The Dividend Cafe - Wednesday - February 12, 2025

Episode Date: February 12, 2025

Mid-Week Market Insights: CPI Report & Federal Reserve Review - Feb 12 In this episode of Dividend Cafe, recorded on February 12th, host Brian Szytel covers the day's market activities influenced by the latest Consumer Price Index (CPI) report. The Dow dropped 225 points, the S&P was down by a quarter of a percent, while the Nasdaq saw a minor gain. The CPI numbers showed a monthly increase of 0.5%, higher than the expected 0.3%, marking a yearly CPI of 3%. The core CPI excluding food and energy also surpassed expectations. Energy and food prices along with the shelter component significantly impacted the CPI. Szytel discusses the Federal Reserve's ongoing efforts to manage inflation, noting the bond market's reaction and Fed Chairman Powell's testimony. The role of the Fed, particularly its expanded balance sheet since the Great Financial Crisis and COVID-19, is critiqued. Szytel concludes with a forward-looking perspective and invites viewers to tune in the next day for more updates. 00:00 Introduction and Market Overview 00:32 Inflation Report Breakdown 01:15 Impact on Energy and Food Prices 01:26 Shelter Component Analysis 02:05 Market Reactions and Predictions 03:21 Federal Reserve's Role and Actions 04:51 Conclusion and Sign Off 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 Wednesday, February the 12th, Brian Seitel with you here on a inflation CPI reporting day here in the market. We ended up closing off of the lows for the day, but the Dow was still down about 225 points. S&P was down just about a quarter of a percentage point, and the NASDAQ actually eked out

a minuscule tiny six point gain. Not all that bad of a reaction in the market for what was otherwise a bit hotter number on inflation. We got on headline CPI a 0.5% month over month increase. Consensus was only for 0.3. So pretty big difference. And that puts year over year at 3% versus a consensus at 2.9. It's only about a 10th difference on the year.

at 2.9. It's only about a tenth difference on the year. On core, if you move out energy and food, core CPI was also hotter up 0.4% for the month. Consensus was only 0.3. So just a tenth more on core, but that put annualized core inflation at 3.3 versus consensus for 3.2. Okay, so a bit hotter numbers. What was in them and why, mainly two things. One was, as you could tell between the difference between headline and core, with energy and food in it, is that energy and food were a little bit higher. Energy was up 1.1%, food was up 0.4%.

But the bigger picture, or the bigger number inside of these that moved the needle was this continued shelter component Which we've spoken about for about a year now the rent and OER which is owners equivalent Rent that is used inside of CPI represented about a third of the number is still higher than what is reality and rents are not increasing At four and a half five percent a year. There's something in the three, three and a half percent range. It's just a lagging calculation. And so it hasn't caught up yet. I suspect that it will.

And of course that should bring down inflation. And at least that's our thesis. If you get volatility around energy, of course that'll affect headline, but core nonetheless should trend lower. And by the way, on the year numbers, we were only over by about a 10th on each. So I suppose it isn't that astronomical markets were down much more in the morning, the bond market particularly was down the 10 year treasury was off, or was up sorry, 15 basis points in yield on the day, in the middle of the day, and we only closed what is up about, it looks like nine basis points on the day. So we closed at 462 on tens.

The Fed futures numbers moved out to December now from September for first rate cut. We still think it'll be some sometime around Q4, call it October to December. But that's the move for the day. Those were the biggest numbers. Powell concluded his semi-annual two-day congressional testimony and actually didn't have a whole lot to say other than today's CPI number is reflective

of more work that we need to do in order to bring inflation down. So I'll chalk all this up to a bit hotter, but really not all that bad. And business as usual, let's move forward. There was a question in there about the Federal Reserve and if they're sticking to their original mandates and, or if it's shifted. And no, the Fed was set up to basically ensure stable prices and full employment. And during the great financial crisis,

they used their balance sheet to essentially be the buyer of last resort. And most things they set up through a partnership with the treasury, vehicles to purchase distressed mortgages and things at the time. These were specialty purpose vehicles. And then since then during COVID, they used their balance sheet to purchase almost everything under the sun, including exchange traded funds of municipal bonds, of junk bonds, high yield, you name it. So quite a bit different than the original intentions and frankly, not something I'm in favor for just because it distorts free market activity. You have to be careful what you

wish for. You have the biggest buyer out there and the buyer of last resort that will always be there until maybe one day it isn't or something changes and then what happens so I just either way it's interfering with what otherwise has been free markets for the millennia and that's what I would prefer as far as the feds role they could have a limited role for the original mandates but I'm not in favor of a balance sheet that's just there to buy a bunch of things. We're only about a whisker away of it buying equities at some point. Slippery slope.

All that to say, I'm going to let you go for this evening. Again, it's Wednesday, so we'll be back with you Thursday tomorrow, and I'll be in Palm Beach coming to you with Dividend Cafe. Reach out with your questions. Have a good night. Thank you. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC member FINRA and SIPC with Hightower Advisors LLC,

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