The Dividend Cafe - Tuesday - September 29, 2026

Episode Date: September 29, 2026

Brian Szytel reviews modest market declines (Dow -131, S&P -0.15%, Nasdaq -0.10%) with major indexes still up YTD, and focuses on the bond selloff pushing the 10-year yield to about 5.24% amid speculation about 6%. He argues higher yields reflect both higher nominal growth near 6% and a Fed intent on reducing its balance sheet, with limited ability for Treasury financing tactics to meaningfully lower yields. He notes consumer confidence missed (81 vs. 89), JOLTS openings dipped slightly (7.1M vs. 7.2M), and Case-Shiller home prices rose 0.3% monthly but lag inflation amid high mortgage rates and weak price discovery. He answers why rates rise despite higher oil: the Fed targets elevated PCE/core inflation by tightening to cool broad-based price pressures. 00:00 Market Close Recap 00:29 Why Yields Are Rising 02:17 Fed Put and Bond Vigilantes 03:16 Where Rates May Settle 03:37 Today’s Economic Data 04:33 Housing Market Reality Check 05:21 Why Hike With High Oil 07:04 Wrap Up and Thanks Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividing Cafe, weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Welcome in to Dividend Cafe. This is Brian Saitel with you, your host this evening here on Tuesday, September 29th, and markets were modestly down on the day overall. The Dow ended up closing down 131 points. S&P was down just marginally by about 15 basis points and the NASDAQ was more or less flat. was down about 10 basis points. So on the year, that puts the Dow up a little over seven, the S&P is still up about 12 and a half, and the NASDAQ up about 15. So markets have come down, particularly in some of the more value-oriented sectors, but they're still positive on the year. And what's happened really is that the bond market and price has sold off and then interest rates have gone up. And that's really what the main topic de jure is today, because frankly, just for a

generation. We're not used to seeing yields be back to historical sort of averages like they are now. The 10-year closed flat on the day, but it's now at 524. And there's articles out about, well, it hits 6% and so on and so forth. Look, it's unpalatable for the Treasury to have interest rates go up like this because it does create and exacerbate the spending issue that we have as far as where budgets can go and get stretched. Nonetheless, what you have is a Fed that wants to take its direction from markets rather than the other way around. And what that means to me is that you have markets now testing that. Well, there will be a point at which Warsh is going to blink or not? Can interest rates continue to go up? And at what point does the change in tone potentially happen? And I think that's

what's happening here a little bit. I don't think it's necessarily because of just one thing. And what I wrote about last week was, keep in mind, too, we've got higher nominal growth in this country right now. call it 6%. So that's not a bad environment. And those two things are very much hand, go hand in hand, higher interest rates and higher growth rates. And yes, inflation is also higher. And so those things are all tethered. But look, I think that right now you have a situation where the Treasury Secretary, even though they said they were going to borrow more in short term paper and then buybacks in the long term is really unable to do much of anything with that. We wrote about that quite a bit. You can't buy yields lower with money that you don't have.

You can just borrow more and change the duration at which you can borrow. That's it. The things that can really change the bond market are the markets or God himself, of course, because that would be what God does, meaning not something that we can control or frankly even understand. And so think about it. It's just a free market. Rates go up and down. Secondly, you've got the Fed.

And even then, there's a limit to it. It's not a huge limit. they could take their balance sheet from $6 trillion to $60 trillion and buy all the debt or most of it. But that's not something that they want to do or really have the ability to do. Nonetheless, there is a bazooka there and they do have the ability to use it. It's just that the person that's in charge of that wants to go the other way and reduce the balance sheet rather than increase it. And that's, again, what's happening. Interest rates are being tested on the higher end because of that Fed put.

If you remember that Bernanke put back during the great financial crisis on markets, killed the bond vigilantes. I'm going to write about this tomorrow, but I think that's being undone here to some degree. And I actually think there's some positive things about that. Like I said before, it has to do with growth. Look, what will end up happening is yields will end up coming back down or finding a certain equilibrium. As far as when that will be and what rate that will be, I don't have the answer to that and nobody else either. I think if you look at nominal growth being towards 6%, a 10-year rate somewhere near there would probably be a ceiling.

But again, we'll have to take that with a grain of salt and give it some time. There was a couple of pieces of economic data out. Consumer confidence missed. We got an 81 versus an 89. This is for the month of September, a fresh read. Do I read a lot into that? Not necessarily. Consumer confidence tends to be a lagging indicator.

And it's looking backwards about people's feelings and expectations about what they just went through rather than what is going to be. So I'll set that aside a little bit for a moment. And then look at the second piece, which was new job openings. Remember, this is that Joltz number that we quote often. we got a miss on it. It's a 7.1 I'm rounding up here, 7.1 versus 7.2 million.

So what does that mean? Labor market's still healthy. We still have jobless claims that are still low. We still have an unemployment rate that is still low. But on a forward-looking basis, when you have companies that are listing less new job openings, then you could read into that and say going forward, it's a little less rosy.

That's why we look at that number. The K-Shiller 20 City Home Price Index actually beat for the month, but on the year is still below inflation. So your home is technically losing value on a real rate. Of course, not your home, because your home has the special remodel job, and it's the bigger lot, and it's the nicer one. I joke there, but people's perceptions of home values and what they're worth are one thing, and then there's a reality that's another thing.

What I would just say is, I know these numbers on a monthly basis still look positive. We've got a 0.3% for the month of July. Take it with a grain of salt. There really is a lot more sellers right now, call it two-thirds, more than buyers. Prices are just stuck. You have mortgage rates that are high. There's not a lot of inventory turning over. And as far as price discovery, I suspect it's at a lower price than what it currently trades at online or what most think it will be. But the last thing that I have for you today is the question that came in. And it's a good one. It's actually one that's come up before.

It's about why were we raising rates if oil is such an input cost to the rest of the economy? Wouldn't that be bad for the economy? And why would we want to raise into that? So the theory is, first off, this Fed chairman isn't doing it just because of a supply chain shock because they don't have the ability or the need or even the will to try to do that, which is why the core numbers always remove food and energy because of that being more volatile. So why are they raising rate? It's because core PCE, which is the main number they look at, is still running in the mid-3s, and that's too high. They want it to be to the two level. And that's on headline, sorry. So getting headline PCE and then also core PC back down to the two range,

means that they want to take some wind out of the sales a little bit and increase the cost of money. And that's what they're trying to accomplish with raising rates as far as the idea behind why would they raise rates into a rising oil environment because it feeds in all the other things. Think about transportation or fertilizer or diesel or cargo or freight. If that inflation becomes embedded, meaning broad-based, they want to cool things down. And the only way they really have to do that is to raise the cost of money. If the cost of money is more expensive, the demand for loans will be less. Less loans, meaningless less velocity. And ultimately, the economy would slow down and prices would go down.

That's the theory behind it. I don't particularly buy into that. But nonetheless, we have productivity numbers that are higher. We have growth in the economy that is higher. We have earnings that are happening in the economy that are higher. And we have inflation in the economy that is higher than we like. And so we're starting to get higher interest rates as a result. That's where we're at.

Okay. I'm going to leave it to there for you this evening. I appreciate you listening, as always, and reach out with questions. I've got a backlog. I'll have plenty of them answered for tomorrow on Thursday. But if I don't speak to you, have a lovely evening. Thank you. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC,

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