Kersten Wealth Management Group - Money Sense 7-12-25

Episode Transcript

Speaker 1 (00:00):
Hello, and welcome to Money centch. You're listening to the
advisors of Kirsten Wealth Management Group, Kevin Kristen and Brad
Kirsten as we are halfway through the year. On markets,
Brad been, I think a pretty memorable year, really an
amazing year overall. I think given where the markets are
year to date, you wouldn't think that there would have
been this much up and down and it's a pretty

(00:23):
benign year to date performance number with a lot that
happened in twenty twenty five, and.

Speaker 2 (00:29):
Definitely a case for not looking at your portfolio that much, right,
because if you looked a couple months in, you're happy,
If you looked six months in, you're happy. But if
you're looking day to day, you can get a little panicky.

Speaker 1 (00:40):
And every single lesson that you could possibly think of
when it comes to investing could have been learned in
the last six months, whether it be.

Speaker 3 (00:50):
Don't panic and.

Speaker 1 (00:52):
I don't know, you could pick whatever Warren Buffett saying
you want to use for not panicking, But then the
other Warren Buffett is make sure you when there's blood
in the streets. Well, that of course happened on April eighth,
be greedy when others are fearful, Be greedy when others
are fearful, and buy into that selloff. Having a plan
and staying the course certainly is a lesson that could

(01:14):
have been learned in twenty twenty five being diversified and
having don't don't have as much concentration in your portfolio
in any one area, even in.

Speaker 2 (01:24):
The down terms that computer in the downturn, we could
learn that lesson because what was up the most in
twenty three and twenty four was down the most, actually
even started to sell off more, which was tech, and
even the high flying individual tech names sold off more
than even the Tech index. The things that weren't up
a lot, or the ones that are defensive, your defensive

(01:44):
sectors gave you defense, utilities, consumer staples, even some of
just the value dividend paying sectors. Not down as much. International,
which wasn't up in twenty three and twenty four up
during that entire period and up even now more than
the market. And so that was pretty common and typical

(02:07):
and one that you should learn a lesson for if
you're getting nervous about a market valuation. And I'm not
saying that today, I'm saying a year from now. If
you're getting nervous about market valuations, you don't have to
just get out and wait. There are areas of the
market you can move into that are traditionally defensive, and
if the market keeps moving, you're gonna participate. Even if

(02:27):
you didn't get the selloff, these defensive sectors would have
gone up, just maybe not as much, and so it
gives you the typical defense most times, and that's what
happened this year. Now we're right at the three month
the three month anniversary of that low point. So again
also not surprising that off the bottom the things that
got beat up the most, the former leaders are the

(02:48):
ones leading. The market is twenty five and a half
percent off the bottom, but the sectors that beat that
were in this order, tech twenty forty three point seventy six,
industrials twenty eight point three, and communication services up twenty
seven and a half. Industrial is actually the leading sector
this year, up more than thirteen and a lot of

(03:10):
that just has to do with some of the trade
deals are being made overseas and how that's going to
benefit a lot of the companies in the industrial space.
The real out of the eleven sectors. You only have
two negative year to date, and that's consumer discretionary, mainly
because of Tesla bouncing around and it being such a
big portion of that index, and healthcare, which has.

Speaker 1 (03:29):
Equal weight consumer discretionary taking the overweight to Tesla out
is not doing great, but it's at least up six
tenths of a percent year to date.

Speaker 2 (03:38):
So five percent better is yeah, just because of just
because of that. But the rest of the sectors off
that bottom, off the bottom, it's really only healthcare lagging.
Everything else is right along with the market. The only
thing maybe significantly lagging or those that I mentioned that
weren't down that much consumer staples and utilities. But yeah,

(03:59):
twenty five off the bottom is significant. And when you're
hearing the stats that say we have some sort of
historic rally off the bottom, what they're referring to is
the market having a sell off like we had and
how quickly we got back to the all time high.
The size of the move has happened before, but getting
all the way back to the all time high within

(04:20):
a three month period is historic. In the speed at
which we got back to the all time high was historic,
and it makes sense to have a twenty percent sol off.
You have to have something that's happening in the market,
and to get all the way back to the all
time high in a three month period, or really it
was even less than a three month period, really says
everything that we were worried about we were wrong about.

