The Dividend Cafe - Tuesday - September 22, 2026

Episode Date: September 22, 2026

Brian Szytel recaps a mixed market day: the S&P 500 finished flat, the Dow fell 185 points, and the Nasdaq rose about 0.5% as long-end yields eased slightly and the 10-year held near 4.95%. He notes financial conditions have loosened a bit since the Fed’s recent hike, with stocks higher, tight credit spreads, and long yields down, while markets still price more restrictive Fed policy even as WTI slipped below $90. He observes a previously strong negative correlation between AI/semiconductors and software stocks is becoming more nuanced, creating potential opportunities. Addressing a listener question, he explains how the long-running yen carry trade was amplified by U.S. rate hikes and Japan’s zero rates, but is now unwinding as Japan raises rates, reducing arbitrage, prompting deleveraging and some risk-asset pressure, though orderly so far. 00:00 Market Snapshot 00:27 Rates and Fed Conditions 01:11 Oil Move and Inflation Signals 02:05 AI Semis vs Software Rotation 03:45 Outlook for More Hikes 04:32 Carry Trade Explained 05:52 BOJ Shift and Deleveraging 07:23 Wrap Up and Calendar 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 Brian Saitel with you this Tuesday, September the 22nd. On a pretty mixed day in markets, the S&P actually closed exactly flat, meaning 0.00 movement, which I don't see all that often. But the Dow was down 185 points on the day, which these are. days is about a third of a percent. Nasdaq was the winner on the day. It was up about half of a percent. And then he had yields. On the long end of the curve come in a little bit on the short end unchanged. Ten year was flat. We're at $4.95. So that yield has actually come down here after the

Fed has raised rates at least 25 bips last week. So again, you're seeing financial conditions largely unchanged tilted towards slightly easing rather than tightening, which is a little unusual of what we've seen in Fed paths historically because the modus operandi this time is that the Fed will be following financial conditions, not necessarily setting them or leading them. And I think it's so far been quite well received. And we've written about that enough. But it is interesting to me on a few different fronts. And I wanted to talk about this.

First, WTI did close below $90. It was down about 3%. That was the move in WTI Brent. is still trading at 98, but oil has come down. And what you aren't saying with oil coming down is the two-year yield coming down, normally, if you really thought that the inflation and the CPI numbers and the PCE numbers on the headline front, so not core, because energy wouldn't be in that, but on the headline front were the main reason why the Fed was raising rates, then you would expect to see two-year yields come down a bit if oil came down. And that's not

what we're saying. And what that says to me is that markets are pricing in, more restrictive policy from the Fed regardless of what energy does. And what that means is that inflation is viewed to be a little bit more, not necessarily entrenched, but more broad than just the supply chain shock of energy. So take that for what it is. But that's something notable. The other couple of things that I just wanted to point out that I've noticed, first one is probably the beginning of the first inning. So this is not something that is dramatic yet, but there's some hints of it, which is that we've seen this really negative correlation between semiconductors and the AI names. Let's call them hypers.

And then, of course, all the semis with what you're seeing in software names, all of them. So AI and semis are up, and that means that all the software is down. Almost every single day it's like that. And then it goes vice versa. Software is up, and then all the AI names are down. And you're starting to see that come out done just a little bit, not necessarily that there's not negative correlation, but that it is a little bit more subtle now.

and also it's a little less indiscriminate, meaning like every single software company, even though they're completely different. Some are IT consulting businesses. Some are corporate Fortune 500 software names and services companies all selling off the same. They're starting to be a little bit more discernment. Actually, if it's healthy,

it's as these companies work in conjunction with AI versus being supplanted by it. I think that's a normal thing. And therein lies the opportunity for what it's worth as well. And that's what we're looking at with some of the positioning that we have at the Monson Group is to try to take advantage of it. things and dislocations when we see the baby being thrown out with the bathwater like that.

But nonetheless, since the Fed rate hike, financial conditions have actually eased a little bit. Stocks have moved higher. The NASDAQ did make an all-time high yesterday, and another today, frankly. Credit spreads remain very, very tight, and then long yields have come down a little bit. So if it is true that the market is leading the Fed, then what that is saying to me is that the market is saying that the Fed is getting the policy right because conditions and markets are behaving nicely, not poorly. But look, there's about an 85% chance of one more rate hike before this year.

