The Dividend Cafe - Tuesday - May 6, 2025

Episode Date: May 6, 2025

Welcome to the latest edition of the Dividend Cafe Weekly Market Commentary! In this episode, Brian Szytel covers the recent downturn in the markets following nine consecutive positive trading sessions. He discusses key economic data, including the widening trade deficit and its implications for GDP, and analyzes recent movements in the bond market. Brian also provides insights into Federal Reserve policies and their potential impact on interest rates and inflation. Stay tuned for more updates on financial markets and investment strategies. 00:00 Introduction to Dividend Cafe 00:19 Market Recap: Two Days of Decline 00:43 Treasury Market Insights 01:36 Trade Deficit and GDP Calculation 02:28 Inflation and Tariffs Discussion 03:08 Upcoming Economic Data and Fed Meeting 04:27 Conclusion and Contact Information 04:36 Disclaimer and Legal Information 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, May the 6th. Brian Seitel with you here today on now a second day in a row of negative here in markets. We had nine positive trading sessions in a row. That was the first time since 2004. And then we've had a sell off marginally on Monday. And then again, here on Tuesday, the Dow closed down 389 points, which is a little less than 1%. S&P was down three quarters of a percent. NASDAQ was down about eight tens of a percent. So marginally lower across the board, bonds did rally some. You had 10-year yields dropped by three basis points at 431. There was a $42 billion auction of 10-year notes today

that went off really well. This was the second highest bid to cover ratio of the year. So that's good to see that kind of demand, especially in light of whatever the media is saying about the US dollar and treasury prices and yields and such. They're doing just fine here, but it's good to see. And I think part of the reason is because we're seeing some of the effects of quantitative tightening that has come down from where it was. So as the Fed is now maintaining their balance sheet much more than they were letting it all run off as things mature, they're holding the line, so to speak. That puts less pressure on the treasury market when they have these large auctions like this.

And I think that's what you're starting to see here with bid to cover. You also have global uncertainty. And regardless of what the media will tell you, the Treasury market is still the most viable, most liquid and trusted market in the world. There was on the economic calendar today, the trade deficit widened to a record of $140 billion for the month of March. Not a shocker. We were expecting that.

These are companies that are importing in advance of tariffs. So before prices go up on their products and different things in the country, they wanted to advance that. And so there's a big surge in imports. Exports were largely the same in that equation. And that might segue me into the topic around what David had in there on the calculation of GDP. So what he's saying in there on the calculation of GDP. So what he's saying in there is essentially there are some offsets so that things aren't double counted in consumption and with imports and exports in

there. And it goes hand in hand with what was out today and the trade balance number, because what you're getting in Q1 was a negative GDP number, but a lot of that was based on the record amount of imports ahead of some of the tariffs. So keep that in mind. When that wears off, we will probably get pendulums swinging back the other way as well. The other question that was in there was regarding the inflation effects of tariffs.

And the response is basically that tariffs will have a price increase should they get left and actually stay at these rates. But as far as what causes actual inflation structurally, it's more money chasing the same amount or less goods and services. And so in this equation, you know, if you want to take down some of the goods and services, because ultimately higher taxes take away from productivity, then they would be inflationary from that perspective. If you consider the money supply to be stable and velocity to be stable, and you took down the supply of goods and services out of the economy, in other words, that would be inflationary.

That's the point there on that front. But later in the week, we will have a lot more data out. There wasn't a lot of economic data today in the market, which to have two down days, I really do chalk some of that up to simply just having nine straight days in a row of ups. So you're due for a little give back and consolidation, but we will have the end of the feds meeting where they're gonna hold interest rates the same at least that's what is priced into Fed futures currently and What they've also priced in now is more of a July starting point to bring rates lower again rather than June

With about three remaining rate cuts this year priced into our Fed futures is versus about a hundred basis points previously Some of that has to do with the employment figure that we just got that was better than expected last week. So these things can really change week to week. My guess is that they end up going a little bit more on interest rates than what is currently priced in. That's me going out on a limb because things can change. But I'm saying that because I do think there'll be both positive and negative effects from all of this trade uncertainty.

And I think that they'll want to get ahead of the curve a little bit more than otherwise, given just the financial tightening of where markets have gone. Stocks are down, bonds have been volatile, currencies have been volatile, and some sort of that distress, you get the tendency to ease a little bit more. And again, the inflation data that we got at 0% on PCE was also supportive of that narrative too. So more to come there. But for that, I'm going to let you go for this evening. I'll be back with you tomorrow on Wednesday and reach out with your questions as always and have a good evening. Thank you.

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