(04:41):
And everybody who got out is getting back in now.
There's a lot of people and a lot of financial
advisors that I still hear who are still way under
invested from where they were at the market lows they
got at the market lows they're getting out, and now
they're still talking about this Trump's going to strew things
up with tariff talk, because that's what they were telling
their clients back in April, and the story has pretty

(05:04):
much gone away. There are trade deals happening. Nothing that
we had on April second and third is still in place,
and the market is shrugging off any Trump tweet, any
Trump news about it. You're getting these little tiny sell offs,
and then the market's rallying on the fundamentals, and the
fundamentals are looking good well, and.

Speaker 1 (05:24):
It's hard to get too bearish even when we get
to a certain level of the market because of what
history tells us as well. I mean, we'll see the
fundamentals and probably we're definitely going to see more of
that in the coming weeks with earning season coming into play.
But you look at this scenario, Brad. You look at history,
and we had this sharp V shaped recovery. As you

(05:45):
look at it on a chart, from the April eighth
low through mid May, the S and P five hundred
has rallied fifteen percent or more in twenty eight trading
days eleven other times since nineteen fifty, as it did
from April eighth through mid May. Subsequent twelve month one
returns for the index after fifteen percent or more in
a month, Okay, fifteen percent or more in a month

(06:07):
are twenty six percent twelve months later, with all eleven
periods producing positive returns. That's the average return. Now, maybe
don't look at that much upside. You can look at
some of these other periods where there was more downside
and there was more turmoil, more recession. You think COVID,
you think March of nine with the financial crisis. How

(06:29):
about just all corrections between ten and twenty percent. Ones
that don't get to twenty okay, you look at those
that were fully recovered at any point in time, and
you look at how to assess the current market conditions,
given that the SMP made a new high recently. Once
a correction loss is fully recovered on a ten to
twenty percent correction, once a correction loss is fully recovered,

(06:51):
double digit games over the next six months are a
reasonable expectation. Past performance doesn't guarantee future results, but if
you look at it here, the average twelve month return
is sixteen point two. On corrections that recover ten to
twenty percent down that recover and make a new high,
average twelve month return is sixteen point two. Ninety one

(07:13):
percent of those occurrences are positive. The only negative ones
were the post nineteen ninety eight sell off where twelve
months later the market was starting its downturn from the
tech bubble bursting, and September of twenty eighteen, which by
the time that recovered, we were in the middle of COVID.

(07:35):
So you took out the tech bubble bursting and COVID
one hundred year pandemic, and those are the only two
that are negative in a twelve month period when you
have that ten to twenty percent correction, And how does
this compare well what are all periods. Well, I don't
have the exact number, but sixteen point two is not
the average for all twelve month period and ninety one
percent of the time is as well. It's more like

(07:57):
seventy two or seventy three percent. One is where we
sit today, and it's more like nine or ten percent,
not sixteen point two. So history is really on our
side given the recovery that we've had.

Speaker 2 (08:10):
Yeah, the easy money, clearly twenty five percent in a
quarter has been made, but you still, if you're deciding
what to do now, if you got out and you panicked,
you still have a lot of things that are in
your favor. It's pretty bullish for the market to be
at an all time high and for it to be
so broad in the market, everything really except for healthcare

(08:33):
up and pretty close to its all time high. It's
a very bullish indicator.

