The Dividend Cafe

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The DC Today - Wednesday, December 6, 2023 Dec 06, 2023

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Today's Post - https://bahnsen.co/486oKwS

If you’re surprised by how much expectations have turned down for U.S. interest rates and Fed policy in 2024, you should see what those crazy cats in Europe have going. Markets are now fully pricing in SIX rate cuts next year – 1.5% reduction in their lending rate.

Bank CEOs testified before the Senate finance committee today, making the case that the planned increase in capital requirements would be detrimental. They specifically pointed to where the cost of such increased capital would come from – customers. A not-unexpected talk.

Former House Speaker Kevin McCarthy (Bakersfield, CA) announced his resignation from Congress today. I hereby predict he will make more money in 2024 than he did in 2023.

Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

The DC Today - Tuesday, December 5, 2023 Dec 05, 2023

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Today's Post - https://bahnsen.co/4a8TMWG

As we get ready for a busy week of jobs data a few things stick out:

(1) The weekly jobless claims remain very low which seems to indicate a continued healthy employment market

(2) The “quits” rate (people voluntarily leaving their job) has been very high, and even as it has come down from early 2022 highs, it remains very elevated historically

(3) The number of job openings remains very high (though it fell to 8.7 million this month, still 1.5-2 million higher than pre-COVID average, but well off 2021 highs)

(4) The average work week has steadily declined on the margin (from 35 hours, which was above the 15-year average, to 34.25 hours, which is below the average).

(5) Several data points have softened in recent months, but not softened to what can be called “weak” conditions – just “less strong” than had been the case previously

A few other market tidbits and things that caught my eye today …

It is interesting to me that small cap value has outperformed growth since the turn in the middle of the year, but large cap growth has modestly outperformed large cap value. The two are normally correlated.

Some of the “big seven” names that have driven a lot of the market this year have not moved at all in six months (well, they have moved up and down, but I mean they currently sit flat from where they were this summer). The broader market has begun playing a little catch-up.

2024 earnings expectations are now up to $246/share in the S&P 500. We are likely going to end at $221 for 2023 so this would mean earnings growth of +11.3% in 2024, rather amazing if it happened. Of course, at that earnings level, the S&P is still trading at an 18.6x multiple (forward projected), and is trading currently at 20.7x.

Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

The DC Today - Monday, December 4, 2023 Dec 04, 2023

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Today's Post - https://bahnsen.co/3uFMLMZ

Ask David

“If you are an investor in a passive index fund, exactly what happens to your equity when that fund/index removes a poor performer, and replaces it with a stock that has recently performed much better? While I suspect that your equity may stay the same upon replacement, it seems intuitively like an example of buying high while selling low. Is there any documented study of index fund performance over time due to the survival bias? Do you have any thoughts on the topic?” ~ Dom

I think I understand what you are saying but actually in this case the survival bias of the index methodology helps its performance over time, not hurts. What you are suggesting makes sense prima facie – that they are adding companies at high prices and removing others at low prices – but the fact of the matter is that the companies removed from the index is very rare, and almost always only happens after the company is broken. A significant amount of companies that have been removed from market indices over the years no longer exist at all, meaning that path from “a low price” to “zero” was never experienced by the index investor. Of course, there are cases when a company is removed from an index and subsequently rallies from a low valuation, but that is much less frequent than the opposite. And all of it is very rare and inconsequential …

Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Artificial Intelligence and The Lessons of DotCom Dec 01, 2023

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Today's Post - https://bahnsen.co/3GnL8pE

Rarely have I hyped up a Dividend Cafe so much and set you all up for such disappointment. The topic I write about today is one that has been on my mind and in my research orbit for a long time, and on a couple occasions I actually teased up that it was coming, only to pull the plug and defer publication to a later date. Well, that later date is today.

We know the huge hype around Artificial Intelligence in 2023 – not merely in stock prices, but throughout society. On a daily basis we hear of some reference to how AI may change education or business or politics or, my favorite, farming. And as is always the case, this “hype” has a foundation to it – there is a profoundly interesting evolution in technology playing out that will change the way a lot of things are done. It will involve policy adaptations, cultural pushback, misallocations, great advancements, and, yes, certain negatives. All of these things are par for the course in a world that grows – that is, a world that was created to see human beings innovate around the raw materials they were given. Someone should write a book! But fundamentally, artificial intelligence is a big deal, even if the early years of its introduction will be filled with misunderstanding and wrongly directed reactions.

But people do not read Dividend Cafe for my assessment on the technological or even cultural context of new innovations. Rather, our job here is to assess a whole host of subjects for their economic and market impact – particularly for investors (and to be more particular than that, for our investors, that is, clients of our firm – or those of you who will be clients of our firm). The Artificial Intelligence story is an investor story, too, and that requires a sober reflection on a lot of things. Today’s Dividend Cafe is that sober reflection.

