The Dividend Cafe - Wednesday - October 14, 2026

Episode Date: October 14, 2026

On October 14, Dividend Cafe recapped a down market day with the Dow nearly flat, the S&P down over 1%, and the Nasdaq down about 1.9% as tech and semis led declines. Markets reacted to September CPI, with headline inflation up 0.6% (in line) but core CPI up 0.3% versus 0.2% expected and year-over-year core at 2.6% versus 2.5%, with broader components like airfares, transportation, and shelter costs rising. Rates rose then fell as stress prompted some flight-to-safety dynamics, and the yield curve continued flattening. The episode discussed a “mini” rate-hike cycle (around three hikes) and emerging cracks such as stressed neocloud bonds, bank loan value pressure, and widening CCC high-yield spreads. It also explained foreign withholding taxes in U.S.-listed European dividend ETFs and how foreign tax credits are claimed via year-end tax reporting. 00:00 Market Wrap and Rates 01:19 CPI Report Breakdown 02:07 Shelter Costs and Inflation Path 03:20 Mini Rate Hike Cycle 03:46 Cracks From Rising Rates 04:45 International Dividend Taxation 06:09 Closing Thoughts Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividing Cafe, weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Good evening and welcome back into Dividend Cafe this Wednesday evening, October the 14th and the down day overall in markets, although really the Dow only closed down 48 points. So it was virtually flat. SMP was down over a percent and the NASDAQ was down almost 2 percent, 1.9 percent. So much more heavily skewed towards tech and much more heavily skewed towards the semis inside of tech, but it was pretty broad-based. You did have initial reaction to CPI that came out today hotter than expected, and I'll walk through that. But rates on the yield curve went up pretty substantially throughout the morning and then ended up coming back down towards the afternoon.

And so what's happening in my view is you're starting to see real stress start to trickle into markets a little bit. And of course, when you start to see real stress, you start to get a flight to safety. And so the dollar was up a little bit today. And then you start to see tragedies catch a bid. And that's just what we've seen. Again, I keep talking about it. But on my screen, this yield curve indicator keeps getting flatter and flatter. And remember, historically, a flat yield curve is historically not good.

And a steep yield curve is historically good because you've got perceived expectation of growth that is higher in the future. when you start to see growth now and in the future start to be the same, then those expectations just come down a little bit. But the numbers, let's walk through CPI here. So hotter than expected, what does that mean? So for the month of September, headline because of energy, was up 0.6%. That's a huge number, but that was actually in line with consensus. So we knew that on energy and on headline.

Core, when you move that out, you get to a monthly number of 0.3. So we were thinking it was 0.2. That's a 10th hotter on core CPI for the month of September. A year over year, also a 10th higher, you've got a 2.6% year-over-year number versus a 2.5, which was what it was before. So look, I think the combination of two things are why markets were paying more attention to this today. One, just the sticker shock of a 0.6 number on headline. I guess there's three things.

So sticker shock, 1.6 of headline was one. The second was that it wasn't just that it was a tenth higher. It was the third thing, which is that it was more broad-based, because you took energy out. And what we saw is airfares were up, transportation was up, owner-equivalent rent. So this is the rent shelter cost that we've talked about, which has been tracking closer to the Zillow 6-month index, even though that CPI tool is a much longer-dated tool. And so it's been behind the curve. It is largely caught up to Zillow now. So nonetheless, for the month, it ticked back higher again.

And so this could be some sort of a base building inside a shelter cost. We did have some of the manager meetings last week in New York, and that was a theme as far as a bottoming and a rebound in the rental market and in real estate in general. So we'll see if that sort of plays out. But nonetheless, that's about a third of CPI that shelter cost. And it just ticked up a little bit. And so you got, again, the number was 0.3 for the month. So if we're targeting 2% on inflation, how many? use core numbers because I think that's what the Fed really looks at. Core CPI and core PCE, we still

have some work to do, but my point is a 2.6 number is still high if we're looking at 2, but this isn't completely different. We're in the 2s. We're in the mid 2s. In other words, this rate hike cycle is looking at maybe three rate hikes. So 75 basis points, this is not like a 222 deal. That cycle when we move 425 basis points in a year and a total of 525 basis points from start to finish. this is a little bit different. I'm going to call it a mini cycle. And then the question just becomes, is the market strong enough to withstand that? And I'd say largely the economy is, but you will start seeing cracks. The largest publicly traded neocloud company, these are the companies that basically just buy compute and they rent it out to bigger companies. So Microsoft might rent compute from

this type of company, things like that. They had their bonds trade down into the 80s today, yield in 15% and so the stock was obviously down 15% as well. But my point is just when you get raising rates, you're going to start seeing cracks along the system. You've got these bonds that trade down here. You've got those that are going to trade down there. If you remember the Silicon Valley deal, what's happening to loan values as rates go up is loans that were underwritten at lower rates are now worth less to have the rate on the new loan be worth the same. And so the book value of banks tends to go lower. This is why the financials have traded lower. The other last thing I said yesterday was the triple Cs, which is the lower part of the high-eal jump bond market. Those spreads have started to move

out. There's nothing alarming yet, but something that I'll keep an eye on nonetheless. No question in there today was about the complication of international taxation with a U.S. listed European dividend ETF. What happens, foreign corporations will withhold taxes. And so what happens to that ETF is it receives a net payment, actually. The company that issued the dividend is going to withhold at the treaty rate, which is usually around 15%. The ETF receives the net difference and then passes it through to unit holders. The question was about foreign tax credits. Technically, while it's dealt with at the fund level, when you get the 1099 at the end of the year, it's going to gross up the number that you got in dividend by the amount that was withheld on the front end. So this is a pretty

fun stuff to talk through. Nonetheless, you do need to file the foreign tax credit on your return to get that back. There's some thresholds and all this stuff is just unique to individual circumstances. So my comments are not like a personal advice or anything on the tax side, but that's just how mechanically it works. Yes, countries have to withhold taxes between borders and then the net flows down to you as an ETF holder. And then there's the foreign tax credit that you can elect to get that stuff back and vice versa, other countries do the same thing so that it smooths out the investment paradigm. Otherwise, you'd end up with just domestic ownership in this country and then domestic ownership in other countries. And that's not what most countries want. They want to attract

capital from other countries across the world. So they've level the playing field. That's what I've got in there today. Really, it was a CPI day. And so I'm going to just leave it there with those comments. But I'll be back with you tomorrow. So for that, I'll let you get into your evening. Thanks for listening to the Dividend Cafe. Group is a group of investment professionals registered with High Tower Securities LLC, member FINRA and SIPC, and with High Tower Advisors LLC, a registered investment advisor with the SEC. Securities are offered through High Tower Securities LLC. Advisory services are offered through High Tower Advisors LLC. This is not an offer to buy or sell securities. No

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