Speaker 1 (08:37):
Let's look at some of the more recent sell offs
of ten to twenty percent that maybe certainly I have
a memory of, but even even people listening might have
a memory of. Twenty fifteen and twenty sixteen, there was
a little bit of an oil crisis. There were some
oil companies going under at that point, in time, fourteen
point two percent down big rally off the bottom, made
a new high twelve months later fifteen point nine percent

(09:00):
turn okay, and the new high was made in July
of sixteen. By July of seventeen, fifteen point nine percent
ape October of twenty eleven, nineteen point four percent on
the downside, made a new high by the following February,
and twelve months later made thirteen point five percent return.
So certainly, even the recent history, if you don't look

(09:23):
at the COVID nineteen pandemic, certainly has a lot of
history on our side in terms of the market continuing
to rally. That being said, I think you still have
to be a little bit cautious when you have this
kind of run up, and it certainly wouldn't be out
of the question in my opinion, to have some kind
of five to seven percent correction in the fall.

Speaker 2 (09:42):
Yeah, I think it's it's short term, very short term cautiousness.
If you said, if somebody said to me, and I'm
not sure what my time horizon is with these new dollars,
it's uncertain, Okay, fine, But if somebody said I don't
need this money for ten years or I don't need
this money until I retire, and even then I'm only
going to take a little bit out at a time.

(10:03):
I don't think there's any reason to even be short
term cautious. It's it's really only when we a time
horizon is uncertain, because the longer we go you do
have kind of everything is in your favor. The same
goes with the expectations for the market. You're hearing still
a lot of negativity, and every consumer expectations consumer sentiment

(10:24):
survey are just remain at these very very low levels.
And this is the one thing I think especially financial
advisors get wrong when they're they're kind of they're getting
pushed around by their client's questions or what they're hearing
and reading, and financial advisors or their politics, how about
our own politics? Is that when everybody is saying everything's great,

(10:47):
and even look at politics with that, when the media
who are democratic are saying everything's great, versus right now
when they're talking about Trump and they're saying everything is
not great, and they're trying to find every new reason
to tell you not to invest. Those are all contrarian indicators.
When when consumer expectations and even the media's expectations are

(11:11):
at lows twelve months later is a very bolish signal.
And if you want maximum optimism, you're talking about in
these same things nineteen ninety nine and two thousand, when
you really did not want to be an investor, and
when you're still coming off of the Bill Clinton high
and every time you turned on the TV everybody said
everything was great. It was the most glaring time for

(11:34):
expectations that you did not want to be an investor.
And oh, by the way, at a time where you
actually could get six percent on fixed income or even
money markets, so you had a logical reason to not
be fully invested. Right now, I don't think you can
make that case. The expectations are so low that you
probably have a lot of people that are going to

(11:54):
continue to buy into this market and get a little
bit more fully invested. And it really is not even
the individual retail investor as much as these so called
experts who guided expectations down, took portfolios more conservative, and
now have to figure out how to not apologize for

(12:15):
it by kind of sneaking themselves back into the market.

Speaker 1 (12:18):
That's right, I mean, it's I think it's a great
market to be an investor in too, Brad, because there's
so many other areas besides the narrow focus of tech.
And by the way, tech's having a great year, it's
just not blowing the doors off. SMP's up six point
six and tech is up nine point two, but you
have areas like large cap foreign emerging markets up almost

(12:39):
twenty percent year to date. We're going to talk about
that when we get back from this first break, because
I think it is something that people are just tremendously underweight,
and that's international. So let's take our first pause and
we get back from the break. I know we've talked
about this a lot on the show, but our market
commentary this week really dives into the numbers on why
we think internationals outperformance this year could last a little

(13:01):
bit longer. You're listening to Money Scents, Brad and Kevin
Kurston will be right back. Welcome back to the show.
You're listening to the advisors of Kirsten Wealth Manager Group.
Kevin Kirsten and Brad Kirsten happy to be with you today.
As a reminder, we are professional financial advisors and our offices.

Speaker 3 (13:15):
Are in Perrysburg.

