The Dividend Cafe - Wednesday - September 30, 2026

Episode Date: September 30, 2026

On Sept. 30, Brian Szytel reports a bifurcated market into quarter-end, with the Dow down about 200 points while the S&P 500 and Nasdaq rise, led by large-cap growth; yields steepen as the 10-year and 30-year move higher. A cooler-than-expected PCE inflation report (core and year-over-year) lowers implied odds of an October Fed hike to about 35%, though Friday’s nonfarm payrolls could shift expectations. Other data were stronger: Q2 GDP revised up to 2.2%, ADP payrolls beat estimates, and consumer spending was robust, suggesting the economy is still humming despite high rates and debt concerns. He discusses a shifting Fed “put” narrative and answers why forward PEG ratios can look cheap versus expensive backward-looking metrics: higher expected growth, stronger profitability, and greater index concentration in the “Mag Seven,” with risk that earnings expectations could fall if AI spending disappoints. 00:00 Quarter End Market Recap 00:52 PCE Inflation And Yield Curve 02:07 Fed Hike Odds And Jobs Watch 02:33 GDP Payrolls And Spending 03:28 Bond Vigilantes And The Fed Put 05:35 Valuation Question CAPE Vs PEG 06:30 Tech Boom Comparisons And AI Risk 07:36 Dividend Focused Wrap Up 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. Good evening and welcome back in to Dividend Cafe. This is Brian Saitel with you here from our West Palm Beach, Florida office on this Wednesday, September the 30th. So last day of the quarter here today and markets did give some back here towards the end of the quarter but are still higher. And on the day, the Dow is actually lower. This is actually being recorded a little bit before the close. Call it a half hour. I'm on a flight up to New York for some meetings for the next week and a half.

But I wanted to get this out to you. The market bifurcated. So you had value, blue chip stuff down. And he had growth, particularly some of the large cap, Mac 7 names higher. Dow is down 200 points, roughly. S&P up about a third of a percent. NASDAQ up about 9 tenths of a percent. Ten-year yield was up four,

pieces points. Two-year yield was about flat and 30-year yield was up about eight. And so you've got a bit of a steepening yield curve and there's a reason behind it. We've been talking about a curve flattener now for some time, which is shorter term rates going up higher, faster than longer term, and today was the opposite because you've got PCE numbers that were meaningfully lower than expected. The main number that I'm looking at on those is removing food and energy just because of Iran and all of that has done to some of the energy paradigm. But if you look at headline PCE itself, we got an inline number for the month of three-tenths of a percent. So I'll call that in line, but also a little higher than what the Fed would target. But the year of ear number was

better than expected. We got a 3.4 and what was thought to be was 3.7. So it is moving in the right direction. That's including energy. So if you take energy out, you've got core PCE, about a 10th cooler on the month at 0.2, which is pretty close to in line with what Fed Fed Target is. But then he had the annual number instead of a 3-3 print of 3.0. And again, moving in the right direction, they're trying to get that core PCE number down to 2%. And so progress is being made slowly but surely. But what happened on the day is the steepening of the yield curve. You had a modest lift in risk assets, which is why you had a bifurcated stock market that was up. And then you had the odds of an October Fed rate hike lower by about.

15% we're now at about a 35% chance that they'll hike again in October. I'd say the odds are a little higher than that unless we get some really different numbers, particularly non-farm payrolls, which are going to come out on Friday this week. For some reason, if that really disappointed, I think those odds would change. Nonetheless, that was the main news on the day. It was an inflation rate and basically better than expected, but that's not all, folks, because we also had second quarter GDP revision. This is an estimate come in stronger than we expected. It was a Originally one and a half. Now we're at 2.2. Again, that's real, meaning net of inflation. Then you had an ADP private payroll that printed a 90,000. That was above the 68,000 expected.