Let’s jump into the Dividend Cafe …

Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

The DC Today - Thursday, November 30, 2023 Nov 30, 2023

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Today's Post - https://bahnsen.co/4115jTU

A BIG divergence today between the more value oriented DOW which jumped 520 points today, and the more technology heavy Nasdaq down .23% as interest rates broke the trend and rose today. Coincidently, I wrote yesterday about the sensitivity in the part to the market that has had the most multiple expansion tethered to falling rates as having potential for disappointment. Both PCE inflation data coming out in-line with expectations and a stronger growth print in the Chicago PMI’s moved rates up today as much as yesterdays decline in continued bond market volatility.

Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

The DC Today - Wednesday, November 29, 2023 Nov 29, 2023

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Today's Post - https://bahnsen.co/3N5Ec4C

A mixed but ultimately flat day of trading in stocks following another decent move up in bonds as the 10 Yr came down another 8bps to 4.26%. Hard to believe we were north of 5% just last month. I was actually expecting yields on 10’s to pick back up after a better than expected upward revision to Q3 GDP mid morning, but this bond market is dead set on lower rates in 2024. All eyes will be on the inflation read tomorrow with PCE to see if that changes the narrative.

If the seven largest US technology companies were its own sector it would make up 18.2% of the market cap of the MSCI World Index and account for only 10% of the earnings. In comparison, the entire Financials sector in the MSCI World index equates to three precent less at 15.1% by market cap, but makes up over twice the earnings at 21.9%. Valuations may be a poor timing tool short term, but they do matter longer term and the multiple expansion in tech we have just seen can be easily disappointed if lower rates don’t keep pace next year.

Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

The DC Today - Tuesday, November 28, 2023 Nov 28, 2023

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Today's Post - https://bahnsen.co/3Gl2T9d

The market is up over 10% in just twenty trading days, a 99th percentile move if there ever was one. The rally has brought along lower-quality equities and higher-quality ones, and financials, in particular, are surprisingly strong. Defensives are not as strong (consumer staples, utilities) as more cyclical or high beta sectors, but they are hanging in there.

The dollar has dropped, and the Yen has rallied in the last few weeks, causing many currency traders to say, “Wait, it wasn’t supposed to do that?”

Markets were pretty boring again today (though to the upside), and bond yields continued their decline.

Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

The DC Today - Monday, November 27, 2023 Nov 27, 2023

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Today's Post - https://bahnsen.co/3sYDwqz

Futures opened last night down -40 points or so, worsened a bit throughout the evening, and this morning pointed again to a down -40 point open pre-market. The market opened pretty flat this morning and just stayed in a tight range to the downside throughout the day. The Dow closed down -57 points (-0.16%) with the S&P 500 down -0.20% and the Nasdaq down -0.07%.

*CNBC, DJIA, Nov. 27, 2023

As a contrarian, I do not like seeing the put/call ratio and bull/bear sentiment be so tilted towards complacency. Even the VIX at $12.69 is pretty surreal. The ten-year bond yield closed today at 4.39%, down almost -10 basis points on the day as the November bond rally continues Top-performing sector for the day: Real Estate (+0.38%) Bottom-performing sector for the day: Health Care (-0.64%)

Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Thanksgiving Edition 2023 Nov 22, 2023

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Today's Post - https://bahnsen.co/3SR97oG

On this special Wednesday Dividend Cafe, just one day before Thanksgiving and sixty years to the day after John F. Kennedy was assassinated and C.S. Lewis passed into glory, it is my sincere pleasure to bring you the annual Thanksgiving Day edition of the Dividend Cafe!

Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

The DC Today - Monday, November 20, 2023 Nov 20, 2023

Show notes

Today's Post - https://bahnsen.co/47JhGpJ

Futures markets in the fed funds rate now show a 0% chance of any future rate hikes in 2023 or 2024, but then show mixed results around when rate cuts may begin (a 35% chance in March, a 65% chance by early May, an 88% chance by June). Those numbers will all change, but it is where the debate lies entering 2024. The Fed balance sheet sits at $7.8 trillion right now, down $1.2 trillion from its high, but still 88% above pre-COVID levels.

Will the Fed’s inevitable cutting of rates be a good thing for markets? I wonder what you think? Let me put it this way … is it even possible to answer that question without any further information? Hint: It is not. Two things have to be known to better answer that question. (1) Was the cut a surprise or well-telegraphed, and (b) What. Was. The. Reason. For. The. Cut. Beware of anyone assuming rate cuts are good without a discussion of that second question.

Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

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