The Dividend Cafe - Tuesday - September 15, 2026

Episode Date: September 15, 2026

Brian Szytel reviews a down market day driven by oil staying above $100 (Brent 108, WTI 105), ongoing Middle East tensions, and the 10-year Treasury closing near 5%, noting equities are only a few percent off highs. Using an S&P 500 forward earnings estimate of about $406/share next year, he argues a 5% pullback implies ~17.5x forward earnings and a 10% drawdown ~16.6x—normal moves that would still look reasonable given expected double-digit earnings growth and a more tech-heavy index. He contrasts today’s resilience with 2023’s 5% yield episode when markets fell and credit spreads widened, saying spreads remain orderly. Ahead of the FOMC, markets price a 25 bp hike; he doubts bigger moves. He addresses weak 20-year auction headlines and explains that despite large AI-driven corporate issuance (hyperscalers spending $300–$400B; ~$2.4T total corporate issuance), pensions and insurers still strongly demand long-dated Treasuries. 00:00 Market Backdrop Today 00:44 Earnings And Valuation Math 02:27 Why Markets Stay Resilient 04:23 Fed Day And Bond Auction 05:08 AI Debt Versus Treasuries 07:16 Data Check And Wrap Up 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. Good evening. Welcome back to Dividend Cafe. This is Brian Saitel with you here this Tuesday, September the 15th from our Newport Beach, California office here in sunny California. On a down day in markets and this narrative of risk assets just being under pressure and being repriced has everything to do with the long. longer that WTI and Brent said over 100. Brent is at 108, WTI 105, and then you've got a 10 year that closed today up two basis points at right at 5%. So interest rates have percolated higher. Oil continues to be on the rise and the Middle East tensions continue. And markets have reprised. That said, we're really only off the highs here by a few percentage points. So keep things in perspective here a little bit. What I wanted to talk about was in that light, which is if you think about earnings,

and this is assuming that the current trends stay put, these things can change, so earnings outlooks can change. But next year isn't very far away, and so what we're looking at is roughly $406 per share of S&P 500 earnings next year. If you look at the current price of where S&Ps sit at 7585, if you were to get a 5% pullback from here, I would call that not just garden variety market movement, but to be expected and frankly healthy. So no big deal, apart for the course, all those words. You'd already be at 17 and a half times forward earnings. I wouldn't call that cheap, but I also wouldn't call it astronomically expensive. Remember, we just sat in most of the last five years in the 20s.

So markets, multiples have compressed here. But if you were to get a 10% drawdown from here, again, I'd still call it garden variety that would just put us about flat on the year. S&P's up about 10 so far this year. But let's say that we gave that back for whatever reason. markets were unhappy with the Fed decision tomorrow or geopolitical tensions heated up or this or that, AI ending all humanity worries, all that stuff. And you get a pullback like that.

First off, it's normal because the average pullback in any given year is about 14%. But that would put the multiple on a forward basis at 16.6 times. So I wouldn't call that necessarily expensive. And if anything historically, given the S&P is now 40% technology that just has a higher trades at a higher multiple. in other words, the composition has changed. And with earnings growth still expected at double digits, paying 16 times for it in that scenario, I would actually assume would be a pretty relative value in the sense.

And so my point to saying these things is it doesn't take a lot when you have earnings growth the way that we have it to support the valuation thesis. That's why markets are being resilient. That's why over the past couple of months, S&P 500 is higher, even though interest rates are now over 5%. because if you look back, the last time we had the 10-year over 5%, it was 23. For me, that's like slapping my fingers how long that it was ago, but I understand it's a couple of years ago for some, and it seems like a long time ago, but the last time we had that, you actually had markets draw down about 10% for the couple of months leading into it. I'm calling a couple of months to be around 4, by the way.

And you had high yield spreads blow out about 100 basis points. So you had markets really dislike that 5-handle. And I think what has happened since then is markets have become. somewhat desensitized risk assets have appreciated over those three years a whole lot, number one. And so there's a wealth effect. The economy has grown a whole lot. And earnings have grown a whole lot. And so we've just become a little more resilient to these 5% rates.

