Dear Valued Clients and Friends –
A trip around the horn today, per usual …
Dividend Cafe on Friday looked at five things worth being concerned about in markets and five things that are not. The written version is here (my favorite), the video is here, and the podcast is here.
Off we go …
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Market Action
- Markets opened up by more than 100 points this morning and then went down throughout the day.
- The Dow closed down -307 points (-0.59%) with the S&P 500 down -0.19% and the Nasdaq down -0.05%
*CNBC, DJIA, July 20, 2026
- If you believe the financial company results at the beginning of earnings season are a harbinger of things to come in earnings season, then this is going to be a good earnings season. Of course, it does not always work out that way in the real world, but the financial sector results thus far were quite supportive of the market rotation underway.
- A whopping 50% of Consumer Staples are now at their 20-day highs (which is not a lot, actually, but it is the most momentum internal to the sector in a while).
- The ten-year bond yield closed today at 4.59%, up five basis points on the day
- Top-performing sector for the day: Communication Services (+0.74%) and Energy (+0.55%)
- Bottom-performing sector for the day: Health Care (-1.15%)
- SpaceX IPO watch: Now at $119.85 (IPO price $135, first trade $150, high trade $225.64) – down -47% from its high; every investor since the IPO is underwater.
Top News Stories
- With more American casualties over the weekend in Iran and oil prices back above $82, we are nowhere near the Iran matter “leaving the headlines.” Mark Halperin’s summary this morning that the only three options are (1) Walk away, (2) Return to all-out war, or (3) Continue with little tit-for-tat escalations, seems like the right framing to me, as does his suggestion that none of these are great options, as does his suggestion that the President is obviously going to pick #3. Watching closely.
Public Policy
- The Democrats’ special convention to replace their nominee for the U.S. Senate race in Maine will not be until this Saturday, but the only candidate effectively left is the progressive populist, Troy Jackson, who will be the nominee. Backed by the Democratic Socialists of America and Our Revolution, the U.S. Senate race in Maine represents the most prominent contested race in this November’s election to feature a candidate of these progressive, socialist bona fides. The Democrats’ fight for a U.S. Senate majority may not happen if they win the Maine race, but it surely will not happen if they do not.
- A huge thing that has benefited the Democrats in the last two weeks is the consolidation of support behind Haley Stevens as the nominee in Michigan, coming from behind to [apparently] be in a position to defeat the far more progressive and controversial candidate, Abdul el-Sayed, for the Michigan U.S. Senate seat nomination. Again, holding a Democrat seat in Michigan is not going to help the Democrats pick up a net four seats in the Senate, BUT losing a seat they already held would guarantee they don’t.
- At this time, I would say the Democrats are very likely to hold in Michigan, Georgia, and New Hampshire, and very likely to pick up in North Carolina. Could they pick up in Ohio, or Alaska, or even Maine? Yes. Could they pick up all of them? Highly unlikely.
Economic Front
- I thought this was a helpful indicator of how many economic conditions have hung in there much better than was understandably feared a year ago. Between the Trump administration’s reversals on prior threats and, of course, the Supreme Court IEEPA ruling, the effective U.S. tariff rate has come down by more than 30% from where it was going into Q4 (from 11% to 6.5%). This is the monthly calculated duty divided by total U.S. imports. It represents a marginal cost to American businesses, and while it remains much higher than I want it to be, it is much lower than where it was.
- There are 105.8 million people in America outside the labor force, the highest ever (as 832,000 left the labor force last month).
- Industrial Production increased +0.1% in June, slightly less than had been expected. Utilities output and Mining drove the increase, while Manufacturing and Capacity Utilization were unchanged
- Import prices were up +0.3% on the month (expectations were for a 0.7% drop). Keep in mind prices had jumped +1.7% in May, as well. All in, import prices are up +7.1% over the last year. They are still up +4.4% year-over-year when excluding energy! But, you know, tariffs don’t add to prices … Ay yi yi
Housing & Mortgage
- New housing starts are up +3.5%, versus a year ago, though single-family starts actually declined in June (multi-family drove the increase). The lousy details under the decent headline reflect permits for single-family homes down on the year, and the +17% increase in multi-family starts is substantially skewing the numbers of the real housing stock needed: More single-family supply!
Federal Reserve
- Next week is the second FOMC meeting since Kevin Warsh became the new Fed chairman, and really the first in terms of a meeting free of the “introductory drama” that the last meeting had. The futures market suggests a 16% probability of a rate hike next week, so that is not very high. Futures markets also suggest an 83% chance of some hike between now and the end of the year.
- The Fed is not yet shrinking the assets on its balance sheet, but they are certainly shortening the maturity of the bonds it owns, with Warsh making clear there are plans for more of that.
Oil and Energy
- WTI Crude closed at $83.01, up +0.63% on the day
- Midstream was up about +2.5% last week as the Energy sector at large rallied with oil prices up over +15% behind renewed tensions in the not-at-all-done problems in Iran. Kinder Morgan (KMI) announces quarterly results this week, launching an earnings season for midstream that should be interesting.
- The average price of gasoline did get back above $4/gallon nationwide this week.
Ask TBG
| “Is there ever a time for shorting? If healthy fundamentals are missing (such as companies having a high P/E, low free cash flow, unprofitability, etc.), should a longer term non-levered short position be considered?” ~ R.M |
| First of all, before I answer, let’s make sure we understand something … there is no such thing as a non-levered short position. By definition, all “shorting” involves borrowing an asset you do not own so that you can sell it, with the hope of buying it back at a lower price later, and returning it to whom you borrowed it from (generally a broker). Shorting = leverage. That said, the challenge in the question (besides that it requires an investor to take leverage and much greater risk than what trades are prepaid for with one’s own money up front) is that it presupposes “missing healthy fundamentals” means stock prices will go down – and it simply doesn’t. Fundamentals may come to the fray later. Markets may go a long, long time without caring. Another company could buy a weak fundamental company (for a variety of reasons) and rip the face off of a short. I could go on and on and not give a thousand examples, but many thousands. Even if the desired short truly reflects something irrational, as one of my least favorite economists once astutely said, “markets can stay irrational longer than you can solvent.” |
On Deck
- Clients will receive their Weekly Portfolio Holdings Report on Wednesday, and earnings season is well underway.
More to Chew on
- Even political moderates know government-owned AI is a terrible idea
- Chinese competition is real. And relevant to economics.
Enjoy your evening and reach out with any questions!
With regards,
David L. Bahnsen
Chief Investment Officer, Managing Partner
The Bahnsen Group
www.thebahnsengroup.com
The Dividend Cafe features research from S&P, Baird, Barclays, Goldman Sachs, and the IRN research platform of FactSet.
