The Dividend Cafe - Wednesday - June 24, 2026

Episode Date: June 24, 2026

Brian Szytel recaps a Wednesday session that began with a recovery bounce led by technology as interest rates and WTI fell, but the rally fizzled and selling in tech resumed while value names held up better. He says markets are digesting valuation pressure with stocks trading around 22–23x earnings and uncertainty around the Strait of Hormuz and U.S.-Iran negotiations, which could affect oil prices. He highlights the 2s/10s spread flattening from about 80 bps earlier in the year to about 26 bps, suggesting slowing growth and potential Fed policy risk as inflation remains a concern; markets imply a high chance of at least one rate hike by year-end. The key data point was weak May new home sales (580k vs 640k expected) and elevated unsold new-home inventory at 9.4 months amid high mortgage rates. 00:00 Market Bounce Fizzles 00:44 Valuations and Oil Risk 01:35 Yield Curve Warning Signs 02:00 Fed Policy and Rate Hike Odds 03:15 Listener Question on Spreads 04:03 Housing Data Miss 05:11 Wrap Up 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 back to Dividend Cafe. This is Brian Saitel, your host here on Wednesday, June 24th, on what started off at least to be a nice recovery bounce, and particularly in technology, which really got walloped yesterday. And most of the day, we traded positive interest rates came down, 10 was down, 10 year was down maybe 8 bases points. And so you had also WTI came down a little bit. So there was some room for stocks to improve. But you just sell stocks fizzle out. And then really what happened yesterday resumed through the afternoon to a lesser degree. But you had an unwinding more of some of the tech names and some of the value-oriented names fared much better in the session.

But that was basically the day. It was a fizzled rally that began and then ended. The underlying theme here continues to be valuation-based. We've talked about that a lot with some of the things that have just gone up so high and so much and gotten so expensive. But the other part of things also has to do with just the market is digesting something that is tough to digest. The Strait of Hormas is somewhat more open than it was, but not fully back to normal. There isn't a final deal done with the U.S. and Iran. So the price of oil, which breached technically it got under $70 on WTI briefly.

Those things aren't going to last if the trade is going to be permanently impaired. And we just don't know the answer to that. And so you have different things trying to price that in. The stock market is really more focused on the AI and the capital expenditure and the story of growth in the market, earnings per share growth in the higher margins. And those things are all true. The issue there is those things are also hard to keep repeating at the same level. And so what the bond market, I believe, is telling us now, if you look at the yield curve flattening here a bit,

we were at 80 basis points at the beginning of the year on twos and tens, the spread of the difference and the yield curve, and we're now at about 28 basis points, actually 26 now as it today. So what's happening there is the yield curve is now flattening out, that signaling growth is going to slow down because inflation is not perceived to be put to bed yet. You have a new Fed chair, obviously that has pressure to lower rates, but what is priced in and what he spoke to in his press conference was to focus on price stability more. And so that's what's being priced in. And you've got now an 85% chance that they're going to raise.

rates at least once by the end of the year. But what it's worth, I take the under on that, but I only say that because there's just so much pressure to try to keep rates the same, if at all possible, if there's an inkling of inflation, staying rooted or anchored, and also the straight does actually get reopened and a deal gets done, then I think those things can happen. That may be wishful thinking. But either way, look, if we're really talking about one rate hike, meaning 25 basis point difference on the Fed funds rate, and that's going to ruin everything. It's a little silly when you think about it, right? The difference of a 375 Fed funds and a 4% or a 3.5, those things matter, but really on the margin, what's going to drive markets long term is going to be, of course, earnings and the fundamentals.

But the reality now is just we're already trading a 22, 23 times earnings. So if you have a risk-free rate that's going to trend higher, then it puts pressure on things. and that's what markets are digesting. So there's just a lot of cross currents right now. The question that came in today was about a comment from Monday's Divident Cafe. And technically, this was something that David wrote, but I know it all too well. And it touches on some of my comments. But the question was about what he said about the 210 spread and then the yield curve flattening out a little bit from 80 to 28 basis points at the time and it being a big story. The big story is that is telling you things are slowing down and also as it gets closer to being inverted. it's not there yet. It's starting to signal a policy mistake. Maybe the Fed is behind the curve on raising rates a little bit. So that's what it's saying. And the market is underappreciating that if it's

going to come to fruition a little bit. Growth expectations are lower than they were three months ago and stocks are higher than they were three months ago. That's why it's important. There was a piece of economic data on the day, but just one, and it was housing related. We had for the month of May, new home sales missing. They came out at 580 and we were expecting 640. And really, it's been quite dismal. as we've spoken about a lot, we've underbuilt housing, the inventory for generations in this country. And so you have new households being formed and there's a tight supply. That said, on the new home side, what's happened as interest rates have gone up, high mortgage rates have caused those sales to slow down. And what you're seeing now is the actual unsold inventory of new homes is sitting at 9.4 months.

That's historically very high. A decade high was reached the middle of last year at 9.8 months. So we're only marginally below that. So it's something to keep in mind. New home builders have the ability to have their margins hit but absorb a point on the interest rate for a mortgage inside of the home price. It incentivizes new buyers. So there is that.

But that can only go on for so long. And of course, with higher prices and energy is certainly a big one, I mean, what the war on Iran has done, that's what's going on with housing. I guess it's a short and sweet podcast for you today, but I appreciate you listening. I've got a couple of questions in my inbox to get back to. but please reach out with more of them. And have a lovely evening. We'll talk to you soon.

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