The Dividend Cafe - Wednesday - August 20, 2025

Episode Date: August 20, 2025

Market Update and Housing Sector Insights: August 20th In this episode of Dividend Cafe on August 20th, host Brian Szytel discusses the day's market performance, noting slight gains in the DOW and declines in the S&P and Nasdaq. He highlights a continued rotation from growth to value stocks, particularly in the AI sector, and stable interest rates. Brian also addresses the recently released hawkish minutes from the July Fed meeting, the impact of the non-farm payroll report, and speculates on the potential outcomes of Federal Reserve Chairman Jerome Powell's upcoming speech at Jackson Hole. Shifting focus to the housing market, Brian explains the current challenges faced by home builders, including low sentiment and high sales incentives, despite an apparent rise in home builder stocks. He concludes by discussing the distinctions between nominal and real returns, emphasizing the broader market context and biases in financial reporting. The episode wraps up with a preview of upcoming economic data releases, including jobless claims and existing home sales. 00:00 Introduction and Market Overview 00:44 Fed Meeting Insights and Market Reactions 01:20 Housing Market Analysis 02:13 Home Builder Sentiment and Stock Performance 03:31 Inflation Adjusted Returns Discussion 04:41 Conclusion and Upcoming Data 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 back to Dividend Cafe this Wednesday, August the 20th. Brian Sightel with you here on a down day overall. The Dow actually eked out again. We were up about 16 points on the Dow. S&P was down a quarter of a percent. Nasdaq was down 0.7%. roughly. So it was a follow-through, really, of yesterday's action where you had continued rotation from growth to value, particularly a lot of the artificial intelligence names sold off the most. We had more of the defensives outperforming and more of the value names outperforming

on the day. Interest rates were largely unchanged. Yeah, the 10-year-down about a basis point, we closed at 429. And there wasn't a lot of news out on the economic calendar today. You did have the minutes from the last Fed meeting get released. This was July. July's meeting were more hawkish. There was a lot more talk of concern over inflation than there wasn't of employment. And so the issue with it, what made it all stale and why the market didn't care. And actually, the market ended up moving higher after that meeting was before the last non-farm payroll report, which was abysmal. And so that paradigm all shifted. Back when that first Fed meeting happened in July, futures were at about a 50-50 as far as a September rate cut,

and they went up to about 90% following the payroll report. Today's minutes were a little bit dismissed there. I shifted gears. I wanted to talk a little bit about housing. We talk about interest rates a lot. The market is very much paying attention to what Powell will or won't say on Friday, a Jackson Hole, what he may or may not allude to and what can be read into it or not. But honestly, at a 90% chance for a September rate cut,

I think the odds of him doing something on interest rates in this Jackson Hole conference are next to zero. And so really, whether he sounds more hawkish or dovish, I don't know if it's going to move the needle a ton on what's going to happen in September. So take that for what it is. But if you shift over to most rate-sensitive components of the market, real estate being one of them, I spoke about some of the numbers for housing starts being better than expected in July yesterday. But the permits were much lower, and that's much more forward-looking. And that's my topic for today, which is what is a real-time indicator, a lagging indicator, and a forward-looking indicator. But there's a reason why builders are feeling lousy, and while sentiment is so low, there's

two-thirds of them are having to offer sales incentives. Again, this really heats into their margins on how much money these builders can make. And that's flowing into earnings per share. It's flowing into really how sentiment is in the home builders themselves. But just keep in mind that sales incentive amount is about the same amount we saw at the peak of the pandemic. So it's significant. So that's why there's people feeling bad. You also have existing home sales as inventories have just built and prices have remained high and mortgage rates have remained high.

You've just had inventories build up. You've got the median number of days a month that it's taken in the summer for homes to actually sell at 43 days. That's about the highest it's been in 10 years. So all of those things, inventories being a five-year highs, times to sell, being high.

All of these things are baked in and it's flowing into these earnings and then also sentiment. So my point is, Why, then, or the home builder stocks all up 20% from a few months ago? This is not a comment to go buy them, first off, so please don't. But my comment is, it's because markets are forward-looking and sentiment and how people feel is often more of a lagging indicator.

So markets are very complex, and they price things in advance, and they see what's in the future more. There was a question in there today about inflation-adjusted returns on equities, always being on a nominal basis, on things like cash, particularly, it's more on a real basis, meaning net of inflation and why is there two differences there? And really, I think most of the time, they're either all nominal or all real versus one or the other. I know the reason for the question is, though, and I can give you another answer to add on to what we have today, but the reality is there's

a bigger delta. So if, in other words, inflation is going to average 2.5% and cash is going to on average pay a three, then netting them out means cash is essentially almost zero. And so that's a more dramatic thing to say than saying that equities typically give you a 10 and now they're only going to give you about seven and a half if you net out the two and a half inflation. That's still an attractive return. It's a little less dramatic. So I think that's one of the reasons. The other reason that I'll add is that I think a lot of people that publish that stuff are in the business of managing money. And so, of course, there tends to be more of a tilt towards cash being bad. risk assets being good. That's my additional take on the comment there for what it's worth.

But with that, I'm going to let you go for this evening. I'll be back with you tomorrow on Thursday. We'll have a little bit more data out for you in the economic calendar there. We'll have the claims numbers, jobless claims, we'll have some flash manufacturing and services for PMIs, and then we'll have some existing home sales. But with that, I will let you go for this evening. I wish you well, and we'll talk to you soon. Thank you. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC, member FINRA and SIPC, and with Hightower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities LLC. Advisory services are offered through Hightower Advisors, LLC. This is not an offer to buy or

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