The Dividend Cafe - Wednesday - May 20, 2025

Episode Date: May 20, 2025

Dividend Cafe: Market Update and Economic Insights - May 20 In this episode of Dividend Cafe, host Brian Szytel discusses the current state of the markets on a quiet economic day. After a six-day positive streak, the S&P 500 saw a slight decline, along with the Dow and NASDAQ. Key economic indicators such as the 10-year yield, which closed at 4.48%, and the yield curve spread are examined. Sitel dives into impressive Q1 earnings growth, better-than-expected guidance, and the implications of policy and populist sentiment on markets. Additionally, he addresses the wealth divide exacerbated by rising asset values and the role of the Fed in market stability, emphasizing its significant impact on monetary policy and capital markets efficiency. Viewer questions about the relevance of Fed Futures and market speculation are also explored. 00:00 Introduction and Market Overview 01:10 Earnings and Economic Sentiment 02:33 Wealth Divide and Economic Disparity 04:37 Fed Futures and Monetary Policy 06:29 Conclusion and Viewer Engagement 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 Tuesday, May the 20th. Brian Seitel with you here on a fairly range bound day in markets. Not a lot going on in the economic calendar. It was fairly quiet. There was a few Fed governors and presidents that spoke, but nothing worth reporting.

So you just had a give back day here after six positive days on the S&P 500. But modestly, so the market was down, that was down 114 points, which was off the lows for the day. S&P was down about 0.4% as was the NASDAQ. So again, range bound pretty quiet. The 10-year yield was up two basis points on the day. We closed at 448 on 10s and 30s, which had very briefly popped above 5% after the credit rating downgrade over the weekend are back to 496.

So they were in the high 480s throughout the day. So they're just bopping around in the same sort of area. The yield curve, by the way, is fairly positive. You got 100 basis points between two and 30 year yields. So it's a 397 versus a 497 essentially. So the short end is still inverted and you've got some work to be done there on Fed funds to bring that back down. Speaking of which, I had a couple of comments in there today.

One was just on earnings now that we're basically 92% of the way through for Q1 earnings. So we're ending up right at 14.2% on earnings growth for the quarter. That's better than the 8% that was expected. So that's very good news. The question on it will just be whether the volatility that we saw from trade and liberation day in April will flow through to earnings and then ultimately through to employment when we get to Q2. So that's what we'll be watching in the meantime. It wasn't just that the earnings for the first quarter were better than expected. A lot of companies pulled guidance, but it was actually better than expected as well.

So those are positive things. But my comment in there was about some of these things that are fairly good, which is markets are feeling better the market in April forced a gut check or reality check to what policy intentions are on trade and what can actually be accomplished without a market turmoil event and so we've got that behind us and now we're looking at essentially a tax bill that's likely to come at some point and it's a deregulation policy that should be both favorable to markets my comment here is more about why sentiment is so low, not even just consumer sentiment, because that can be fickle, but more about why most people feel left out.

And this isn't just a 2025 phenomenon. I'm talking about more of a secular theme in the developed world of everyone. And it's a common theme. And my take on it is what's turned into more of a populist era. But I have a few points that I wanted to make in there. First off is just over the past five years. Obviously it's been a heck of a five years. We had a COVID pandemic that none of us have seen in our entire lifetimes in 2020.

So I took that part out of the equation and just started in June of 2020, which is right here into almost June here at 2025. So five years, you had the cumulative effect of inflation over that period of time, meaning CPI rise about 24.6% over that period. So that's quite a bit. It's more than usual, obviously. But at the same time, and I've written about this,

you've had wage growth during that time as well. The economy's done pretty well, and you've had earnings actually, average hourly earnings go up about 22.7% over the same period. So granted there's been some real wage decline, meaning by two and a half percentage points, things cost more than you ended up making more money in other words. So that's bad, but that's not what's attributable to people feeling like they've been left out.

It has much more to do with the wealth divide. And my point here into saying this is that in 2025, five years ago, the net worth, again, this is right after COVID of the U S was somewhere around $60 trillion. It's now 170 trillion today. That's a huge difference. It's not quite triple, but it's a huge difference. And so those with assets and we'll call them wealthy, but those with assets,

meaning they own their house and they have a 401k are wealthier. These balances are higher. The home equity is higher. Those without those things that are earning the average hourly wages are not feeling wealthier. In fact, they have less purchasing power. And so that's a big difference. And that's one of the reasons why we're seeing some of these events unfold, both in the political arena and not just in the US, but across the developed world.

And I think it's notable. I didn't have as much time to keep writing about this. And I suppose it could be a much larger topic to write about, but I wanted to just give some, some break away from talking about tariffs and intraday movement and talk a little bit about some of these bigger items. There was a question in there today about Fed futures and why they're important or are they important to looking at investment implications. And my comment in there is what we're talking about with Fed Futures has everything to do with monetary policy and yes it's meaningful has implications for liquidity, it has implications for the bond market which is larger than the stock market, all of our lending rates, mortgage, auto, credit

card, all these things, inflation, expectations, economic growth, monetary policy is important. The futures is a way to have a glimpse into the future of which direction it may go, meaning get more restrictive or get more accommodative. Markets care about these things in the short term. I don't think it trumps any fundamentals and I don't think that's what you should invest around to the question, of course. But that's why it's important because it's pertinent and it moves asset prices up and down.

And the other thing is just the world we live in today. Again, this isn't what ought to be, what I would want, but it is the world that we are in is that the Fed is much larger than it ever has been and during the GFC. And again, during COVID it used its balance sheet to basically be the buyer of last resort and provide liquidity to the market and buy everything from not just treasuries and government mortgages, but everything all the way down to high yield bonds, ETFs, there was exchange traded funds that were bought through, the SIV that was created during COVID, municipal bonds, corporate bonds, all these things. So there's this perpetual market volatility put that has been instilled. And so the attention that is paid to it is far greater than it ever has been before.

I wish that weren't the case because I think it distorts the efficiency of private capital markets over time. I don't think it's the end of the world necessarily in the short term, but it's like the frog that's in the hot water doesn't notice until it ends up boiling if you slowly increase the temperature on it. So that's my concern about Fed policy over time and a distortion of what is an efficient capital market otherwise. So I know that's a lot to chew through.

Those are some big topics for the day, but I'm going to leave you with that. And I hope you have a good night. I love the questions. I really do appreciate you reaching out and asking them. It's fun to engage. I get a lot of them already, but feel encouraged and there isn't a wrong question. So any of these things are good to ask. With that, I'll let you go.

I wish you a lovely Tuesday evening and we'll talk to you soon. 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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