The Dividend Cafe - Wednesday - October 8, 2025

Episode Date: October 8, 2025

Market Recap and Insights: Midstream Energy and Fed Policy In this October 8th episode of Dividend Cafe, Brian Szytel provides a market update, noting that the Dow was flat, while the S&P and Nasdaq showed gains. Key takeaways include the release of the September FOMC meeting minutes, indicating a general consensus on rate cuts despite some divergence in opinion. The episode also delves into the resurgence of M&A activity, IPOs, and positive earning sentiments as significant market drivers. There's a discussion on the midstream energy sector, highlighting its strong performance and the impact of recent tax reforms. Lastly, Sitel addresses a viewer question regarding the seeming contradiction between declining job numbers and a well-performing economy. 00:00 Welcome and Market Overview 00:45 FOMC Meeting Insights 02:08 Market Drivers and Trends 04:06 Midstream Energy Sector Analysis 05:12 Natural Gas and Data Centers 08:58 Economic Indicators and Job Market 10:48 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. I welcome you back into Dividend Cafe. This is Wednesday, October the 8th. Brian Saitel with you here today to give you your market update here, and it was a quiet one, frankly, at that. The Dow was actually flat, completely flat on the day. It was down one point. SMP was up almost six-tenths of a percent and the NASDAQ was up about 1.1%. So you got exactly the polar opposite today from what you saw yesterday, which is the technology and more of the AI trade was back on today. That's why the NASDAQ moved up much more than the Dow, which was flat in some of those dividend or more value-oriented sectors. Ten-year yields were completely flat at 413. It's a quiet

day overall in the markets and there wasn't a lot of economic news out that they did. did release the minutes from the September FOMC meeting, and most of it was as expected. There has been, like I said yesterday, a decent amount of divergence and what people are worried about those voting members in the FOMC between inflation ramping back up if they move rates lower and the offset of the potential of being behind the curve if labor continues to soften. So that said, almost all of them agreed on the 25 basis point rate cut they made, except for, of course, one, which was Miran, who dissented and opted for a 50 basis point rate cut. So they may be questioning back and forth between the members, but they're still largely in unison,

and I think a lot of that has to do with Powell's leadership within the FOMC itself. So there's about 110 basis points of easing through next year priced in. So that brings us close to 3% roughly on Fed funds, give or take. That's a fair amount priced in. And so the markets are well expecting all of this. So just keep that in mind. This rally that we've seen, which is another third year in row, has just been, frankly, robust. And just keep that in mind with the valuation.

But technically on the day, the S&P and the NASDAQ both notched record highs as a close, I mean, if you wanted to add up what all of the bullish points are, which is what is driving those markets, like I mentioned, you've got a lower amount of volatility. VIX has been crushed. It's come down. you've got sort of an animal spirits happening in the M&A arena, and we talked about that coming into this year. We really thought there would be a pickup, but that wasn't really saying much because M&A had been slaughtered and killed and left out back for dead after 2021 when it kind of

hit its frothy peak. It's now starting to revive, and you're seeing more IPOs this year. You're saying more businesses merge and more transactions happen. That's positive for capital markets. There's a generally positive earning sentiment as we come into Q3. There really hasn't been negative earning sentiment in quite some time, frankly. But nonetheless, I'm going to put that on the positive list for what's driving markets. You can see this in ETF flows and just volume in the markets, but you've got retail buying coming into the space. I chucked that up as a negative thing, if you want my take on what that means. Retail is typically always coming in late to the game and right before something changes to the downside.

So something to keep an eye on there. You also have Fed policy easing. We've talked about that, but you have a potential for ending of QT. Remember, quantitative tightening is still ongoing. It's just been whittled down to be very small, but that can end altogether. And then, of course, you've got the good old holiday season, which is seasonality. And believe it or not, the fourth quarter tends to be the most positive one of the year. I'll chalk it up to football season being part of that. I'm kidding there. But positive momentum usually does carry in through the end of the year. You've got holiday shopping. You've got more concerned. activity going on and just a positive backdrop. So that's a long list of pros for the market. And if you're wondering why things keep melting up, those are the reasons. We put a note in there today, a little bit of a lengthy one, but we did 22 of these meetings. One of them was over a lunch meeting at Michaels in New York City. And we've done this meeting for years and years with the same group who manages our midstream energy space. But David included the notes from those meetings. And what we'll say is if this stuff interests you and you want to know what big hedge

fund managers and all of our other portfolio managers are thinking about the world and about the market and about what they're doing to take advantage of making money or what they're looking to avoid, then feel free to reach out because we can email you the notes. I don't think that every client and every listener is going to want to read through them. But if some people are into that and interested in this, it's not something that you're going to read on a newsreel or a media headline. It's much more in the weeds. We take our meetings very seriously with these people. We've gotten an audience to be able to sit across the room from CEOs, from people that run these very large positions, $100 billion plus funds. And so we spend our time wisely

we engage. It's candid. And it's one-on-one in a closed room. So we can ask anything. No holds Bard. So if you want those notes, let us know. But on the natural gas front, I'll say this. Generally speaking, the sentiment is very, very positive. So on the natty gas side, I would say that business is hot. There's a lot of CAP-X going into the space and a lot of demand. And it's frankly needed and there's a big push behind AI-driven data center energy consumption. 40% of the energy in the country is driven by natural gas, but on the data center front, it's more like 70%. And my question was, what was that from?

