Dear Valued Clients and Friends –
I will jump right into it today, as we had a few tech issues that slowed down the release. Don’t forget to bookmark the new and improved Dividend Cafe and check out all the site has to offer.
The Friday Dividend Cafe was a trip around the horn of the Fed, the dollar, the market, and economic growth. The written version (my favorite) is here, the video is here, and the podcast is here.
Off we go …
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Market Action
- The market opened up +175 points, gave it all back, then rallied the same amount, then gave half of that back, then rallied to tie the high open level of the day.
- The Dow closed +177 points (+0.46%), with the S&P 500 +1.03% and the Nasdaq +1.19%.
*CNBC, DJIA, May 6, 2024
- The Dow, S&P, and Nasdaq were all down ~4-5% in April, with the final day of the month not helping much. What did quite well for the month was Emerging Markets (basically even despite all the market turmoil), Credit, and within equities, the consumer staples sector.
- The VIX was as high as 21 a couple of weeks ago and is now back to 13. One thing more volatile than markets is the volatility of the markets.
- The ten-year bond yield closed today at 4.48%, down 1.3 basis points on the day (way down 4.7% just ten days ago)
- Top-performing sector for the day: Technology (+1.48%)
- Bottom-performing sector for the day: Real Estate (-0.02%)
- Emerging Markets have hit a two-year high as of today. China’s growth/tech rally has helped. The Dollar-Yuan exchange rate has helped even more.
Top News Stories
- Hamas rejected a dozen Israel cease-fire offers, then said today they were taking one (with qualifications and ambiguities), then Israel rejected their ambiguous acceptance, then just before press time began targeted strikes in Rafah.
Public Policy
- A lot of hay has been made out of the low approval ratings President Biden currently has. Out of the dozen incumbent Presidents who have run for re-election since World War 2, four of those twelve received fewer votes than their approval rating (as a percentage), and eight received more votes than the percentage who approved of their job performance. And we should remember both candidates have very low approval ratings relative to other popular Presidents. That said, the average delta between a vote percentage and an approval rating is 3.4%, and with an approval rating around 39% that would be a tough hill to climb.
- The inter-party spats that have come to define the Republican Party so often (Trump “stuff,” the ouster of Speaker McCarthy, the absurdity of chatter from MTG and others about ousting Speaker Johnson, etc.) often frustrate movement conservatives (such as yours truly). But intramural sparring is a bipartisan affair, and the comments of Treasury Secretary Janet Yellen last week before the House Ways and Means Committee regarding former Treasury Secretary (and Obama-era NEC chair) Larry Summers were fascinating:
“He’s a person who’s been wrong in the past,” Yellen said of Summers during a hearing. “He said that it would absolutely take a recession to bring inflation down, and that turned out to be a serious misjudgment.”
Economic Front
- The jobs report Friday was the talk of the town. 175,000 new jobs were created in April, well below the 240,000 estimate. The government sector most missed expectations, with the private sector representing 167,000 of the new jobs. The unemployment rate ticked up to 3.9%.
- Wages were only up +0.1% on the month and are now up +3.9% year-over-year. There is a real irony in how this gets digested because some say, “Oh no, wage growth lower than we want is bad,” and others say, “Yay, too much wage growth creates a wage-price inflation spiral, so this is good to see as a disinflationary sign. I think both camps have it wrong.
- 29 million of the roughly 158 million people employed in the United States work for an S&P 500 company (18% or so). Some I have shared this with expressed surprise that it wasn’t higher, and some were shocked it was so high. Data is in the eye of the beholder, I guess.
- The bottom 50% of healthcare spenders account for a grand total of 3% of total healthcare costs (less than $390 per year). The top 5%, on the other hand, account for 51% of all healthcare spending.
Federal Reserve
- There is currently a 91% chance of no rate change in June, a 29% chance of a quarter-point cut at the July 31 meeting, and a 63% chance of some cut by the September meeting. So, more or less, markets know there is nothing on the table for rate increases, a very low chance of anything this summer, and a good but not huge chance of rate cuts starting by September.
- I received a question from one of our sharper readers – if you don’t think so, you should ask him! =) wondering what we thought the impact of tapering QT will be on debt and equity markets. The reality is that “it depends.” Any “unexpected” tapering is highly likely to rally valuations in risk assets, at least temporarily, and that includes real estate, credit, and equities. However, the Fed appears to be working to avoid any of this being unexpected. I believe the markets have responded favorably to perceived improved financial markets liquidity over the last few days, but we are getting to a point where it will be less of a surprise next time they taper the tightening. It is unclear to me how it plays out if it is all telegraphed.
Oil and Energy
- WTI Crude closed at $78.69, up 0.74% on the day (and down a full $10/barrel from where it was a month ago). All the back and forth with Israel/Hamas today did nothing to spike oil prices.
- It is noteworthy that with oil prices down -6% last week and midstream having been up substantially over the prior four weeks, midstream only dropped -0.5% last week. The sub-sector in U.S. energy that is pipelines and terminals has become increasingly defensive, for now.
Against Doomsdayism
- There will be an elaboration on this in the Chart of the Week section of the Dividend Cafe this coming Friday, but applications for new businesses jumped up nationally by about 150,000, or 50% (from roughly 300k pre-COVID to roughly 450k), and to the surprise of many that number has been sustained for a few years now. New businesses are a good thing, and sometimes, even failing businesses can be a good thing. More to come on this vital point this Friday!
Ask TBG
| “So why invest in a company if they can’t be trusted?” ~ Tony R.[The context there is a company in our portfolio that we believe is an attractive investment opportunity but where management has been making mistakes in the current cultural moment and communicating with us and our consultants in less than an above-the-board way] |
| It may get to that conclusion, but it isn’t there now. The investment opportunity is significant, and we believe engagement is more rewarding to our clients and to the culture at large than boycott is. ~ David L. Bahnsen |
On Deck
- The April CPI report comes out next Wednesday, the 15th.
- Earnings season is getting close to a wrap, and it has been a mixed bag all around.
Questions are welcome! Make it a great night.
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.
