Dear Valued Clients and Friends –
Markets were down today after the huge rally Friday, basically offsetting each other. Tariff turmoil is here and yet the dynamic playing out in markets feels much more selective than universal right now (more below).
I talked about dividend growth and tariffs on Bloomberg this morning and got a nice compliment from one of the great financial journalist legends in the world.
Friday’s Dividend Cafe looked at the five biggest things that matter in the market right now, why all five matter, and why all five don’t matter. 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
- The market opened up over a hundred points today and slowly gave that back and then some for the first half of the day but then saw selling accelerate in the second half of the day, eventually dropping over a thousand points from the high to the low of the day, before making back a few hundred points at the close.
- The Dow closed down -650 points (-1.48%) with the S&P 500 down -1.76% and the Nasdaq down -2.64% (moving the Nasdaq to negative territory on the year).
*CNBC, DJIA, March 3, 2025
- Yes, the talk of the day was President Trump’s insistence on 25% tariffs on imports to America from Mexico and Canada, set to begin tomorrow. My own hope at this point is that he actually goes through with it so the lesson will be learned sooner than later as to how these things actually work and we can get back to a point of economic clarity. Canada and Mexico are working on their retaliatory tariff plans, and China seems further along in what they will be doing by way of retaliation.
- The defensives were mostly up today as the rotation dynamic continued with real estate, consumer staples, health care, and utilities all up on the day (in case you were wondering why dividend growth seems to be doing well in all of this – the major factor is sector)
- The ten-year bond yield closed today at 4.16%, down seven basis points on the day. This substantial re-pricing of economic growth over the last few weeks aligns with diminished expectations for growth in light of current assessment of tariff policy and tax reform plans.
- Top-performing sector for the day: Real Estate (+0.77%)
- Bottom-performing sector for the day: Technology (-3.52%)
- When Bitcoin hit $84,000 late last week (down -25% since post-election peak), it had officially given up all of its post-election bounce. It went up 9% over the weekend and down -9% today. So much stability.
Top News Stories
- By now, everyone is aware that talks between Ukrainian President Zelensky and President Trump broke down in a highly public manner on Friday. Suffice it to say that there is not currently in place a Rare Earth Minerals deal, nor is there a plan to reach a cease-fire or coordinated deal with Russia and Ukraine.
Public Policy
- We are told that 25% tariffs are going into effect on Mexico and Canada tonight at midnight. Over the last four weeks, there have been five different statements about planned tariffs (on, off, delayed, next month, now), so one can forgive markets for not believing any of this coming into the second half of the day today. Those wanting to trade around predictions of where this all goes may find it easier to throw darts with a blindfold after a bottle of whiskey.
- Treasury Secretary Bessent announced on Face the Nation yesterday that Treasury was going to appoint an “Affordability Czar” to address issues around prices.
- In the meantime, domestic steel prices have risen to over $900 a ton (more expensive than imported steel) as tariff threats have facilitated domestic producers to raise prices. I am recommending the “Affordability Czar” start here.
- The issue of a continuing resolution to fund government past the pending impasse is becoming more and more of a near certainty.
- President Trump’s nominee for Labor Secretary, Lori Chavez-DeRemer, received Senate committee confirmation today and is now headed to a vote of the full Senate where she will almost certainly be confirmed.
- The FDIC set the stage for a much more approving environment of big bank mergers than has been seen in recent years.
Economic Front
- Nearly all indicators of corporate capital expenditure plans reversed in February, after rallying higher post-election. Whether some of this is ambiguity over tax reform plans or the general threat of tariffs or something else (including something that proves not to be long-lasting), we shall see
- Weekly jobless claims jumped to 242,000 Thursday and it got my attention. Estimates were for 225,000 and that 225k number has been a sort of median spot for a long, long time (sometimes a little under and sometimes a little over, but right there through all of the volatility of the monthly BLS number). Is this 242,000 number a sign of labor market weakness? Does it reflect 17,000 government jobs recently eliminated? Does it reflect anything, at all, actually? This is the takeaway I would offer – weekly jobless claims numbers take 3-4 weeks of running averages to filter out noise. With weekly data sets, you get lumpy prints (up and down) all the time, and focusing on running averages is far more reliable. So I’ll get back to you in a few weeks. The bond market agrees with me.
- ISM Manufacturing came in at 50.3, just barely in expansion mode by a whisker but below expectations. New Orders were down and almost all categories that make up the index contracted on the month.
Housing & Mortgage
- A popular take from some people I often agree with and some I often disagree with is that new multi-family projects are not coming on the horizon much right now (this is undeniable, and related to poor economics with higher interest rates, higher building costs, and higher insurance costs), and that therefore rents will see upward pressures in the years ahead as low vacancy, low new supply, and high demand will all push rent prices higher. The premise behind the theory (not a lot of new multi-family coming online) is true. The other premise (regarding the reason for such) – that cost structures to build new supply are unattractive – is also reasonably true. So why would I be skeptical about the conclusion? Because (a) It does not actually establish that there is, or will be, a supply-demand imbalance in multi-family that will push rents higher; maybe, and it is just a maybe, the new supply onslaught of 2019-2023 was so high that it fills the market for quite some time; but also (b) Affordability is still a factor when evaluating elasticity. Can developers and landlords really push prices that much higher from current levels? I am unconvinced but open.
Oil and Energy
- WTI Crude closed at $68.37, down -2% on the day.
- Crude oil production is up a whopping +1% year-over-year in the first two months of the year. It was up last year about +8% year-over-year, most of the first half of 2024. Market forces – supply/demand realities and economic calculus of profit-driven producers – drive production. Drill, baby, drill can be a policy mantra, but it cannot be a boardroom dictum. I don’t like to price predict anything, but I really don’t like to predict oil prices. But a $65-$75 range seems to be the logical forecast for now.
Ask TBG
| “What news sources do you watch and read?” ~ Stephan B. |
| This is very different from the RESEARCH and ANALYSIS that I read, which I consider to be far more important. I have been a very long-time institutional subscriber to several significant macro research firms and consider this investment among the smartest dollars we spend at my firm. I take in all of the research from Strategas Research and benefit most from their work in Public Policy. I adore Louis Gave and many of the economists at Gavekal Research and benefit most from their often contrarian views on macroeconomics and monetary policy. Rene Aninao at Corbu is a no miss for me when it comes to geopolitics. I read Richard Bernstein, Ed Yardeni, Peter Boockvar, and a handful of others that have less institutional platforms than the three aforementioned. But the question is NEWS SOURCES. I am set for pop-up alerts on all my mobile devices from the Wall Street Journal, Bloomberg, Barrons, and CNBC, and my office televisions set-up generally have Fox Business, CNBC, and Bloomberg all going at once (for breaking news, interviews I care about, and wallpaper). I have a subscription to every paper you could imagine but I generally use my New York Times, Washington Post, LA Times, and OC Register subscription for select articles of interest – not “browsing.” If I could only read one paper, it would be the WSJ, and if I could only read one opinion-editorial page, it would be National Review. If I had to watch TV for my news I would become a monk and figure out a different way to live. |
On Deck
- The fate of tariffs tomorrow (and thereafter) will generate a lot of noise
There was so much more I wanted to get to today and didn’t, so I expect you are stuck with me in What’s on David’s Mind and Ask TBG this week. Reach out with questions. Ignore the noise. And have a wonderful evening.
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.