And I thought it had to do with efficiency and abundance, which those two things were true. but also I asked if it was an environmental thing, just given the big companies that are doing that, those big data center builders in the hyperscalers, as they're called, tend to be a little bit more focused on green energy and things, and that was part of the deal, too. Some of the names are more exposed to the data center deal than other in the midstream space, but nonetheless, it's an energy trade, and that's right at the core of it. It was interesting to hear that the liquid natural gas space is basically now overbuilt in the Permian Basin. a lot of competition in the space. And so the demand front has been a little weaker there and just keep that in mind on that side. So if you're looking across the space and I'm not going to name individual stocks, but we're aware of those different dynamics and were positioned intentionally around them.

Comet also was with the recent legislation on tax reform with OBB and a positive impact on the C-court midsterm names because they're able to fully expense capital expenditure. That's a big deal. So if you're a partnership or some of the other structures, or honestly a Canadian, which is a big sliver in the space, it matters less to you, but those USC Corps benefited from that. We asked about some of the biggest expense structures that they've seen years past. We were concerned about just how efficient they were being with CAPEX. It's really the biggest rise is in labor costs. So to get qualified workers at these places, there's not that many of them. The demand there is very high and the civil high is very low. And so the good thing for those laborers, those employees, is they're making a lot more money than they ever have than the bad thing for the midstream companies.

They're paid for it. That makes sense to me. And that's far and above some other industries, by the way. This particular space is very hot. We've got 27 earnings expectations up about 11 percent behind, again, some of the data center stuff. And to put it in perspective, there's about a trillion and a half dollars being sent on data centers that need energy. And a lot of it, like I said, 70 percent will come from natural gas. So those are big deals.

We did talk about downside risks. We asked them, give us a bearish case. What happens of oil for whatever reason? Russia, Ukraine, ends tomorrow, and supply comes back online. Oil comes down in price to call it the mid-50s. Does that crush the midstream space? And emphatically, it was no. In years past, it would because the cost to pull it out of the ground is so much higher.

It's just so much less now. We're more efficient. Fracking is more efficient. And also, CAPX has been better. And so you've got a break-even point that's just lower than it has been. So it would roll the energy market. Okay. So if oil comes down to 55, just expects stocks will sell off in that space.

I'm not saying that they won't. But it's not like the old days of 2014, 15, and 16 where they really get crushed because of that reason. They'd be just fine. And the last point I'll make is the other reason to that was because they're just economically more viable companies. They're spending a lot on cap X, but the coverage ratios are higher than they ever have been and they're cleaner balance sheets, and they're better run.

So mostly good news on the midstream energy space, if that interests you, it certainly does us. It's a big position for us in the portfolio on the dividend equity side, so we take it seriously. And then having a one-on-one at lunch is just a kid in a candy store for us, so we wanted to share some of the notes. Okay, so a question in there today on the Ask TBG side was everything seems to indicate the economy is doing fine, but I keep reading about declining jobs. Why would jobs be going down if the economy is doing well? So look, there's a couple of different ways to look at the premise, which is maybe the softening job picture is telling you that the economy isn't doing that well, and then maybe

it's trying to predict that it will be softening in the future. I don't think it's either one of those two things. I think it's a both and. There's a component of both of those with a lot of nuances to it, but it's not binary. In other words, we haven't seen the employment picture fall off a cliff to the point in which it would be speaking to a recession. So if that helps ease some of your angst there, that said, we were in the low 200. on jobless claims, and now we're in the mid-200s, and we sort of oscillate between the higher

end of that range now. So it's ticked up a little bit, and again, we're late on non-farm payrolls. We gave some data on it last week, even though we didn't have the number because the government was shut down, but we're waiting for that figure, and we saw the weak ADP private payroll number. So we know that things are slowing to the degree of how much is what the million-dollar question is. For now, I look at it as kind of a meh in the jobs picture. It's not enough to pull things down in the economy, but I would expect things to slow down enough. And that's why they're lowering interest rates. So those two things go hat in hand. The, but yeah, so we're looking at things like firings and hirings. Both of those things same low to us. So there's less movement.

There's less of an upgrade. People were moving jobs for quite a long period of time to try to get a higher salary. We're not saying that as much in the numbers. So it's just become a little bit anemic. You could call that hangover from some tariff angst. Whatever it is, it's there, but it isn't enough to pull down the economy. So that's what I would say about those things. That's more or less what I have for you today on Dividend Cafe. I know that was a decent amount for the day, so a little bit longer, but I hope you got some good nuggets out of it. And again, I'll be with you tomorrow, which will be Thursday on Dividend Cafe, and I'll be writing it. So I'll have plenty to go through with you. But with that, I wish you will. Have a good evening. Reach out with questions. Thank you.

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