Speaker 1 (13:16):
Give us a call throughout the week if you'd like
to set up a consultation to review your financial plan,
whether you're just getting started, well on your way to retirement,
or already in retirement, we'd be happy to sit down
with you four one nine eight seven to two zero
zero six seven or check us out online at Kirstenwealth
dot com. You'll find our weekly market commentary on kirstenwealth
dot com along with a lot of other great resources

(13:38):
and you can actually communicate with us on kirstenwealth dot
com if you'd like to set up a consultation. Let's
talk about that weekly market commentary this week, Brad and
looking at a strategic time rise and what does that mean?
That means strategic time rise and for international strategic time
rise and supports allocation to non US equity specifically, you know,

(13:59):
also known as inner national and know why.

Speaker 3 (14:00):
We call it non US equities?

Speaker 1 (14:02):
People like, what does that even mean international stocks or
non US equity?

Speaker 3 (14:05):
Correct? Correct?

Speaker 1 (14:07):
So international stocks in particular, and when we say strategic
time rise, and the idea is all right, let's not
try to play this day trading game with any asset class.
Is this something strategically that you can own for the
next five or ten years? And if you look at
the last you look at the MSCI USA Index, which
is very similar to the the S and P five hundred.

(14:30):
And if you look at the last ten years, okay,
the non US the non US index. Excuse me, I'm
getting ahead of myself. You're to date, there's an eleven
percent outperformance. Let's start with that. International over US. Yeah,
international over US. But if you look at the last
fifteen years, going back to twenty ten, there's an eight

(14:52):
percent per year underperformance.

Speaker 2 (14:56):
US outperformed by eight percent.

Speaker 1 (14:58):
Per year date, now eight percent per year. I mean,
this is simple interest, not compound interest. But you'd have
to multiply by fifteen to get the total outperformance. There's
been some catch up this year, but only to the
tune of about eleven percent. Okay, now it's been justified.
If you look at the trends in the last fifteen years.
Let's look at sales growth. The US has US stocks

(15:21):
have grown sales. SMP five hundred stocks have grown sales
at four point two percent per year for the last
fifteen years. This compares to zero point six for international stocks. Okay,
profit margins, well, let's profit margins. US stocks profit margins
grew from seven point seven percent and nine to thirteen
percent at the end of last year, so that's annualized

(15:42):
growth of two and a half percent on profit margins.
International stocks profit margins grew as well, from four point
seven percent to ten point five but they still have
less profit margins in the United States. Also, international stocks
compared to US stocks on buybacks buybacks share count declines,

(16:04):
which would be buybacks half a percent a year. So
you think about earnings are valued per share, if you
reduce the shares, the earnings per share looks better half
per year of the last fifteen years for US stocks,
while non US indexes grew shares atzero point eight percent
per year, so pretty sizable difference, and that affects the

(16:26):
earnings per share, so it was certainly justified. The other
thing that we see right now is we now have
a large spread in the dividends that are paid on
international compared to the US. Over the last fifteen years,
international stocks paid two point one percent dividends on average
it's two point one for the S and P five hundred,

(16:47):
excuse me, while international stocks were three point four percent,
so they always paid a little bit more dividends and
they still do so. By the end of that fifteen
year period ending in twenty twenty four, the US markets
went from sixteen times earnings to twenty four, while the
international stock market went from twenty times earnings almost twenty

(17:09):
one times earnings to thirteen as a result of that underperformance.
So certainly you're seeing and valuations aren't everything. Clearly, with
the sales growth, the profit margin expansion, it.

Speaker 3 (17:22):
Was all justified.

Speaker 2 (17:22):
It is all justified, and the question is do you
keep it. Does tech keep becoming a bigger portion of
the overall and is it going to do it in
the US and not the foreign markets. I would probably
make the case that you're going to have more tech
in the foreign markets because you need more tech everywhere.
The AI that's going to make its way into every
industry is also going to help improve profit margins. That's

(17:46):
the biggest reason that pees have expanded is a company
with a bigger profit margin should trade it a higher multiple.
And when you start to get that in the foreign markets,
you're gonna have what we've had this year, which is
a pickup in performs. And so I think it's going
to happen across the board, and the difference with AI.
Similar to what happened eventually with the Internet was that

(18:09):
it made all industries, all sectors more profitable, and it's
going to happen at a larger scale with AI.

