Dear Valued Clients and Friends –
If you missed the announcement of our new office in Santa Barbara, check it out here! An exciting day for all of us at The Bahnsen Group …
Dividend Cafe on Friday looked at our recent money manager week of meetings with a particular focus on management discipline and philosophy, and a list of various takeaways. 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 flattish this morning and closed flattish after a few zigs and zags along the way, but the S&P and Nasdaq were basically in the green all day today.
- The Dow closed down -36 points (-0.07%) with the S&P 500 up +0.41% and the Nasdaq up +1.11%
*CNBC, DJIA, October 19, 2026
- So the market was up in September even as more and more companies were falling below their 50-day and 200-day moving averages, right? “Paradoxically,” as the market index moved higher, more companies were going down. I have written about this collapsing of breadth at great length. But it works the other way, too, right? Last week the S&P 500 was DOWN -1.9%, but 40% of the market constituents traded to a 20-day high last week. Rotation and market breadth and market concentration are all zigging and zagging, and it is quite odd. It also is a market dynamic that has only been seen before in much less magnitude (degree) than it is being seen now.
- The carnage in certain parts of the AI pick-and-shovel story last week goes beyond mere “profit taking” or concerns of “valuation excess.” Fundamentally, a conflation of concerns about funding costs and the rate of growth of AI capex have called certain elements of the story into question. No one is claiming AI capex is going backward, but if the rate of growth is slowing or changing, that has a domino effect on so many other things.
- The ten-year bond yield closed today at 5.14%, up four basis points on the day
- Top-performing sector for the day: Consumer Discretionary (+2.73%)
- Bottom-performing sector for the day: Utilities (-1.97%)
- This grabbed me from last week’s quarterly results from the glut of financial companies that reported … For the first time ever, Goldman Sachs generated more revenue in lending on equities than they did in trading equities. The financing business to hedge funds (so they can put leverage on their trades) has always been a big business, but now it is bigger than the actual trading of equities itself? Leverage has picked up, and while it is a boon to the business of those providing the lending, it also enhances volatility significantly.
- My friends at Strategas Research have pointed out something very creepy, for those who decided to become South Korea bulls some time in the last year …
Top News Stories
- The largest news story in the world has been the extraordinary riots and social unrest in France. It is estimated that over 550,000 people “protested,” and the protests turned into unbridled rioting and looting rather quickly. It would be tempting to discuss debt that is 119% of GDP and the burden of debt service in the face of rising interest rates, and it would be tempting to address this as a public expression of concern about teacher shortages and school funding. But alas, fringe groups enacting violent outbursts on private businesses, mass looting, and systemic bodily attacks on police don’t align for me with “assembly and protest.” The story here transcends voter angst.
Public Policy
- I’ll spare you final forecasts and polling updates you can get elsewhere for the final two weeks. My view today, fifteen days out from the election, will be the same for the next fifteen days: I think the Senate is a jump ball (50-50) and no one actually knows what will happen when there is literal uncertainty around five, six, and maybe seven seats … And I think the House will flip to the Democrat Party majority, but by less of a margin than some have expressed just due to the lower-than-normal seats that are actually up for grabs. If my forecasts make you mad, please send your email to … =)
Economic Front
- Industrial Production increased +0.7% in September as Utilities output soared. Auto production dropped 3% on the month, but manufacturing was up +0.3%. High-tech equipment production is driving most of this, up +17.6% year-over-year.
- China’s Q3 GDP grew at an annualized pace of +4.5%, in line with expectations.
Housing & Mortgage
- October’s NAHB Home Builder Sentiment Index fell to 29 (from 32), with both Present Situation and Future Outlook dropping, and Prospective Buyer’s Traffic reaching a low it has not seen since 2012.
- The median monthly mortgage payment (principal and interest, but excluding taxes and insurance) was $1,040 in 2020. Today, it is $2,056 – an increase of 100% in six years.
Federal Reserve
- A lot of other Fed governors not named Kevin Warsh have indicated they don’t believe the Fed needs to hike rates at the upcoming meeting. And, indeed, the fed funds futures market implies just a 15% chance that they will (in the October meeting). Chairman Warsh’s view, though, is that:
“I don’t prejudge meetings. I don’t believe in saying now what I might do at the meetings we have in the balance of this year. It’s a new chapter at the Fed, and we’re not in that business anymore.”
- Whatever one believes should or will happen at the October meeting next week, the market is currently pricing a 90% chance of a hike by the December meeting.
Oil and Energy
- WTI Crude closed at $100.45, down -1% or so on the day
- Midstream was up about +2% last week as oil futures rose, bond yields dropped, utility stocks rallied, and the S&P 500 dropped almost -2%. Kinder Morgan kicks off the sector’s earnings season this week.
Ask TBG
| “If GDP is $32.4 trillion and debt is $40 trillion you are not counting the money we owe to ourselves. We still owe it to the recipients to meet the promises made. I read an article just before I read yours and they used a 120% debt-to-GDP number. Which one is correct?” ~ Joseph O. |
“Public debt” is the amount the federal government owes to “someone else.” That number is where the 100% debt-to-GDP ratio comes from. “Total debt” includes intergovernmental transfers, and that is where the 120% or so number comes from. The reason “public debt” is used is to avoid dishonest weights and measures. Including intergovernmental debt in the numerator of debt-to-GDP is problematic because
The Social Security obligations do have to be paid, but they are unfunded liabilities that count on a different part of the balance sheet and have to be weighed against revenue, which is not a set asset. The public debt and GDP are KNOWN numbers, and they are brutal. I think the public debt ratio is more telling, more contextual, and bad enough as is without the hyperbolic juice of the other number. |
On Deck
- A Dividend Cafe on Friday about the fascinating part of “range-bound markets”
- Earnings season is about to hit the next gear
More to Chew on
- This is interesting logic … If it can cure obesity and heart disease, can I go back to eating fast food?
- The most records broken on any day in the history of college football?
To all, a good Monday night!
With regards,
David L. Bahnsen
Managing Partner, CIO
The Dividend Cafe features research from S&P, Baird, Barclays, Goldman Sachs, and the IRN research platform of FactSet.
