The Dividend Cafe - Wednesday - May 14, 2025

Episode Date: May 14, 2025

Market Update: Resurgent AI, Market Movements, and Crypto Insights In this episode of Dividend Cafe, Brian Szytel from West Palm Beach discusses recent market trends on a quiet trading day. The S&P 500 saw modest gains, while the Dow was down slightly. Key points include an uptick in AI sector activity driven by policy shifts and supply chain dynamics, significant M&A activity in the utility sector, and a cautious perspective on pharmaceutical pricing changes due to the MFN executive order. Brian also addresses an audience question about cryptocurrency investments, advising on its volatility and practicality in portfolios. Looking ahead, he previews an action-packed economic calendar for the following day. 00:00 Introduction and Market Overview 01:06 AI Sector Resurgence and Policy Shifts 02:10 Utility Sector and Power Generation 02:58 Trade Policies and Sector Impacts 03:29 Pharmaceutical Industry Disruptions 05:27 Upcoming Economic Data and Events 06:02 Cryptocurrency Investment Considerations 08:15 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, May 14th, and Brian Sietel with you from our West Palm Beach, Florida office here. On a real pretty quiet day in markets, the market actually ended up closing just modestly higher at least on the S&P 500 The Dow was down about 89 points on the day S&P closed up a tenth of a percent NASDAQ up seven tenths of a percent So modestly positive across the board 10-year yields were up about six basis points. We closed at 454

so this market continues to climb this wall of worry after both the UK deal and a step down of escalation between the US and China trade. You've also seen actually credit spreads come in dramatically in this market too. We were about 450 wide on high yield credit spreads at the peak of the downturn, which was April 8th. And that's come all the way back to 300. To put that in perspective, historically that would be near record lows, meaning the expectation of default is considered very low at this point. And that's unusual if we were actually going to head into recession or something like that. Some news on the day, although like I said, not a lot on the economic side of

things, there was a resumption of animal spirits inside of the artificial intelligence sector as not only capital expenditure commitments were relevant in all of the Mag-7 earnings reports basically across the board that was feared to be seen coming down. That wasn't the case at all. And on top of that, with the new administration, you have different policies, of course. And one of those is Trump was in the Middle East looking to open up advanced AI chips. So we export AI chips, but we have limited the exportation of advanced chips to countries if they don't meet certain qualitative metrics. And that is now being shifted within new administration. This is going to be now country by country specific and much more based on a reciprocal investment back in the United States.

So we'll ship you these advanced chips, you invest money back in the United States, it's a win-win, so on and so forth. So less qualitative based and more deal based. So the sector itself of AI has seen a resurgence here just lately. And with that, the topic of data centers to support that industry and the topic of power generation in the utility sector to support that component of it as well has become much more relevant again. And you've seen that with M&A activity on the year, the total M&A activity in the utility

sector for 2025, and this is what May 14th, it exceeds all of last year combined already. So that is heating up and a lot of the big players and a lot of the big hedge funds and alternative managers are getting exposure. There's a lot of dry powder out there. And that's a sector that is in demand on power. It's one that has been under invested for generations. And you've seen a big pickup there. Power generation has been on the forefront and part of what was on my mind

in an otherwise boring day on the economic calendar. If you think about the different sectors that could benefit in this trade experiment from the new administration, they'll be winners, they'll be losers. Frankly, it's too early to call what those will be. I can just tell you what we have seen is there is demand for exporting liquefied natural gas. We have an abundance of it. Other countries need it. It's something that we can export. And there's an investment thesis around that that we believe in, of course, and we have for a long time before just the topic de jour. But there's other industries that have been

distorted the opposite way. There's the pharmaceutical industry has sold off the last two days, including today, and that's because of the MF&EO deal. This is the most favored nation executive order from the new administration on setting the U.S. pricing to what the most affordable nations pricing is out there. So in other words, if Canada can provide a certain drug at a certain price that's much lower than the U, then we have to set our prices based on that to try to bring down prescription drug prices. And there's a lot of problems with it. We've already written about it, and I suspect we'll write about it more. But anytime you get governments involved in setting prices in private industries, it's

just not a good thing. And I don't know that's that debatable. I think most people would agree to it. I know that there's real life folks that are living on a fixed income that need to have lower prescription drug prices. I totally get that. But just keep in mind that Medicare and Medicaid plays such a large factor into this calculus, which is also government related, that it's one hand fighting the other, so to speak. But an industry like pharma can be disrupted.

