We had both Friday and Monday that were up. That's the first two days in a row since February 19th, which was technically the record high. This gave a little bit of back today.

Not all that bad, but some further rotation from growth to value. Some of those overvalued names are still getting hit in this a lot more than otherwise in that shown actually in the index. The Dow today was down 260 points and is now down two and a quarter percent on the year. The S&P was down 1% today and is down about four and a half percent on the year. The NASDAQ was down 1.7% for today and is now down 9.5% on the year. So you can see the disparity between what is more blue chip and value oriented towards growth.

But the narrative today on the, on the market, more to do with more economic numbers that were more or less in line. And I'll go through those with you, but just some mixed trading day and some continued volatility around foreign policy and trade and geopolitical concerns, Russia, Ukraine. But on the economic side, we had housing starts for February that were up a lot more than expected. We got 11.2% for the month. That's a pretty big snapback.

Some of that has to do with weather. There was some inclement weather that's reduced some of these housing starts and then they ramped back up the following month. But that was ahead of consensus at only 1.8 knowing that weather existed. So still, nonetheless, it was a very positive sign for housing starts. That said, looking forward, when you can look at new building permits on what is going to be future contracted to be built, they were actually down about a percent, a little over 1.2% on the month.

Some of this is mixed data, generally positive for February going forward, maybe a little softer, as you guessed, it's interest rate sensitive stuff, it's housing, and then there's foreign policy and some volatility in markets too. Import prices on the day were up 0.4% in February. That's a much bigger gain. So not necessarily a good sign for our, for the inflation worried folks out there. We were expecting a one, a 0.1% decline. So we got a four tenths of a percent increase instead on that. Again, month to month, these things can be a little volatile on the industrial production side.

You had a pretty good beat. We got a 0.7% increase versus a 0.2% expected and capacity utilization was about in line. So industrial production better than expected housing starts better than expected, some price movement was worse than expected and some future housing numbers were worse than expected. So I'll call that pretty mixed. Hence the market today. There was a question in there on the trade deficit and is it bad and things like this.

Look at the end of the day, this is the U.S. buying more stuff from other people because it's cheaper and it's being made elsewhere. So the good news is that we have excess money, especially money to spend. That means positive economy and consumer spending. And the other good news is that we get widgets at a lower price than we can make them at home. So inherently it isn't bad. What I think people confuse is the trade deficit with things like fiscal deficits and running a debt load to fund fiscal deficit spending like entitlement programs and things like that.

As we buy widgets from overseas, those dollars that we're exporting technically is what we've exported to the rest of the world. Remember, the US is now the reserve currency of the world. It was not always the reserve currency in the world. And do I think that some of that has to do with the massive amount of US dollars that we exported to everywhere else across the globe? Of course I do. What do people do with those excess dollars? They have to invest it. They can do things like buy real estate in the United States. They can buy stocks, they can buy assets at home, whatever

they want to do. In other words, they can convert dollars into their own currency. Most don't do that. But what they actually do is end up buying safe things like U.S. government debt, because that's a dollar denominated asset. And so if you get paid in dollars, you can stick it in treasuries, it gives you about a four and a quarter percent interest rate. Uh, there's no risk of default and, um, you're building up your own account surplus, um, so there you have it. There was, uh, some comments that David had too, on, uh, a very beloved research analyst that we have on the geopolitical side that talked about hedge funds and their exposure to single names.

Think of the big mag 7 type of names, and just how different it is nowadays than what it used to be, which is they were doing things that were non-correlated. They weren't following the masses. They didn't own the top seven largest country companies on God's green earth. They were doing things that nobody ever heard of, or they were buying companies, taking them over and refurbishing these businesses to be more valuable, so on and so forth. They're still doing some of those things, but I think it's a combination of the indexes and some trading apparatuses around some predictability of movements and some of those big names.

I think it's also the law of size. Some of these hedge funds are 40, 50, $70 billion now. They're enormous. And so they're not able to be quite as nimble out there. But from our standpoint, when you look at what some of the, them are doing, whether it's the long and short side or long only side or this or that, and those big names, it's a little less appealing, frankly, because the purpose of buying hedge funds is to have something that is less correlated to markets, not equally correlated. So that's what was on David's

mind at least for today. But a little bit of a shorter recap. This week we'll have some Fed talk, middle of the week. There's a host of other economic data that will come out, so there'll be a good amount of stuff to chew through. And I'll just go out a limb here and say that there might even be some tariff announcements one way or the other, or a in policy or a discussion of them and same thing on the geopolitical front. But a down day in markets overall and we close pretty darn close to the lows on the session. So we'll see what tomorrow brings us and I'll be back with you.

It'll be Wednesday. With that, I shall let you go for this evening. Reach out with questions. We love them. Thank you. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC, member FINRA and SIPC, with Hightower Advisors LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities LLC. Advisory services are offered through Hightower Advisors LLC. This is not an offer to buy or sell securities.

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