Dear Valued Clients and Friends –
We celebrated the opening of our brand new office in New York City today (at 1330 Sixth Avenue between 53rd and 54th streets)… A huge shout-out to the TBG Experience Department that drove this beauty home… Come visit anytime!
Here is also a video showing the new office.
Dividend Cafe looked at the downs and ups of the market as of late, the lost art of asset allocation, and a first glance look at some economic proposals from the Kamala Harris campaign. The written version is here (my favorite), the video is here, and the podcast is here.
But wait, there’s more. Our Planning Department Director, Matthew Gregory, has laid out all you need to know about the new IRS regulations on the Secure Act 2.0, what they mean for IRA distributions and RMD’s, etc. Check it out here, and just know that we will be putting more content at Dividend Cafe from our Planning, Tax, Risk, and Estate Departments going forward!
Off we go…
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Market Action
- Markets opened up about +80 points this morning and rallied higher from there before stopping and starting a few times throughout the day, ultimately closing near the high of the day.
- The Dow closed up another +237 points (+0.58%), with the S&P 500 up +0.97% and the Nasdaq up +1.39%.
*CNBC, DJIA, Aug. 19, 2024
- So, the U.S. dollar dropped a couple of percent at the beginning of the month, and the market was getting smoked. The market has rallied huge since then, meaning the U.S. dollar has reversed, too. No, the dollar has dropped further. I learned a long time ago that nothing will ever be a more convenient scapegoat for why risk assets drop OR rise than the U.S. dollar (dropping OR rising). The way in which the dollar is used to explain up AND down is like nothing I have ever seen in my life.
- The ten-year bond yield closed today at 3.87%, down 1.7 basis points on the day.
- Top-performing sector for the day: Technology & Communication Services (+1.44%)
- Bottom-performing sector for the day: Consumer Staples (+0.32%) – all sectors in positive territory.
- Lawrence McDonald pointed out over the weekend that since 2021, Bitcoin has gone from $59,000 to, well, $59,000, with -82%, -58%, -65%, and -75% drops in value over the last ten years. It becomes harder to take seriously the “store of value” argument with these metrics. Some might even say prices have been higher in the last three years.
Public Policy
- With the IRS finally providing guidance and elaboration on many of the unspecified components of the SECURE Act (version 2.0 was passed in 2022 and updated many of the rules around retirement accounts, required distributions, etc.), after going two years without certain components of the act really clarified or specified, the IRS provided their guidelines, and our own Planning Director, Matthew Gregory, has broken it all down for you here.
- There has been lots of discussion about the policy particulars put forward by Vice President Harris on Friday, and I offered my perspective on price controls and housing subsidies here. I will have more to say in written form this week.
Economic Front
- Small Business Optimism (NFIB) dropped when the Fed began tightening rates in mid-2022, and it has now come back to the same level as when Fed tightening began.
Housing & Mortgage
- It appears that there is a model out there for bringing down shelter costs and increasing the supply of available homes (for rent or purchase). New Argentinian President, Javier Milei, repealed rent control and available supply has increased +195%, resulting in a massive drop in prices.
- Housing starts declined -6.8% in July, and are down -16% versus a year ago. Both single and multi family new starts are way, way down.
Federal Reserve
- We now sit at a 72% chance of a quarter-point rate cut at the September FOMC meeting and a 28% chance of a half-point cut. I suspect those numbers could change one way or the other when we get the August jobs report the first week of September. The futures market gets more complicated into November and December across multiple possibilities of rate levels, with different timing expectations for different amounts of rate cuts, but the major thrust of debate is whether or not we end the year 75 basis points or 100 basis points lower than we are now.
- The market has priced in 2% of cuts (from 5.5% to 3.5% by the end of 2025). It really becomes much less relevant when meeting to see what level of cut in the short term when the market thinks rates are coming that much lower.
- Chairman Powell will speak at Jackson Hole this weekend, the site of the famous annual symposium, and CNBC will be there. Market watchers will be looking for any clues they can find about what is in store for interest rates, and I will be watching for any clues I can find about quantitative tightening.
Oil and Energy
- WTI Crude closed at $73.81, up just a tad on the day.
- Midstream was up another +2% (plus change) last week. It was a solid earnings season for the sector, and more and more analysts seem to feel that demand is too strong for any particular election outcome to sustainably hurt the space (I agree).
Ask TBG
| “I am hearing more and more that as passive investments take up a larger space in the ETF/Mutual fund world, they will eventually cause some sort of an implosion in the equity markets. Do you see the rise of passive/index investments as causing an imbalance in the system that can have a negative effect on mom-and-pop retail investors who stay invested through the ups and downs?” ~ Dan C. |
| I do believe there is a risk building up, but I don’t think it is the same risk you are describing. I essentially believe that cap-weighted indexes have allowed greater ownership into the highest cap weightings, allowed great demand to surface, and allowed valuations to stay elevated where they would not without the benefit of index purchases. So I don’t think it is a risk for me and for our clients, and I do not think it is a risk for the financial system, per se, but I do believe it has exacerbated the market risk for cap-weighted index investors and for those who own the 5-7 big tech names that are at the heart of that story. But it has to be said that the downside I am referring to only exists for the same reason the upside story does. In other words, this cuts both ways. Will there be significant extra “forced selling” in those names at some point in the future? I reckon there will be. But, of course, the “forced buying” along the way has not exactly been problematic to people. |
| “It’s interesting that you chose to focus on a three-year time frame to support your point [about the Nasdaq’s very low return per year the last three years]. However, your data selection seems a bit selective and doesn’t present the full picture. If we broaden the scope, we can see that over the past five years, the Nasdaq is up by 60%, and just in the past year, it’s up by 26%. These figures suggest a significantly different narrative, one that highlights the strong upward movement of the market.” ~ Patrick B. |
| Your point would be correct if it weren’t missing the point entirely. We do not believe the range-bound market began five years ago, or fifteen years ago, or one hundred years ago. We believe it began when the 2009-2021 bull market ended, and the 2021 range-bound market began, which makes our choice of time, well, exactly right.
If the accurate market return of a given time period is to be ignored for the sake of longer periods, why stop at five years (I would add, why not go 25 years and start at March 2000 – it’s not pretty)? Cherry-picking years to include unprecedented multiple expansion seems selective and reality-distortive (sound familiar?). I do not deny the upward trajectory of markets over long-term periods. However, upward trajectories over long periods are filled with intermittent range-bound markets. Case in point: Late 2021 through ___ (TBD). It is malpractice to not see and understand this. |
On Deck
- Jackson Hole’s symposium begins this Thursday and will go into Friday.
Reach out with questions, and thank you for being a part of this Monday Dividend Cafe. It is one of my favorite things to write, and I am grateful for the positive encouragement many of you send.
With regards,
David L. Bahnsen
Chief Investment Officer, Managing Partner
dbahnsen@thebahnsengroup.com
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.