I still believe it'll be December versus October, but I'm open to being wrong on that. And I suppose I don't necessarily care either way. If it were me, politics aside of what it does to midterms, it shouldn't move midterms, number one anyways. But I'd rather get it over with sooner than later. But I know there's a political angle to it. But that means there's about two or three more additional hikes next year, and then things level out. Like I've said many times, the history of the prediction of over a,

six months out on some of those things is very poor. But if the goal is for the Fed futures to paint away for these numbers to get back to a 2% PCE number and land that plane, then markets are behaving as if it's moving in the right direction. So I'll chuck that up as to being good. Question in there today was about the carry trade. My dear friend and someone I had lunch with today, John Malden, wrote about this over the weekend, although this question came in actually before that. But it was about the carry trade and what does it mean for global liquidity and global financial markets as that ends. And I wanted to give a little history, both for this reader, just to kind of paint the picture a little bit for what he's asking before I could answer it.

But basically, you had this very long period of time, 10, 20, 30-year period where the interest rate in Japan was far lower than the interest rate in the United States. Why? Because you had deflation in Japan and he had a modest amount of inflation and growth in the United States. But the idea was to borrow in yen at half of a percent and buy a treasury earning four and a half percent and you get to keep the difference, which is a nice 4 percent way to have positive arbitrage. And then if you hedged away the currency risk of one of those things moving against you, it would cost you about half the yield. So nonetheless, if you had a billion dollars and you did that, it's 2% free money, essentially. 2% free money is a good bet to take because you can really size it up. And of course, that's what

happened. And in 2022, we raised rates, 500 basis points in this country. Where did Japan do? BEOJ, they kept rates at zero. That trade was supercharged. You ended up with about 360 trillion yen going into dollars to buy other assets. And so now that that is now coming undone, the bank of Japan, first of all, let me back up. What that did also is it decreased the value of the yen, which increased inflation in Japan. And so now they've got themselves out of deflation. Now they're dealing with recover which you wish for, in other words. Now you're dealing with inflation. And so they're raising rates. And for them to be at zero for a generation to go up to 125 B. basis point says of last week is a big deal. But JGBB 10-year is now 3%. So the gravy in the juice

that was in that arbitrage has now been taken away. And I've called it the arbitrage punch bull being taken away a little bit. Doesn't mean it's gone. It's still there. It's just not as juicy as it once was. And as that happens, you're going to get a rotation back into Japanese assets, potentially on the sovereign side and certainly into the currency. Now, you haven't seen that in the end because it's still very, very weak. But I guess my point, answer the question, I could see that coming on changing directions, meaning the yen gets a little bit stronger, the dollar gets a little weaker in that process. Technically, the Niki is down about 7% since June. So you are seeing a de-leveraging effect, which makes sense, and you are seeing some money come out of

risk assets, and that also makes sense. So that's my answer to the question. It's a form of deleveraging. And so what does that mean is money comes out, it means that asset prices go down a little bit. But so far it's been very orderly, and so far you've got the U.S. Treasury Secretary working with Japan to keep it that way. There's been history before when it wasn't orderly, and it gets a little ugly in markets. So I know they're trying to do the best they can to keep this in normalized fashion and so far so good. The only thing in the economic calendar today was a Richmond Fed Manufacturing Survey that missed. I would call that not very notable, so I won't go into it more than that. But there's my around the horn for you today.

Thanks for listening, as always, and I'll be back with you tomorrow to be on. on Dividend Cafe. Thank you again. 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. Securities are offered through High Tower Securities LLC. Advisory services are offered through High Tower Advisors LLC. This is not an offer to buy or sell securities. No investment process is free risk. There's no guarantee that the investment process or investment opportunities referenced

to Rian will be profitable. past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors. All data and information referenced herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary and does not constitute investment advice. The Bonsor Group in Hightower shall not in any way be liable for claims and make no, express, or implied, representations or warranties as to the accuracy or completeness of the data and other information,

or for statements or errors contained in or omissions from the obtained data and information referenced. The data and information are provided as of the date reference, such data and information are subject to change without notice. This document was created for informational purposes only that opinions expressed are solely those of the Bonson Group and do not represent those of Hightower Advisors LSC or any of its affiliates. High Tower advisors do not provide tax or legal advice. this material was not intended or written to be used or presented to any entity as tax advice or tax information. Tax laws vary based on the client's individual circumstances and can change at any time without notice. Clients are urged to consult their tax or legal advisor for any related questions.