The Dividend Cafe - Wednesday - June 18, 2025

Episode Date: June 18, 2025

In this Dividend Cafe episode, Brian Szytel reviews the day’s market performance, noting minimal movement across indices and bonds despite it being a Fed day. Key topics include unchanged interest rates, a downgrade in U.S. GDP growth by the Fed, and a focus on housing market weaknesses and their economic implications. Brian discusses the significant Treasury maturities upcoming and the potential for expedited rate cuts. Legislative updates include the passage of a major bill making the 2017 TCJA tax cuts permanent and addressing other taxation issues. The episode concludes with jobless claims data and an outlook on future employment rates, alongside reminders about market closures for the Juneteenth holiday. 00:00 Introduction to Dividend Cafe 00:16 Market Overview and Fed Report 01:33 Housing Market Insights 02:22 Treasury and Interest Rates 03:05 Legislative Updates 04:37 Investment Strategies and Economic Calendar 05:55 Closing Remarks and Disclaimers 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, June the 18th. Brian Seitel with you here from TPG in Newport Beach, California. And what was really a pretty directionless day in markets. Fairly undecisive. We actually closed towards the lows of the day, but the Dow was down 44 points.

S&P was flat. NASDAQ was up about a tenth of a percent. Also flattened bond land as well. Tenier didn't move much. So a really benign day considering today was Fed Day and oftentimes we get more volatility out of these days, but there was so much of the statement already telegraphed ahead of time that markets just weren't surprised and it was everything that was expected as far as their report goes.

They left rates unchanged for the fourth meeting in a row, unchanged at four and a quarter to four and a half. They did downgrade GDP growth for the US from 1.7% to 1.4%. And if you remember last week, I wrote about the World Bank doing the same thing and I would take the over on it. I'll still say that with the Fed as well. However, Fed futures actually moved up for a September rate cut. They left their dot plots unchanged. This is in that SEP report they released on projections. But the dot plots were left unchanged. So there's two more rate cuts priced in for the end of the year. And that's why Fed futures kind of moved back up to 71% for a September rate cut.

So there you have it. My comments in the what's on Brian's mind section were about the numbers that we're getting out of housing right now are pretty bad. Let me qualify that bad, meaning the Delta is turning lower. So you've got existing home sales that were pretty abysmal. That big buyer-seller demand imbalance I talked about. Today, you had new home starts that were down 9%, 9.3 month over month.

That's the lowest level since right in the middle of COVID, which was May of 2020. So if you think about people wanting to move right during that period of time, it basically turned off. And then you have sentiment, both on the home builder side that was negative. And then also on the buyer side that was negative. So housing obviously really tethered to interest rates and borrowing rates. Big part of the economy,

call it 15% is moving a bit lower here. And I think that is meaningful for where the fed will go. And then the second part is just a little bit of a maturity wall on the Treasury side. There's about $9.2 trillion worth of Treasuries maturing over the next 12 months. That's about a third of total Treasury holdings. And interest expense is already about 18% of total tax revenue. I wrote about yesterday how that tax revenue has never been higher and we still can't seem to get out of the way of deficit spending here.

And one of the reasons is that added expensive interest on there. And I completely understand the Fed not wanting to go too early and have to do sort of a reverse course at some point. But I think at this point, given some of these cracks that are now appearing that are real, I'd be surprised if they didn't speed up rate reductions here coming into the next call of a couple of quarters. The other component I talked about today was the one big, beautiful bill act that is through the House,

obviously, already. And it actually went through the Senate now as well. And so there's major revisions. I think the Senate version is a much cleaner version, from what I can tell, as far as attempting to have as much offset to pay for things as it can and still accomplish the more important things, at least from this administration.

But some of the key components were that the 2017 TCJA tax cuts were all made permanent and were extended. And also full expensing of business equipment and R&D was made permanent on that side for businesses. All the corporate and individual tax rates were left the same and extended, made permanent. And then he had that section 899, the taxation on foreign companies that have US operations

we've been talking about was extended for a year, so just punted it. I think the idea there was to allow other trade deals to happen, and part of the taxation can come with some of those deals on how they'll be traded. There was also some deductions for middle class seniors. They changed the house version on the salt cap deduction from 40,000 back to 10, which is just where it is now and what we got out of 2017. But what happens now is it goes through another committee, gets reconciled again, and then it goes

back to the both chambers to get voted on. So as far as it being done before relighting fireworks on the 4th of July, which is what the deadline was by the Republican Party, pretty safe to say that's pretty tall ask there. So I'll take the over on that one. I think this thing goes into August. There was a question really just qualifying something I wrote the other day about a signpost with how small the weighting is of all the defensive sectors, so energy, healthcare, staples, utilities. And what I meant by the signpost was just that the S&P 500 is overweighted into technology and people need to use that sign of that humongous overweight to diversify and be more selective, be more active, and to be more value-oriented in markets going

forward. And I think that investor returns on the broad indexes will just be muted. Doesn't mean negative, doesn't mean terrible. It still means that you can make money. It just means that they'll be below averages. And I think you'd be better off being more selective, both domestically, but then also internationally.

And including some emerging markets and some other places to earn a rate of return here over the coming, call it five, ten years. Couple of pieces in the economic calendar today. We had initial jobless claims that were right in line. It's the same area we've been hovering at now for a few months. We're at 245,000 on initial jobless claims. Keep in mind the Fed did today in its statement raise the unemployment rate estimate for the end of the year to by 10th to four and a half or at 4.2 now so they're expecting employment to start to fall out as well and again to my comment on where rates

are I believe they'll start moving a little faster so there you have it around the horn for Wednesday which kind of feels a little bit like gosh what would it feel like I guess a Friday because tomorrow we're closed I'll still be working and and so if you have questions, reach out as always, but markets will be closed for the Juneteenth holiday. And then they will reopen on Friday. And with that, I'll let you go for this evening. I wish you well, and we'll talk to you soon. Thanks. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC member FINRA and SIPC, with Hightower Advisors LLC, a registered

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