The Dividend Cafe - Wednesday - July 2, 2025

Episode Date: July 2, 2025

July 2nd Market Overview and Employment Insights Brian Szytel reviews July 2nd's market performance, highlighting a slight positive shift in equities with record closes for the S&P and Nasdaq despite a flat day for the DOW. He discusses bond market movements and the release of the ADP private payroll number, marking the first negative figure in over two years. Brian delves into labor market trends, noting slight increases in weekly and continuing claims, and a balanced employment situation. He addresses Fed's patient approach to rate changes, anticipates tomorrow's non-farm payroll report, and comments on the Secure Act 2.0 implications for retirement savers. The episode concludes with a Q&A session covering term premiums and lending rates by Fed officials, and holiday well-wishes to the audience. 00:00 Market Overview: July 2nd 00:32 Economic Data Insights: ADP Private Payroll 01:18 Labor Market Analysis 02:17 Federal Reserve and Interest Rates 02:58 Secure Act 2.0: Retirement Contributions 04:12 Q&A and Market Sentiment 04:25 Closing Remarks and Holiday Wishes 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. This is Wednesday, July the 2nd. Brian Sightel is with you here. On a fairly flat day, albeit slightly to the positive inequities, a little bit of the opposite of yesterday. Yesterday, the Dow was up significantly, both the S and P and NASDAQ sold off. Dow was completely flat, but you had a little bit of an up move about

five tenths of a percent on the S and P higher and about nine tenths higher on the NASDAQ or so both of those were record close highs on those two indexes. The bond market, slight sell off in prices. You had the yield on the 10 year up about three basis points. So not a lot of movement. And the big piece of economic data that was out today was on the ADP private payroll number, we got a negative 33,000 print. This is the first negative number that we've seen in over two years.

It was March of 2023. It's not a huge negative number, but negative nonetheless. And we'll get the non-farm payroll report out tomorrow. Markets tend to pay much more attention to the non-farm payroll report and the unemployment rate more than they do on ADP. And frankly, the last, call it three, four months, we've seen ADP disappoint, and then we've seen non-farm payroll come in and either be right in line or meaningfully above expectations. And so that's what's really driven markets.

So again, with the holiday on Friday, we're going to get that number early on Thursday tomorrow. So we'll keep you posted on that front. But all in all, if you look at the employment picture, this isn't a labor market that is falling out of bed. There's just some cracks in the dam here because what's happening is you've got weekly claims that have inched up. We were in the low two hundreds for a year and a half.

We're now in this, call it two 35 to two 40 range on weekly claims that have inched up. We were in the low 200s for a year and a half. We're now in this call it 235 to 240 range on weekly claims. So there's more people filing for unemployment. The continuing claims number is also edged up here a little bit higher. Then you see ADP private numbers come out meaningfully lower the last couple of months below expectations. That's another sign there. And then if you look at just the total amount of unemployed versus job openings, remember yesterday we had that big beat in jolts. This is the new job openings number that tends to be a forward looking and positive indicator when you have more job openings coming out in the employment side. So I'm chalking that up to a fairly balanced labor market between employed and job

openings. And so I'm not ready to write this as employment meaningfully weakening from here. And I don't think the Fed is either. And so when they're saying that they're going to be patient because they can be, this is what they're relying on. They've got inflation that is moving lower. That's one part of their mandate. And then they've got employment that maybe has softened a little bit, but not enough

for them to really perk their ears up yet. And so they're going to take their time on rates. That said, you did get a move higher on Fed futures on the July cut. We're now at 23%. We were call it 20% this morning before the number came out. So a little bit higher. But again, unless you get followed through on non-farm tomorrow, I don't know that numbers are going to move a whole lot meaningfully higher from there. If you got some big miss, sure. Maybe the percentages can creep up, but we'll be back with you

tomorrow to reveal that there was a couple of questions in there. One of them that I had was on the secure act 2.0 and for catch up contributions on people that are over the age of 50, where those contribution limits dramatically increased and they were increased, but I wouldn't call it dramatic because on the traditional and the Roth side, it's still a thousand dollar catch up contribution. They just indexed it for inflation. So then starting next year. So if you think about inflation on a small $1,000 amount, that shouldn't really be all

that much frankly, as far as an increase. That said, on the employee or sponsored side, think about 401k plans, they increased the catch up contribution from 7,500 to 11,000 over 11,000. That's pretty meaningful. And they also phased out the amount of catch up contribution that can be pre-tax, meaning people get a deduction from their paycheck on it from our tax savings on it. If there's a high income earner over 145,000 a year, then they're going to phase that out and force it into the after tax side, which is the Roth component. If there's a high income earner over 145,000 a year, then they're going to phase that out and force it into the after tax side, which is the Roth component, if there is one available.

There was also some other benefits on 529 plans being able to be rolled into Roths and some other goodies baked in there, but all those things were basically a net positive for retirement savers. And a lot of those get enacted in 2026. The other question that we had in there that David had was about term premium and would Fed officials themselves lend money at those rates? And then the answer is of course, no. And so not to worry about it.

So I know it's a short blurb for the day, but frankly, it was an unoffentful day in markets. And we're just getting into this holiday mindset here in the market participants and trading. And so I suspect tomorrow may be a quiet day too, but time will tell. Again, we'll be back with you with the long form dividend cafe in your inbox tomorrow to read through over your holiday weekend. We encourage your questions.

As always, please reach out. We love hearing from you. And if we don't speak to you, I wish you a lovely Independence Day holiday with your families. And hopefully you're doing some fun stuff. I know I will be with my kids. Please reach out, hope to hear from you. Otherwise, have a good weekend. We'll talk to you soon.

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