The Dividend Cafe - Wednesday - March 19, 2025

Episode Date: March 19, 2025

March 19 Market Update: Stocks Rally on Federal Reserve Announcements In this episode of Dividend Cafe, Brian Szytel discusses notable market movements for March 19, including gains in stocks and bonds, influenced by the Federal Reserve's recent decisions. Key points include the Fed's decision to maintain interest rates while reducing the Treasury runoff in their quantitative tightening program, causing stocks to rally. Brian covers the expectation of reciprocal tariffs in April, a recovery trend in U.S. markets, and changes in fund manager positioning. He also explores the performance differences between U.S. and European markets, highlighting value over growth trends and potential investment opportunities in European dividend stocks with favorable valuation metrics. The episode concludes with advice on the importance of a bottom-up approach when considering top-down investment themes. 00:00 Introduction and Market Overview 00:24 Federal Reserve Meeting Insights 01:04 Market Reactions and Trends 03:00 Global Market Analysis 04:08 Investment Opportunities in Europe 05:48 Conclusion and Final Thoughts 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 the Dividend Cafe. This is Wednesday, March the 19th. Brian Sightel with you here today. On an up day here in markets overall, both stocks and bonds were higher. The Dow closed up 212 points. S and P was up 0.72%.

NASDAQ was up a little over 1% on the day. So we got a little bit of a rally and actually the market was up all morning. So positive the entire day. It was some anticipation around the Federal Reserve in there, the end of conclusion of their meeting and what they were going to do with rate policy and so on and following the meeting markets actually built on gains. So it liked what it heard. They did leave rates at the same.

So we're still at four and a quarter to four and a half on fed funds. All that was expected. They did, however, reduce the amount of treasury runoff on their balance sheet. So this is a reduction or a tapering in QT, which is quantitative tightening. They moved the treasury part down from 25 billion a month to 5 billion starting in April. So they left the mortgage side the same at 35 billion. So still reducing balance sheet just at a slower rate. And that was what likely is the culprit of sending stocks a little bit higher on the

day because it's a form of easing, a small form of easing. But they downgraded some of the GDP forecasts they have on the country and they increased some of the inflation forecasts in their report. So they also cited some heightened uncertainty around what is essentially some of the foreign trade policy and some different things that are coming out around markets. And so there's both of those things, a little bit lower growth and a little bit higher inflation. You can read into that as you will, but it's obviously affecting some of their forecasting. But all that to say, a lot of what was expected, some of it was new on QT and markets seem to like it. And what we've seen the last couple days and into the last week is the tariff

headlines have calmed down. Meaning there hasn't been anything new. We know reciprocal tariffs are going to happen in April, or at least that's what's scheduled to happen until something changes. But there hasn't been any new headlines. And then you've gotten some positive recovery here in markets. Markets were up on Friday, they were up on Monday, and then they've been up and they were up today. So you've got three of the last four trading days positive. And my comment in there was if this is going to end up being essentially what is a textbook 10% market correction, which historically happens every single year.

But what we get out of that is a dramatic shift in sentiment out of U S stocks and really over positioning in of US stocks and really over positioning in US stocks and probably over ownership, especially in some of the top heaviness. I don't think that's a bad thing. As a contrarian, actually, I would say it's a good thing in markets. There was a fund manager survey that had the largest drop of over-weightedness in the United States ever, moved lower by 40 points in the month. I take that survey for what it is, which is just a data point

But nonetheless, it's showing some positioning changing and I take that as a good thing question in there was about Russia Ukraine and Volatility that is occurring. Are there opportunities in Europe and then what things have been outperforming on the year? Just a global lay of the land here a little bit. But yeah, it's definitely been value overgrowth in the U.S. and particularly the deeper value side and the dividend side is what has fared even better there. The delta between that side and growth is over 10%. You've also seen an outperformance internationally. I could include emerging markets in this comment,

but I excluded it intentionally for a few reasons. But if you look at developed Europe, it's outperforming the S&P somewhere around 20% on the year. It might be up 14, 15 on the year. S&P might be down four. So there's a significant change there. Just remember that Europe side has been essentially left for dead.

That market has gone nowhere here for 15 years. It's completely sideways over that period of time. So you've gotten some positioning changing. Some of those flows have come from the U.S. overseas. And that's fine and good. We've looked at it a whole lot. In fact, some of the defense and aerospace names in there are attractive from the standpoint of a rearming Europe with potentially US support waning and then also

with what will eventually be a rebuild of the country Ukraine. We just don't know the timing of that. And so those industrial and some of those aerospace and defense names, they've already caught that bid. So they're up, a lot of those names are up 50% on the year. And at this point, the valuations are just stretched. So I think for the client here that asked the question, from an opportunity standpoint, that was there. I think that trade is a little long in the tooth at this point, although we're watching and being patient with it.

There are, however, as part of the research from a bottom-up perspective on that, basically top-down theme of continent or country investing, there were some dividend names that I think are attractive that we found there that both are trading at single-digit P-E ratios that had much higher yields than their U.S. counterparts and had much lower payout ratios. And so there is some actionable opportunity

around that theme because I think that from all those three metrics, that is a better value than some other parts of the world. So there's some opportunity there. But my comment was basically on any of this stuff, if there's a top down theme of this country doing better because of this or that, or this industry doing better because of a settlement of a geopolitical event and so forth, it's fine to have those things and those views. of a geopolitical event and so forth. It's fine to have those things and those views. You just really do need to have a bottom up overlay on that to look at what's underneath the idea because either it could be already played out,

it could be already overvalued, it could just be unattractive fundamentally. At least that's the way we tend to look at things and I think the right way to do it. But with that, I'm gonna let you go for this evening. I appreciate you listening as I always do and appreciate your questions. Please reach out with more of let you go for this evening. I appreciate you listening as I always do and appreciate your questions. Please reach out with more of them

and have a great evening. Thank you. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC, member FINRA and SIPC, with Hightower Advisors LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities LLC.

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