Today's Post - https://bahnsen.co/3TX5X1I

What started off as a positive trading morning, slid negative as the day progressed. Powell’s comments yesterday were debated as to whether he took his ‘Pivot’ from October back. Not to worry, because first, I don’t think he did take it back and two rate cuts are still priced in to Fed futures, and second, as I mentioned yesterday there is enough in the economy that is good at this time to withstand a delayed move lower in rates by a few months. The Fed’s beige book out today supported that general positive undertone in the economy which helped us off the lows of the day a few hours before closing as well.

Seeing as we all made our tax payments this week, yesterday we saw the US Government take in the most it ever has in tax collections from corporations and non withheld amounts at $155B. The previous high water mark was back in 2022 following a big year prior and reopening after the pandemic when the same April figure was $121B. The Congressional Budget Office (CBO) is expecting total tax receipts for the full year 2024 to come in right near that record level in 2022 at roughly $4.93T. This is good news for the budget deficit and the growth rate of Treasury bill issuance which is set to decline for the first time in two years, although still won’t put us any where near an actual budget surplus when we are talking about chipping away at a $2T deficit.

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Today's Post - https://bahnsen.co/3Q5001u

A mixed day of trading between positive and negative all morning and right into the market close with the Dow slightly higher and both the S&P 500 and Nasdaq just below fair value. Rates continue their move higher, with the 10-year up 4 bps and now at the 4.66% level. So aside from what so far has been a tougher start to the second quarter, a few things to keep in mind:

Rates and Fed futures have reset higher based just as much on stronger-than-expected good things in the economy, such as earnings growth, GDP, and employment, as they have on inflation expectations.

We are still only 4% from all-time highs in the S&P 500 when the historical intra-year drawdown is more like 14% on average.

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Today's Post - https://bahnsen.co/3Q2J5g8

Against Doomsdayism

Where this Iran-Israel atrocity goes from here, what should and should not have been done, what and should not be done, what it will mean for markets and oil prices – all these things notwithstanding, the winner of the weekend appears to be anti-missile defense systems, first pursued by the Reagan administration in the 1980’s. The ability for this technology across multiple mediums to bat nearly a thousand in putting down missiles and drones coming in hot to do unspeakable damage is, well, vindicating. The specifics of the various technologies and strategies are fascinating, but for now, we celebrate those whose vision was to shoot down missiles and missiles, from ground and from air. Such military investment saves lives, and deserves our celebration.

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Today's Post - https://bahnsen.co/3JfyXwQ

I cannot tell you how much fun it is for me to spend three hours on a Friday morning reading research. Reading when it is dark outside is the single activity that brings me the most joy, and I love the inspiration it fostered for today's Dividend Cafe

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Today's Post - https://bahnsen.co/3JfyXwQ

A modestly positive day in markets overall today on some better-than-expected PPI numbers following yesterday’s selloff on CPI. So what one-day taketh, another giveth back (well, not quite). The Producer Price Index numbers showed a gain of just .2% for the month on headline when .3% was expected, and the Core PPI only gained .1% for the month. The takeaway is PPI is just not confirming a reacceleration in inflation on the wholesale side, which is a positive.

We unpacked yesterday’s CPI numbers pretty well, I thought, but I am sharing this chart from our friends at Strategas with you below to show you where rate expectations have now moved since. My point here is that while they have moved meaningfully higher, I do believe this to be a good thing, contrary to what some may say. The economy, employment, and the markets have all digested these higher rate expectations and it’s simply far healthier for markets to focus and trade on the actual fundamentals of the economy and earnings versus solely on the hopes of looser monetary policy. Shown below, we came into the year expecting Fed funds at 3.5% by Christmas and have now priced in just two rate cuts and ending this year closer to 4.75%. The bar of Fed expectations has been reset to a level high enough that it is now more supportive for markets than the opposite at this point.

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Today's Post - https://bahnsen.co/3PWoA4P

A down day in both stocks and bonds today following a disappointment on CPI numbers by one tenth on both Headline and Core, that sent the Dow down XXX points and the 10-year bond yield up .18XXbps. We expected .3% on both and got .4% instead to cause todays action, so on one hand a risk off day as higher rates were priced in on yields, and on the other, the difference of a tenth is far from dramatic in and of itself.

I do believe the Federal Reserve is an independent institution adhering to its employment and price stability mandates. I also believe they are aware of the Fiscal paradigm as well however (not driven by, but aware). Do I think a $2T budget deficit when we are at full employment with interest expense now accounting for 17% of tax revenue when our average termed government debt interest rate is only at 3.3% is on their radar in terms of Quantitative Tightening, yes I do. They can’t go until inflation gives them the OK sign (or gets close enough), but they are ready to reduce rates later this year as they’ve telegraphed, and from the Fed minutes released just today my point on reducing QT will come in to play sooner than later.

Links mentioned in this episode:

Today's Post - https://bahnsen.co/4aKgDaL

We traded mostly lower the entire day today but then rallied back to fair value the last hour or so of trading. Tomorrow we have CPI out, and with a lack of other meaningful economic data today and right before earnings season heats up later this week, markets were mixed in anticipation. Bonds did rally across the curve giving back some of the back up in rates we have seen the past few sessions with the 10-year down 6bps.

With earnings season set to start this Friday, a quick recap of where expectations lie: 3% revenue growth, 5% earnings growth on the quarter with a big up tick in Utility (believe it or not) earnings growth up 18%. For the year we are still looking at roughly $243 per share on the SP500 or about 10% growth from the previous year. Sectors where the bar on expectations is set fairly high at this point are in technology and communications, with Energy and Materials the opposite so it will be interesting to see where markets price the actual results in comparison.

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Today's Post - https://bahnsen.co/4aMHEug

Economic Front

The primary news of the weekend was the 303k new jobs created in March, up by 89k over expectations. A full 232k of that came from the private sector. The two prior months were revised upwards by 22k. The household survey was up huge, as well. The unemployment rate fell to 3.8%.

Construction was solid (39k new j

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Today's Post -

The stock market dropped this week and it has given me a chance to write a Dividend Cafe about one of my favorite topics – the crucial importance of predicting the future, reading the tea leaves, and all that good stuff. I have strong opinions about people’s talent in such projections and the relevance of such to one’s long-term financial success. So today we are going to just have at it and talk about this week’s market volatility and what it means to you.

Some of you are going to be really, really disappointed (if I did my job right).

Jump on in, to the Dividend Cafe.

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Today's Post -

Our morning rally in stocks turned decisively negative midday. There was geo-political tension with Iran threatening action after Israel’s strike on Syria and then some mixed messaging from different Fed presidents today that seemed to both contribute to today’s decline. That said, there really wasn’t a whole lot to warrant such a large 750-point swing from top to bottom on the day, so some strange market action with volatility picking up.

While the overall labor force participation rate has come up recently, it’s still on the lower end of the historical norm at about 62.5%. It’s interesting to see the bifurcation of what’s driving it. The participation rate amongst the largest cohort of working 25-54 year olds is actually the highest it has ever been in this country at 83.5%, while the 54+ is basically at the lowest level it has ever been at about 38.5%. Read into that what you will, but the charts seem to shift just following the pandemic with a greater gap between the two cohorts. Younger folks with fewer assets had less wealth effects from rising prices, while the opposite was more prevalent in the older is my take.

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