So now we're three out of three on the good side. And the fourth was consumer spending. That was a tenth higher than projections at 0.9%. And that's actually a pretty robust number for consumption. So the economy is humming along here, guys. It more or less is. It's hard to argue against that. You could say inflation's a little higher and interest rates are scary and debts are scary and I'm all for all of that. It's all true. But the economy itself is moving along here. Again, we'll be looking at the employment report over the weekend, or I'm sorry, into the weekend on Friday to give you more details on that. But that's my around the horn for you today. The one thing I will say is I do think that the bond market and we can call those bond vigilantes, I suppose, the long end of the curve is repricing towards a Fed that has a shifted narrative. We've talked about this. before instead of the Fed setting the expectations for the market and ultimately repressing interest rates and things, it is following the lead of the markets and setting policy around the markets versus vice versa. Fine. But I think the underlying issue or consideration is that interest rates are being set around this new narrative because there's been a Fed put

since Greenspan, meaning the Fed is going to be this buyer of last resort and maybe even start buying not as a last resort. So we saw those powers really expanded GFC. Again, that was a total credit freeze. They had to do what they had to do. But those powers through SPVs and different partnerships with the Treasury to swap up a bunch of assets were even expanded further during COVID. During Powell's term, people were sick, people were dying, and the former was a credit

freeze. And I understand those things. But nonetheless, this sort of underlying Fed put, it's one thing to say that Warsh doesn't want to use the balance shoot or shrink it. And I know that's true. I agree. But to say that there isn't a Fed put and there isn't a buyer of last resorts or interest rates, and we'll call them bond vigilantes can just rue the day, then I think that's a bit overstepping.

And at the end, I really do think that it's still there. It's just deemphasized. And I'd be surprised if the powers used were as such that we saw during COVID, meaning that they were buying ETFs, high-yield junk bond ETFs and credit and all sorts of different stuff on the balance sheet through these vehicles. I believe Warsh wants to walk that back. And in the meantime, what are you going to get? You don't get financial repression. So you actually get higher growth out of it, but you do get higher interest rates and technically

potentially higher inflation. So it's give and take. And I'd say to keep our spot on the world stage that you would want to emphasize probably growth over financial repression, but that transition is tough. And that's what markets are coming to grips with. I'll shift the gears into the question, which was really a good one from a friend of mine and a colleague actually at the Boston group, Brian Miller. But the question was about when you look backwards and you use the question.

things like the CAPE ratio and certainly backward looking PE ratios and different metrics, Buffet indicator, all the stuff. Everything looks wild. They overextended. It looks super expensive. It's going back. Got it. But even going forward, the issue is if you use a forward-looking peg ratio with an expected

growth rate embedded in current multiples, you actually get a quite low number. Why is that? How is it the market looking cheap going forward in one metric and looking expensive with six other metrics going backwards? My comment is you're underestimating how much growth is expensive. to continue here is the main answer to that. That's my short answer. The denominator being growth expectations being bigger, we'll send the pig ratio with PEs as the numerator. That ratio goes lower over time and it looks more attractive. There's reason for that. Look, all the different

areas of yesteryear are different. The closest one I can come up with is the late 90s because it's the other technology boom. But even compared to that market, it's different. Why is it different? Technically multiples back then were much higher. The multiple was 30 times. We're now So I'll call it 20. Now I'm not saying that's low. I'm just saying it's lower relatively. The other thing is growth now is much higher than it was then. Profitability now is much higher than it was then. And concentration is more now than it was then even if you believe it. Because the top names back in that 99 era, yeah, there was the Cisco's and Microsofts and such, but there was also the Exxons and the GEs in there too. Nowadays, you really just do have the Mag 7 in a big way.

So all that to say, the composition of the index has changed, the forward growth. expectation is higher and the multiple is lower, hence it looks like a cheaper market comparatively. So that's the conundrum. Now, what can happen is that earnings expectations can come down. What can change that? The trillions of dollars being spent on AI may not ultimately pencil as well or as fast. So that's what could happen. I don't know that's a 27 story, but those are the things that can't happen. But my point is just instead of trying to predict some of those things, which is tough and trying to read the tea leaves of yesterday year, I really do think focusing on bottom-up fundamentals and just valuations of today and then free cash flow of today and then a return

of it through rising dividends is a way to mitigate and navigate all those uncertainties in a more reasonable way. So that's my take on it. I hope that's helpful. Okay, with that, I'm going to let you get back in your evening. Thanks for listening. We'll be back with you tomorrow on the dividend cafe. The Bonson Group is a group of investment professionals registered with Hightower Security's LLC, member Finra and SIPC, and with Hightower Advisors, a registered investment advisor with the SEC. are offered through Hightower Securities LLC. Advisory services are offered through Hightower Advisors, LLC. This is not

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