Dear Valued Clients and Friends –
Another Monday, another threat of tariffs, but a lot less market care. All this and more in today’s Dividend Cafe!
Dividend Cafe on Friday looked at the history of financial bubbles, the lessons to be learned from financial bubbles, and a current assessment of bubble risk. 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 down about a hundred points this morning after the long holiday weekend and worsened throughout the day behind increasing trade/tariff volatility. They improved off of their lows in the final hour or so of trading.
- The Dow closed down -422 points (-0.94%) with the S&P 500 down -0.79% and the Nasdaq down -0.92%
*CNBC, DJIA, July 7, 2025
- While late June saw market strength focused in big tech and early July saw a rotation into other parts of the market, the reality is that market internals are pretty broad, right now – with over 80% of the names in the S&P 500 trading above their 50-day moving average.
- The ten-year bond yield closed today at 4.38%, up four basis points on the day.
- Top-performing sector for the day: Utilities (+0.17%)
- Bottom-performing sector for the day: Consumer Discretionary (-1.26%)
- Peter Boockvar pointed out this morning that one of the more “bullish” things about this recent market rally was that it was happening from a lot of “bearish” sentiment (which is always true for us contrarians). That said, the sentiment has, shall we say, reversed, with the highest spread between bulls and bears since January in the recent AAII Survey. The Manager Exposure Index is at its highest level since July of last year. And the CNN Fear/Greed Index (which combines seven different indicators) is now at an Extreme Greed reading.
Top News Stories
- I simply can’t even go there on the flash flooding in Central Texas that has now claimed the lives of 82 people and counting. It is just an unspeakable tragedy, and I am unable to get through any article I try to read about it. Words can’t do justice to the emotions around this devastating event.
New Tax Bill
- Yes, the bill was signed into law Friday. No, it was not a market-impact event (as has been long asserted here in the Dividend Cafe).
- Yes, there is a lot to say about the bill that is good, and yes, there is a lot to say about the bill that is bad. I will devote this Friday’s Dividend Cafe to a more focused deep dive on the bill.
Public Policy
- The July 9 tariff deadline has been moved to August 1, with that date apparently flexible as well.
- The 10% tariff rate with the UK (where we run a trade surplus) and a 20% rate with Vietnam (where we run a trade deficit) seem to provide an indicative floor and ceiling of expected tariff rates with other nations. What can’t be captured is the vast amount of exceptions, waivers, and exemptions
- Markets took an additional dive down mid-morning today when President Trump announced a 25% tariff on Japan and South Korea starting August 1. Markets obviously are so used to these announcements and threats that they do not quite respond the way they used to.
- President Trump has threatened additional 10% tariffs on BRICS countries if they “do anti-American policies.” No specifics were given as to what that means.
Economic Front
- The jobs number came in at 147,000 for June, well above the 106,000 consensus. The unemployment rate declined to 4.1%.
- Most of the gains were in the governmental sector, which may surprise people who expected to see DOGE layoffs, but the state and local governmental hiring is the reason for this.
- There was also a decline in private sector hours worked, which dampens the enthusiasm of the report a bit.
- The labor force dropped 130,000 on the month, which is why the unemployment rate ticked down. The direction of the labor participation force is the most distressing data point out there.
- The trade deficit came in at $71.5 billion for May, with exports down by $11.6 billion and imports down by $0.3 billion. Imports had jumped in Q1 in advance of anticipated tariffs, and Q2 saw much of this reverse. Total trade was down $11.9 billion.
- ISM Non-Manufacturing came in at 50.8, bringing Services back into expansion mode (barely), as Services had declined in May. New Orders and Business Activity expanded while Employment Index and Supplier Deliveries declined.
- 45 million people have a student loan with the federally-managed student loan universe (the private student loan market is almost non-existent). 24% of those 45 million borrowers are currently delinquent.
Federal Reserve
- Don’t look now, but we are very close to 100% odds in the futures market of no rate cut here in July.
- We remain at 65% for a cut in September.
- And we remain at 75% that there will be two (44%) or three (28%) cuts by the end of the year.
Oil and Energy
- WTI Crude closed at $68, up +1.5% on the day.
- The U.S. was a net exporter of petroleum for the 39th month in a row.
- Midstream energy rallied in June but not enough to make up for the drop in April, so the sector finished Q2 barely down on the quarter, it’s first negative quarter as a group in nearly three years (had been eleven quarters in a row of positive returns).
Ask TBG
“I have heard your thoughts on the budget deficit and agree that it is illogical to increase the deficit. However, the big, beautiful bill was still passed. Despite the budget deficit’s impending impact, do you think that corporations will find relief and an increase in investment spending due to the stability that comes with the bill being passed? Overall, would you say this is a short term positive/negative?” ~ S.P. |
I do not think there is added stability coming from the bill being passed because I do not think there was measurable economic instability from the bill not being passed, in the sense that I think markets always knew some bill was going to be passed. On the margin, there is more stability now than there was four days ago, but it is minimal. This leaves us to measure your last question on the merits of the bill itself.
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On Deck
- This Friday’s Dividend Cafe will be an exhaustive summary of the OBBB Act (new tax and spending law signed by the President Friday), and it will not be like any summary you have read anywhere else.
- Clients will receive their weekly portfolio holdings report on Wednesday
Reach out with any questions, and I shall see you tomorrow in the daily blurb.
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.