And that's what we're seeing in some of these prices. And we've done a lot of research on this internally. And like I said, there'll be more information that we'll share with you because we own some pharma names. Of course, it can curb innovation in the U S the U S leads innovation in pharmaceutical advancement and having a removal of free markets. And some of that market, I think would be bad over time.

The question is just what ends up sticking and what ends up becoming only available through a congressional bill, in which case it's unlikely to actually happen. And so my point is just some sectors will win, some sectors will probably lose in policy to the effect that it affects GDP in a positive way will yet to be seen. That will take many years to figure out. And in the meantime, the trade policy from an asset allocation standpoint and from a portfolio positioning standpoint should not be caught up in the short-term day-to-day things because we just don't know how these things will play out.

Tomorrow, we have such an action-packed day in the economic calendar. I'm really looking forward to going through it with you because there's a lot of data based on my conversation about whether this will end up positive or negative for trade or GDP. We get a fresh read on all this stuff tomorrow. We've got the Empire and Philadelphia Fed manufacturing data out. We've got retail sales. We've got PPI numbers, initial jobless claims, industrial production, and then even on the geopolitical front, a meeting between Putin and Zelensky to top it all off. There's potential for tomorrow to be action-packed on the economic side. Of course, that may or may not be relevant to how markets actually trade, but we shall see.

In the meantime, there was actually an Ask TBG question that came in from a good friend and client of ours regarding cryptocurrency. And basically, with the accessibility now much easier because there's an exchange-shared fund, does it make sense to have a small allocation, say two to five percent for a moderate type of investor at all? Is that even a logical consideration? And I'll say this, yes, it's a logical consideration, but a couple of things just right off the bat first, when you're talking about adding something to hedge the risk of the falling dollar or to provide some safe haven asset,

even if those things were true with this thing you were adding, does 2-5% on that hedge actually do much help if the rest of the 95% is suffering in that outcome? I'd argue that it doesn't, in which case you have to look at what you're buying, and can you own a sizeable amount of it enough to actually do good in a portfolio to hedge things meaningfully and with the volatility of what we're talking about being 50% in any given year up or down pragmatically just what exists out there it's not really that realistic for someone to have a very high percentage of their life lifetime's effort and work and savings go up and down

by half in a given year. And so it's just not that useful and realistic. The second part to it is, of course, does it provide a hedge and is it an offset and is it negatively correlated to the dollar anyways? And those things are debatable. You've had big risk off periods where cryptocurrency is sold off as much or more than the equity market. The correlation between crypto and the NASDAQ is very high, which begs the question of if

the percentage is low enough to not move the needle enough and also if the thesis itself is fallible, then is it worth a lot of time and investment? And are there other things that can be more beneficial? I'd argue yes. And that's where I end up with it. The last thing I'll say is I don't ever wanna step on someone's hopes and dreams. So if there's just some sort of fascination with it

and excitement about it and the desire to talk to people about it at cocktail parties that you have ownership, I'm all for it. As long as the percentage is a very small amount of net worth overall, it's just too volatile and too unpredictable. So there's my take on it. For whatever that is worth to you, hopefully it's helpful. But I'm gonna let you go for this

evening. Like I said, plenty to chew through tomorrow and I'll be back with you live on Dividend Cafe. 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, advisory services are offered through Hightower Advisors LLC. This is not an offer to buy or sell securities.

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