Dear Valued Clients and Friends –
A classic “around the horn” Monday Dividend Cafe today.
Dividend Cafe did a deep dive into the real state of U.S. manufacturing and attempted to draw some specific conclusions for your succinct benefit. The written version is here (my favorite), the video (with charts) is here, and the podcast is here.
I was on Varney & Co. this morning talking tariffs and the EU trade deal.
Off we go …
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Market Action
- The market opened pretty flat today and zigged and zagged a bit throughout the day, mostly lower than the open.
- The Dow closed down -64 points (-0.14%) with the S&P 500 flat and the Nasdaq up +0.33%.
*CNBC, DJIA, July 28, 2025
- 67% of the S&P 500 names are now about their 200-day moving average, a high YTD for this metric of market participation.
- Four mega-cap tech companies with a combined market cap of over $11 trillion report earnings results this week (Microsoft, Meta, Apple, and Amazon).
- The ten-year bond yield closed today at 4.41%, up 2.8 basis points on the day.
- Top-performing sector for the day: Energy (+1.15%)
- Bottom-performing sector for the day: Real Estate (-1.75%)
- In one thing that may not make President Trump happy today, the dollar rallied over +1% and the Euro slid the most it has in two months (currency adjustment being the easiest way to pay for tariffs, in case you hadn’t heard).
- All of the talk of markets moving higher has covered the fact that we have also gone 23 trading days without a 1% move (up or down), which is a long time. Volatility is substantially lower as markets have increasingly shaved off from the left tail and right tail of probabilities. Speculation is still doing very well, and earnings season has not yet given enough information to fuel more rally or dump water on it.
Public Policy
- The big news of the weekend was the announcement of a deal with the European Union, avoiding more trade war drama come this weekend. A baseline tariff is being set at 15% and the EU is making various purchase and investment commitments, including a big focus in the energy space (i.e. liquefied natural gas). The tariffs will be 0% (mutually) for aircraft, semiconductors, certain drugs, and certain chemicals. There is ambiguity on what the deal is around steel and aluminum (a quota system still to be negotiated), and no written agreement has been provided by either side.
- The deadline sits at August 12 for more finality in China trade talks, but preliminary deals have already been announced twice, so there is more presumption of a pending deal.
- Besides China, pending trade deals still include those with India, South Korea, Canada, Mexico, and Taiwan. The country where talks appear to be the most strained is Brazil.
Economic Front
- New orders for durable goods declined -9.3% in June, which was actually better than the 10.7% decline that had been expected. Commercial aircraft was the major explanation for the decline. Ex-aircraft were down -0.7% on the month (after being up 2% the month prior).
- Initial jobless claims came in at 217k for the week, below expectations and below the recent range. That average rolling range of 220-225k has stayed quite constant for quite some time.
- There is a lot I do not like in the general framework of trade deals that have been announced so far, but there are some components I do like, and other elements that simply need for clarity. I actually have a lot more to say in this coming Friday’s Dividend Cafe about how all of this will need to be measured and understood in the months and years to come. But for the short term, one underrated plus to the new deals is not related to anything specifically in the deals – it is just in whatever clarity the deals provide. Whether good or bad (or both), providing businesses with the certainty they need to adjust their ordering plans, hiring plans, and other economic decisions accordingly is a good thing for the economy in the months to come. Always favor clarity over confusion.
Housing & Mortgage
- Existing home sales declined -2.7% in June. Sales are running about 1.3 million homes per year less than the pre-COVID average, and over 2.5 million less than the during-COVID average (2020-2022). The current pace is the slowest pace in thirty years.
- The average 30-year mortgage rate one year ago: 6.84%. The average 30-year mortgage rate right now: 6.84%.
- Now this could be interesting: The President is floating the idea of eliminating capital gain taxes when one sells their primary residence (there is currently capital gain taxes after $250k of gains for a single; $500k of gains for a married couple). That exclusion amount has been the same since 1997. At the very least, I expect some inflation adjustment to the exclusion, but if they can come up with the right “pay for” I can see this getting traction as a way of moving activity in housing. Approximately 30 million homeowners have equity in their homes in excess of the exclusion amount.
Federal Reserve
- The FOMC meets this week and will make its announcement on Wednesday. The odds of a rate cut this week are very near 0%, but are at 63% for a cut in September.
- I talked a lot about the Fed on Fox Business Friday
Oil and Energy
- WTI Crude closed at $67.09, up +3% on the day.
- The biggest news of the European Union deal is the commitment to buy hundreds of billions of dollars of energy commodities from the U.S. (mostly natural gas).
- Across the midstream space, we are looking at average dividend growth of about 7% (with some well above that) and a net debt/EBITDA of just 3.5x, well below what had become 5x less than a decade ago.
Ask TBG
| “Would you please clarify for me what you mean when you refer to the lack of participation in manufacturing as a cultural and spiritual problem. I think I agree with you, but I’m not sure if I grasp your whole meaning when you say here: ‘Never misidentify a cultural problem as a policy problem. The fundamental malady that has led to a decline in labor participation is spiritual at root, and not fixable from Washington D.C.” ~ Mark K. |
| There are two different things going on here: you correctly quote what I said: “The fundamental malady that has led to a decline in labor participation.”
But your question is different: “When you refer to the lack of participation in manufacturing as a cultural and spiritual problem.” Those are two different things. It is not the reallocation of the labor force to be less manufacturing-oriented that I am identifying as a cultural malady (as hopefully my whole article made clear). It is, much more specifically, the general decline of workers, decline of labor participation, and absence of able-bodied men interested in being productive. That was the subject of my last book. |
On Deck
- The Fed meets this week and will announce no rate change this Wednesday, but should telegraph its plans for the September meeting from there
- The first read for Q2 GDP growth is coming this week, and we expect a massive reversal of last quarter’s surge in imports. Everywhere one looks, there has been front-running of activity, and it is going to create lumps and anomalies that will require more analysis in the data than normal. It is also likely to generate more disingenuous commentary than normal, and that is saying something
This Friday’s Dividend Cafe will look at some economic questions about the tariffs that will allow their most ardent defenders and passionate critics to objectively assess how they have played out down the line. Not in three more tweets, or three more weeks, or even three more months, but in three more quarters, and three more years, and plenty in between … And it is a Dividend Cafe that I cannot wait to hit send on. In the meantime, send questions our way, and have a wonderful week.
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.
