Dear Valued Clients and Friends –
Still spinning a bit from last week in the city and barely catching my sea legs back in Newport Beach, today’s Dividend Cafe is a classic “around the horn” …
Dividend Cafe provided some high-level takeaways from last week’s barrage of meetings with money managers in New York City. Some of these will grab you. [Very] long form notes from the meetings are available upon request. The written version of Dividend Cafe 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 within a few minutes, the Dow was down -300 points while the S&P and Nasdaq were up. The Dow then came back to near even, and all three indices remained around their mid-morning levels for the rest of the day.
- The Dow closed down -63 points (-0.14%) with the S&P 500 up +0.36% and the Nasdaq up +0.71%
*CNBC, DJIA, October 6, 2025
- September was the fifth month in a row of a positive return in the market. I see that there have been five times that the market was up five months in a row since 2009 where it went on to be positive a sixth month in a row, and six times that the market had been up five months in a row and went down in the next month. So there you go, market timers … (h/t Callum Thomas)
- I think you all know how much I hate things like this, but I share them anyway, so what does that say about me? As we get closer to a “mid-term election year” (2026), I found it interesting that the average drawdown in the market in such years is -19%, whereas the average drawdown in all other years is just -12%. So, in other words, there is something in the historical record that suggests midterm election years can be more volatile than the rest. Now, that said, averages combine data from above and below the mean (by definition), and therefore tell you nothing predictive, ever. And THAT is why I chose to share this factoid.
- Another factoid that should be read and then not acted upon: the Health Care sector has outperformed the S&P 500 in 11 of the past 13 midterm election years.
- The ten-year bond yield closed today at 4.16%, up four basis points on the day.
- Top-performing sector for the day: Consumer Discretionary (+1.05%)
- Bottom-performing sector for the day: Real Estate (-0.99%)
- 68% of the S&P 500 is above its 200-day moving average. This is decent breadth – not great, not robust – but decent.
- On the defensives front, Health Care has turned dramatically (and positively), with Consumer Staples and REITs continuing to lag. And the Utilities correlation to data center is leaving us with one less sector that can accurately be called “defensive.”
Top News Stories
- Some potential ceasefire in Gaza with an Israeli hostage release is not a fait accompli, but looks more likely than it has in some time. There is a lot of wood to chop on implementation details but the talks continue with the various parties and decision-makers.
- Sanae Takaichi has been elected the first woman Prime Minister of Japan. What I know about her is that Margaret Thatcher is a hero of hers, and that may be all I need to know.
Public Policy
- It is old news by now, but the huge rally in big pharma stocks last week was a by-product of the administration’s decision to waive tariffs on the big drugmakers for three years (I assume everyone knows we have a new election in three years). The companies receiving waivers from the tariffs will participate in a government purchasing platform selling their drugs at a discount (basically at Medicaid pricing).
- The Trump administration is looking to provide $10-14 billion of aid to soybean farmers who are getting hammered by the impact of the current trade and tariff regime. The first tranche of bailout payments will go out in the coming weeks. Obviously, the administration has been rather adamant that their tariff policies are “helping Americans,” so this move is quite noteworthy in its underlying implication that some Americans are suffering from the tariffs so much as to need $14 billion of federal government aid.
- Do the NJ and VA governor races next month really matter to the whole country? No, not especially. And let’s just say they end up with a result in line with the polling, and in line with voter registrations, and in line with expectations … then they really don’t mean or indicate much. But where it would potentially be of interest to the country entering the midterm year is if there was a surprise in the results (one way or the other), matched in both races, so as to indicate a trend. For example, an outsized Democrat victory that indicates a shift in public sentiment from the 2024 results (not the expected size victory, but an outsized one). Or on the flipside, a surprise Republican victory (or hyper-tight race in these reliably blue states) that indicated a stronger energy to the Republican side and a lack of diminished 2024 momentum. I personally am skeptical of either, but I believe that one of those two outliers (confirmed by the other race as well) is the only way these races tell us much about the state of the electorate going into 2026.
Economic Front
- The ISM Services sector declined to 50 in September (the level at which there was neither contraction nor expansion). A 51.7 expansion had been the consensus expectation. New Orders declined quite a bit. Supplier Deliveries picked up a tad. Business Activity fell a meaningful amount. The results across various sectors were quite divergent.
- Auto sales hit 16.39 million in September (annualized), higher than a year ago as Electric Vehicle sales were accelerated in advance of the expiration of the $7,500 tax credit. We remain about a million cars per year below the sales pace of 2019.
Housing & Mortgage
- The Case-Shiller Home Price Index was down month-over-month for the fifth month in a row. Year-over-year moves, despite this supply shortage and volume decline, are currently at just +1.7%, with many heated markets seeing year-over-year declines.
Federal Reserve
- The courts have ruled that Lisa Cook can stay in her job as Fed governor for now, though in January the Supreme Court will review the matter in detail to see if the President had the authority to do as he did in this instance.
- Updated futures watch: A 95% chance of a quarter-point cut at the Oct. 29 meeting; an 84% chance of another cut at the Dec. 10 meeting six weeks later.
Oil and Energy
- WTI Crude closed at $61.72, pretty flat on the day. This is up a dollar from the lows of Friday, as the OPEC+ announcement of a 137k increase in barrels per day was well lower than had been rumored last week.
- Midstream stocks were down last week as crude oil dropped a substantial -7.4% over the same period. Overall, midstream was up about +1.3% in Q3 thanks to positive attribution from C-Corps and Canadians, but pure MLPs were down on the quarter (after eleven consecutive positive quarters).
- We met with our midstream energy manager for a couple of hours last week. Not only are those notes and takeaways covered in my long-form notes, but I will add some “summary” in the Daily Recap this week.
Ask TBG
| “What are your thoughts on a dividend portfolio company where there are fundamental challenges that bring the stock price down, but the dividend continues to be paid?” ~ Pete M. |
| If a well-run company with exquisite management and strategy runs into cyclical headwinds that last a long time, pressuring the stock price for a long time, but with no dividend cut, I would be elated. I love long slogs where the high yield is sustained (large income to withdrawers; huge reinvestment to accumulators). The problem with long slogs is where the dividend is threatened. We have to look to the fundamentals and capital structure to assess dividend sustainability, which can be a fallible process. But no, a declining stock price is not a bad thing for a company whose dividend will be grown and sustained; it is a blessing. ~ David L. Bahnsen |
On Deck
- A Dividend Cafe this Friday, dedicated to the subject of investing in a time of “great hype”
My son and I enjoyed a front row view of the Cowboys beating up the Jets in MetLife Stadium yesterday. I then flew to California after the game, landing in the middle of the night, and have enjoyed a heavy day of discussions with our investment committee and traders about some portfolio activity we have planned. I am off to Dallas for 24 hours tomorrow and then back to the Newport Beach office for a few days. Reach out as needed, any time, and enjoy your Monday night!
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.
