The Dividend Cafe - Tuesday - May 27, 2025

Episode Date: May 27, 2025

Today's Post - https://bahnsen.co/44RFWIg Tuesday Special: Market Recap and Policy Updates In this special Tuesday edition of Dividend Cafe, we cover key market movements from Memorial Day, including a notable rise in stock market indices and a drop in bond yields. Discussion includes the impact of the president's tariff announcements on market performance, current bond market trends, and developments in durable goods orders and housing sales. The episode also touches on public policy changes, such as the reversal on the acquisition of US Steel by Nippon Steel and potential re-privatization of Fannie Mae and Freddie Mac. Finally, a preview of upcoming topics is provided, including plans for addressing the national debt. 00:00 Introduction and Memorial Day Market Closure 00:47 Bond Yields and Market Movements 01:54 Credit Spreads and Economic Indicators 02:57 Market Rally and Tariff Announcements 04:04 US Steel Acquisition and China Negotiations 05:24 Geopolitical Dynamics and Durable Goods Orders 06:56 Housing Market Trends and Policy Changes 08:15 Bank Capital Requirements and Treasury Holdings 08:55 Dividend Growth and Investment Strategies 09:43 Conclusion and Upcoming Topics 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. Well, hello and welcome to this special Tuesday Dividend Cafe. We're going to do our Monday version of Dividend Cafe, but do it here today, Tuesday, because of the fact that yesterday was the Memorial Day holiday, markets of course were closed. There's actually not a huge amount to cover. We're going to cover all the normal categories, but I'm going to do it pretty quickly today. The Divinity Cafe on Friday, I really want to point you to if you haven't seen it yet, whether you're a video watcher, podcast listener, or reading the Divinity Cafe, it was my assessment of where we stand

with the so-called big, beautiful bill that has passed in the House is now going to the Senate. And there's a broader discussion there about bond yields, what it means, that overall national debt picture means. I would encourage you to check that out. Now, it's funny, I bring up bond yields. The stock market was up 741 points today. The S&P was up 2%. The NASDAQ was up 2.5%. The T market was up 741 points today. The S&P was up 2%. The NASDAQ was up 2.5%. The 10-year came down to 4.45%. So the yield dropped five basis points today, which means bonds were up. And so I joke in dividend cafe, more actually just being a little bit immature and trolling,

say, well, if the yield's going up 10 basis points or five basis points or whatever last week meant that the world has decided that it has no confidence in the American bond market anymore, and then it goes the other way. This week I guess the world changed its mind. But as you will see in Friday's dividend cafe, that's not my view because in fact the bond market has said no such thing. I happen to be very critical of certain elements of the bill. I happen to be vehemently concerned about the national debt picture United States and happen to believe those saying that the bond market is currently giving us the big signals

are either not being honest or not being very intelligent. Okay. Speaking of bond market, credit spreads continue to be an indicator in the midst of a lot of other concerning indicators, including durable goods orders that came in today we're going to talk about in a moment. Credit spreads are perhaps one of the more positive indicators that do not point to recession or contraction in Q2. Now it's entirely possible credit spreads will catch up later to other difficult economic

news, but right now it's just simply not evident there. And so credit spreads referencing the amount of risk being reflected in juicier parts of the bond market, less stable components of corporate borrowings, the spreads are very, very low, very benign, which is not something you'd see moving into a recession. The top performing sector was consumer discretionary, up over 3% in one day, but the worst performing sector was utilities, which were still up 0.77%. So one of those very rare days were 11 out of 11 sectors in the S&P were up.

What caused the big market rally today? The president announcing on Monday, nevermind. He had threatened Friday to implement 50% tariffs on the European Union where he's dissatisfied with the progress of talks. And then on Monday goes, no, they reached out and we're getting somewhere, so I'm going to delay these for another six weeks.

So, similar pattern that we've seen before, a threat of tariffs, markets drop, rescind the threat, markets go up, rinse and repeat, here we are. By way of public policy, I did say on Friday that I'm very, very skeptical about the ability or the willingness of the Senate to affect much changes in this current bill. That several high profile senators have come out indicating a willingness to go do something. I still don't believe there's going to be any major changes, but I do believe, I have

more optimism now than I did three days ago, that the Senate will alter this bill to some degree and even surprisingly getting some support with the Senate will alter this bill to some degree, and even surprisingly getting some support with the Senate talking about these changes from the president himself, who has tweeted some level of agreement with what some of the senators have said. Another thing the president did that I want to say I'm very happy about, I'm a little mystified why we're doing it now and nothing has really changed, but the White House over the weekend approved the acquisition of US Steel by Nippensteel out of Japan.

