DC Today is a daily missive from the Dividend Cafe of The Bahnsen Group. While the Dividend Cafe’s weekly market commentary is meant to be long-form, macroeconomic, and principle-driven, the DC Today’s purpose is to provide a daily synopsis of markets, politics, and current events. It will be short, sweet, and hopefully, informative. Our goal is to bring you the latest and most relevant market information and insights, written only by us. Please feel free to share The DC Today with your friends and family. And of course, we always welcome your feedback as to how we can make it more relevant and practical for you!


Dear Valued Clients and Friends –

Markets were slammed today, with the Nasdaq down -1.8%, the S&P down -1.65%, and the Dow down -1% (-370 points).  The violence was most felt in the bond market as yields rallied dramatically at the long end of the curve.  As yields did not move much (or at all) in the short end of the curve, you saw a fair amount of inversion eroded.  It is all a rate story now – as stocks are following bonds, not vice versa.  QT is tightening, and high rates are tightening (with the bond market doing more of it for them).  Something has to break eventually.

The Bank of England also left its interest rate alone, pausing after 14 consecutive increases.

The House GOP was four votes short of having the votes needed to advance their compromise funding bill.  Some tweaks are in motion to allow for a new vote next week.

Market Action

*CNBC, DJIA, Sept. 21, 2023

Dow: -370 points (-1.08%)
S&P: -1.64%
Nasdaq: -1.82%
10-Year Treasury Yield: 4.5% (+15 basis points)
Top-performing sector: Health Care (-0.92%)
Bottom-performing sector: Real Estate (-3.48%)
WTI Crude Oil: $89.59/barrel – flat on the day

Key Economic Points of the Day 

  • Initial jobless claims fell all the way to 201k, down almost 10% on the week.  Both initial claims and continuing claims are at their lowest level of the year.  Not. Exactly. What. Recessions. Are. Made. Of.
  • Existing Home Sales declined -0.7% in August and are down -15.3% versus a year ago.  This was the third month in a row of declining sales volume in existing residential real estate.

Ask David

“I hear you talk a lot about P/E ratios so I have some questions about them. What’s so important about the ratio? How do you use them? Why does a higher risk-free rate put downward pressure on ratios? Could P/E ratios start having a higher average that becomes the new standard to judge stocks by? Are there other things we should know about them? Maybe what I’m really asking for is a primer on them.”
~ Scott B.
In a nutshell, the ratio captures the value of a company in the sense that all companies are, ultimately, valued by their earnings.  It is not perfect because “earnings” and “free cash flow” can be different, and “EBITDA” can exclude interest and debt payments that can really matter for overly-indebted companies, but basically, a company is worth the present sum of future earnings with a discount rate applied for good measure.  This piece might help a great deal (I am proud of this one).  One can certainly also look to price-to-assets, price-to-sales, and any other number of metrics, but even then, those things are either (a) Anecdotal support to the message of the P/E ratio or (b) Only actually important because they are ingredients in how we get to earnings.  A higher risk-free rate puts downward pressure on P/E ratios in the sense that more “risk-free” returns can be bought incrementally, competing for “risk-y” returns in obtaining company profits.  The concept should be intuitive to most of you and is explained better in the link I provided a few sentences ago.

Yes, the “average” of a P/E ratio is always changing based on new developments – it is, by definition, a moving target.  But a fact of life is (because of math) that a P/E ratio is, by definition, “the amount of years one has to wait to get their money back by investing in a company and getting all its earnings if those earnings stayed the same.  Of course, they don’t – earnings go up and down just as the risk-free rate does.  But when the 33-year average has been roughly 16x, for one to argue that now people might want to start waiting MORE than 16 years to get their money back on level earnings, it strikes me as a tough sell.

Check Out

Send questions any time, and have a great night!

With regards,

David L. Bahnsen
Chief Investment Officer, Managing Partner

The Bahnsen Group

The DC Today features research from S&P, Baird, Barclays, Goldman Sachs, and the IRN research platform of FactSet.

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About the Author


Founder, Managing Partner,
and Chief Investment Officer

David is a frequent guest on CNBC, Bloomberg, and Fox Business and is a regular contributor to National Review and Forbes. David serves on the Board of Directors for the National Review Institute and is a founding Trustee for Pacifica Christian High School of Orange County.

He is the author of the books, Crisis of Responsibility: Our Cultural Addiction to Blame and How You Can Cure It (Post Hill Press), The Case for Dividend Growth: Investing in a Post-Crisis World (Post Hill Press) and his latest, Elizabeth Warren: How Her Presidency Would Destroy the Middle Class and the American Dream (2020).

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