Tuesday - September 15, 2026

0:00Welcome to the dividend cafe weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Good evening. Welcome back to dividend cafe. This is Brian Saitel with you here this Tuesday, September the 15th from our Newport Beach California office here in sunny California. On a down day in markets and this narrative of risk assets just being under pressure and being reprised has everything to do with the longer that WTI and Brent said over 100 Brent is at 108 WTI 105 and then you've got a 10 year that close today up to basis points at right at 5%. So interest rates have percolated higher oil continues to be on the rise and the Middle East tensions continue and markets have reprised that said we're really only off the highest here by a few percentage points. So keep things in perspective here a little bit. What I wanted to talk about was in that light, which is if you think about earnings and

1:02this is assuming that the current trends stay put these things can change so earnings outlooks can change. But next year isn't very far away and so what we're looking at is roughly $406 per share of S&P 500 earnings next year. If you look at the current price of where S&P's set at 75 85. If you were to get a 5% pullback from here, I would call that not just garden variety market movement but to be expected and frankly healthy so no big deal apart for the course. All those words you'd already be at 17 and a half times forward earnings. I wouldn't call that cheap but also wouldn't call it astronomically expensive. Remember we just sat in most of the last five years in the 20s so markets multiples have compressed here. But if you were to get a 10% drawdown from here again, I'd still call it garden variety that would just put it put us about flat on the year S&P's up about 10 so far this year. Let's say that we gave that back for whatever reason markets were unhappy with the Fed decision tomorrow or geopolitical tensions heated up or this or that AI ending all humanity worries

2:05all that stuff and you get a pullback like that first off it's normal because the average pullback in any given year is about 14% but that would put the multiple on a four basis at 16.6 times. So I wouldn't call that necessarily expensive and if anything historically given the S&P is now 40% technology that just has a higher trades at a higher multiple. In other words, the composition has changed and with earnings growth still expected a double digits paying 16 times for it in that scenario. I would actually assume would be a pretty relative value in the sense and so my point to saying these things is it doesn't take a lot when you have earnings growth the way that we have it to support the valuation thesis. That's why markets are being resilient. That's why over the past couple of months S&P 500 is higher even though interest rates are now over 5% because if you look back the last time we had the 10 year over 5% it was 2023 for me that's like slapping my fingers how long that was ago but I understand it's a couple of years ago for some and it seems like a long time ago but the last

3:08time we had that you actually had markets draw down about 10% for the couple of months leading into it. I'm calling couple of months to be around four by the way and you had high yield spreads below out about a hundred basis points so you had markets really dislike that five handle and I think what has happened since then as markets have become somewhat dissensitized risk assets have appreciated over those three years a whole lot number one and so there's a wealth effect. The economy has grown a whole lot and earnings have grown a whole lot and so we've just become a little more resilient to these 5% rates and then I think most are understanding that the oil situation it may not be a permanent one and may last longer than we think. This is about an oil shock necessarily more than about a demanded mallets alongside those things so this time around if you look at the four months preceding the five handle on the 10 year markets are actually higher by 4% and high yield spreads have moved about 40 basis points which is basically saying they haven't moved. My point to that is until we see credit spreads actually change direction and start to deteriorate

4:10more then what we're looking at is just a really orderly consolidation. They can't even call it much of a drawdown even though today is down 328 on the Dow and about half a percent on the S&P about 810s on the NASDAQ. Yeah, those are down numbers. I don't want markets to go down for people that are invested but it is par for the course. It's what to be expected all those things. So hopefully that gives you some context on where we're trading at again tomorrow we're getting the FOMC meeting. This will be a big deal because what's priced in at this point is their hiking rates. What isn't priced in is that is more than a 25 basis point rate hike. I'd be surprised if they got enough votes to do frankly either of them to get a rate hike in and or certainly do more than one quarter of a point. Nonetheless markets are trying to price things in. There was a 20 year treasury auction today they went really poor and the headline was something like worst ever bid to cover ratio things like that. I suppose those things are true but when you have a market still trying to figure out if Worsh is going to go tomorrow. I understand that you wouldn't buy a 20 year bond the day before you might want to

5:13give it a day. Keep some of those headlines a little bit in mind. We still clear the auction everything's okay on that front. That's my segue into the question because it's essentially asking with the explosion of bond issuance in total and specifically for this AI cap X. Doesn't that create competition for treasuries on the long end? The long end is bought by companies like insurance companies and pension funds and things that have to settle their long term liabilities and so they need that debt. They have an algorithm they have to buy it to have that in their book and they have a diversification mandate all that to say but isn't just the amount of AI related debt now crowding out the treasuries and wouldn't AI debt even arguably be higher quality. First off so no AI companies are great in the hyper scalers are great but they don't have a printing press so I'd still give the give the wind to the treasury on that as far as which ones are better from credit standpoint. Meaning one that has no risk of default. But if you look at the big hyper scalers the five of them that's alphabet Amazon Microsoft Oracle they're going to spend and have already spent 300 billion dollars this year alone

6:16and so it's going to end up closer to 400 by the end of the year. It's an amazing story if you think about it. That is more than double that they spent all of last year and if you combine that with total corporate issuance this year it's about 2.4 trillion estimated. So that's up about 30% from the prior year and yes a lot of it is because of AI cap X. So you're right there's a lot of corporate debt but just keep in mind when we talk about these huge numbers the markets are bigger these days the economy is bigger these days it's all bigger so I know we like to think about yesterday or we're all anchored in other words to certain dollar amounts or market multiples and things but these things have just expanded and grown over the over time. But because the 30 year paper on the treasury is a very limited amount in the grand scheme of things and because insurance companies and pensions need to balance their exposure between high grade corporate holdings and sovereign they're still a big demand for it. So we're not too worried necessarily about the bid on that paper and nonetheless it's a fair point by just keep in mind the numbers are astonishingly high but then also so is the

7:20size of the economy and the growth of it too. So those things are correlated. The only thing out there in the economic calendar on the day was the Empire State Manufacturing Index and it missed by half it came in at 7.6 it's a data point it's a manufacturing data point take it with the great of salt not enough to move markets again what we're really paying attention to is the FOMC meeting tomorrow and particularly what Worsh is going to say after it and how all this is received markets are basically fully pricing in a quarter point hike at this point. All right that's my around the horn for you today I am heading back to the conference term for further meetings and look forward to any questions that this inspires from you and we'll talk to you again tomorrow and dividend cafe thank you. The Bonson Group is a group of investment professionals registered with high tower securities LLC member Finra and SIPC with high tower advisors LLC a registered investment advisor with the SEC securities are offered to high tower securities LLC advisory services are offered to high tower advisors LLC this is not an offer to buy ourselves securities no investment

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