That's something they had blocked before. It's something the Biden administration had blocked before. The president reversed course on that. And again, when somebody reverses course to go from what I believe was a bad policy decision to a good policy decision, I don't ever criticize someone for moving from what I think was a wrong place to a right place. That's a good thing to do, not a bad thing to do. You can write that down. As it pertains to negotiations with China, the notion that there is going to be cooperation to deal with some of the fentanyl trafficking, mutually agreeable steps that will result in rescinding this 20% additive

surtax tariff is moving along well from what I hear. So is the discussions about US designed semiconductors in exchange for China produced metals and magnets and a deal around this is a heavy part of Secretary Besson's discussion so far. To kind of mix in a geopolitical element to this story that I think is really integral to another big geopolitical story involving what's going on right now with Vladimir Putin,

President Trump expressing his own surprise or exasperation about Putin being Putin, that President Xi, I've said this for years in Dividing Cafe, the ability of China to not be a strategic ally to Putin in Russia represents an economic opportunity for China and a geopolitical opportunity for the United States. It'll be very interesting to see if there is any juxtaposition of these things all at once. I mentioned durable goods orders were down 1.3% for the month of April.

The consensus expectation is that they'd be down 0.2%. So down over six times worse than expected. There's absolutely no question that capital expenditure projects are being at least delayed. The hope is that they're being delayed or paused and not canceled. Behind the uncertainty of the tariff issue,

we're going to look for another month's data, another month's data after that. There's a chart at dividendcafe.com today showing the story of this data center buildout, what has been our construction spending and then what we've seen it do post-Chat, GPT and some of the kind of AI issues and this large hockey stick growth of spending that is almost construction spending almost entirely in AI oriented capital expenditures. On the housing side, not a lot of good news here.

Existing home sales declined half a percent in April. They're now down 2% versus a year ago. A year ago they were down from the year before, and before that they were down from the year before that. So you're compounding year over year decline in sales, and there is a chart showing you the 2023 and 2024 home builder traffic. And then what the 2025 data looks like year to date from January through May, which is generally a very seasonally strong period.

New home construction, home buyer traffic. Very, very, very weak. Now another housing news I'll argue could be very interesting was President Trump saying he was looking to support the idea of Fannie and Freddie being re-privatized out of Treasury Department conservatorship. He didn't announce any plans, he didn't announce any specifics, no details were forthcoming, but that he would chime in on it and his first term is not even six months up yet, this current term is not even six months up yet, I am hopeful

this will become a priority and believe it represents a very good opportunity in terms of fiduciary duty to taxpayers, so let's put it that way. Secretary Besant said in an interview Friday, Treasury Secretary Besant, that they are looking to very soon alter the supplementary leverage ratio, which has to do with the amount of capital banks have to take against treasuries they hold. Marking that to dollar for dollar would essentially give a lot of incentive to banks to buy more treasuries, to hold more treasuries on their balance sheet in terms of capital requirements. The only thing I would say is I do believe that they would largely be doing that with

the short end of the curve, T-bills, notes, not longer. I don't know that that would necessarily be very effective in bringing long bond yields down, perhaps marginally, but not substantially. Okay, I'm going to direct you to the Ask TBG today at the homepage of DividendCafe.com where someone said, hey, if dividend growth all of a sudden became a shining object, it became so popular, there was just nothing else out there to buy with that reframe your kind of expectation. And I remind the person human nature doesn't work that way.

If all individual companies became overpriced systemically and gruesomely, then I would love for someone to reach out to me when that happens. And yes, we would always insist on buying companies a reasonable valuation and attractive yield. And if all reasonable valuations and all attractive yields went away, then it would open up opportunities for others. But in theory, if it did into

them, I guess we would have nothing to buy. So I love those kinds of questions. Okay. This Friday's Dividend Cafe, I have been asked, especially in the aftermath of this last Friday's note about the national debt, what I would do, I working for a day to address rather the national debt issue, the growing deficit issue, to generate the economic growth necessary to address our debt to GDP ratio. And I'm going to do a Dividend Cafe on Friday about what I would like to do in Dave land if I could address this. I'm looking forward to bring that to you Friday.

In the meantime, reach out with any questions. Have a wonderful evening and thank you as always for watching and reading and listening to the Dividend Cafe. 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 Securities LLC. Advisory services are offered through Hightower Advisors LLC. This is not an offer to buy or sell securities.

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