And then I think most are understanding that the oil situation may not be a permanent one. It may last longer than we think. But this is about an oil shock necessarily more than about a demand of ballots alongside those things. So this time around, if you look at the four months preceding the five handle on the 10-year, markets are actually higher by 4%. And high-yield spreads have moved about 40 basis points, which is basically saying they haven't moved. My point to that is, until we see credit spreads actually change direction and start to deteriorate more,

then what we're looking at is just a really orderly consolidation. I can't even call it much of a drawdown, even though today is down 328 on the Dow and about half a percent on the S&P, about eight-tenths on the NASDAQ. Yeah, those are down numbers. I don't want markets to go down for people that are invested, but it is par for the course. It's what to be expected, all those things. So hopefully that gives you some context on where we're trading at. Again, tomorrow we're getting the FOMC meeting. This will be a big deal because what's priced in at this point is their hiking rates. What isn't priced in is that is more than a 25 basis point rate hike. I'd be surprised if they got enough votes to do, frankly, either of them to get a rate hike in and or certainly do

more than one quarter of a point. Nonetheless, markets are trying to price things in. There was a 20-year treasury auction today that went really poor, and the headline was something like, you know, worst ever, bid-to-cover ratio, things like that. I suppose those things are true. But when you have a market still trying to figure out if Warsh is going to go tomorrow, I understand that you wouldn't buy a 20-year bond the day before. You might want to give it a day. Keep some of those headlines a little bit in mind. We still cleared the auction. Everything's okay on that front. That's my segue into the question, because it's essentially asking, with the explosion of bond issuance in total, and it specifically for this AI cap X, doesn't that create competition for treasuries on the long end? The long end is bought by companies like insurance companies and pension funds and things that have to settle their long-term liabilities, and so they need that debt.

They have an algorithm. They have to buy it to have that in their book and they have a diversification mandate, all that to say. But isn't just the amount of AI-related debt now crowding out the treasuries and wouldn't AI debt, even arguably be higher quality. First off, so no, AI companies are great, and the hyperscalers are great, but they don't have a printing press, so I'd still give the win to the Treasury on that as far as which ones are better from credit standpoint, meaning one that has no risk of default. But if you look at the big hyperscalers, the five of them, that's Alphabet, Amazon, Microsoft, Oracle, they're going to spend and have already spent $300 billion this year alone. And so it's

going to end up closer to $400 by the end of the year. It's an amazing story, if you think about it. That is more than double that they spent all of last year. And if you combine that with total corporate issuance this year, it's about $2.4 trillion estimated. So that's up about 30% from the prior year. And yes, a lot of it is because of AI cap X. So you're right. There's a lot of corporate debt. But just keep in mind when we talk about these huge numbers, the markets are bigger these days. The economy is bigger these days. It's all bigger. So I know we like to think about yesterday year, we're all anchored, in other words, to certain dollar amounts or market multiples and things. But these things have just expanded and grown over the, over time. But because the 30-year

paper on the Treasury is a very limited amount in the grand scheme of things, and because insurance companies and pensions need to balance their exposure between high-grade corporate holdings and sovereign, there's still a big demand for it. So we're not too worried necessarily about the bid on that paper. Nonetheless, it's a fair point. But just keep in mind, The numbers are astonishingly high, but then also so is the size of the economy and the growth of it, too. So those things are correlated. The only thing out there in the economic calendar on the day was the Empire State Manufacturing Index, and it missed by half. It came in at 7.6.

It's a data point. It's a manufacturing data point. Take it with a grain of salt. Not enough to move markets. Again, what we're really paying attention to is the FOMC meeting tomorrow, and particularly what Warsh is going to say after it and how all this is received. markets are basically fully pricing in a quarter point hike at this point. All right.

That's my around the horn for you today. I am heading back into the conference room for further meetings and look forward to any questions that this inspires from you. And we'll talk to you again tomorrow on Dividend Cafe. Thank you. The Bonson Group is a group of investment professionals registered with High Tower Securities LLC, member Finra and SIPC, and with High Tower Advisors, LLC, a registered investment advisor with the SEC.

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