Speaker 1 (18:15):
Well, think about how dramatic this can be performance wise.
You don't have to assume that the US completely rolls
over and does terrible for the next decade to also
get outperformance from international stocks. It doesn't have to be
that that way. Yeah, okay, And so when you look
at some basic assumptions, because one of the things that

(18:35):
people are saying right now is the US market's too expensive,
too expensive, It can't can't keep doing this, And okay,
let's assume it can't. Let's assume that we can't go
from twenty two times earnings to thirty times earnings. But
let's say we stay at twenty two times earnings. So
all of your performance is then going to come from
sales growth, buybacks, and you're diving in. Okay, Well, that's

(18:59):
still a very reasonable average annual return for US stocks
over the next decade if we continue sales growth, maybe
a little bit less than we've had in the last
fifteen years. Last fifteen years was four point seven let's
let's say it goes down to four. Let's say you
get the continued buybacks, which has been definitely more prevalent
in the US markets at one percent per year, and

(19:20):
then you have your one point three percent dividend right now,
which is not going to change. That still gets you
to six point three percent annually over a decade. Over
a decade for the SMP. But if you just assume
that the thirteen times PE expands a little bit at
one point seven percent per year is the number that
is thrown in here to get over the next decade

(19:42):
closer in valuation to the US market. Plus you have
a higher dividend. You're starting with a higher dividen. It's
always had a higher dividend. Some of that comes with
the sector makeup. But two point seven versus one point
three that gives you a nine and a half percent
ten year average annual so a little bit better than
three percent over a ten year period, and even that

(20:04):
you probably still have a higher PE in the US
when you get to the end of that ten years, right,
I mean, those are those are basically sales growth assumptions,
buy back assumptions in on US stocks less than what
we've had in the last fifteen years. The sales growth
assumptions are a little bit better for international, But if

(20:25):
you just normalize that price to earnings ratio with other
parts of the world, you're you're certainly looking at some
outperformance and the potential outperformance. I think I think I
would not look at this number and say this is
an aggressive assumption for both US stocks or international stocks.

Speaker 2 (20:43):
If over the next time, I think that we're gonna
we're gonna look back ten years from now and we're
going to say that the start of AI and it
really hasn't even it hasn't really even started yet. You know,
companies using it are are this is we're such at
the infancy of it.

Speaker 3 (20:57):
But when you.

Speaker 2 (20:58):
Start having AI make companies more profitable by having virtual
assistants that are are literally doing things for everyone versus
having to have an employee do it, and the profit
margin that's gonna go up from that, I think we're
gonna have a PE in all sectors. In all sectors,
We're gonna have a PE post AI versus pre AI,

(21:22):
and it's gonna look completely different and justified. You're gonna
have profit margins that are pre AI post AI, and
they're gonna be exponentially more for the overall market. Even
right now, you look at the tech companies that have
a tenth as many employees and double the revenue of
an old established, say industrial company or consumer staples company Meta, Meta,

(21:46):
Google and Nvidia almost right exactly the same for profit margins.
Metas forty percent over the last year profit margin. Google's
thirty eight and Vidia is forty two percent. Okay, if
you're a big, old industrial company with a bunch of
legacy and employees on the pension plan and healthcare plan,
and you've got to power the plant and you've got

(22:06):
millions of employees, you don't have a profit margin of
forty two percent. But if you're a new tech company
like Nvidia, or you're a company that is basically a
service industry like Google and Meta, you can have forty
percent profit margins. And I think that the whole market
is going to get to that point, regardless of the

(22:27):
sector that you're going to be in, and the difference
is going to be AI and how it's going to
be changing things, probably even more than the Internet it did,
and at a much much quicker pace. And so I
think when we get ten years out, we're going to
talk about that pre pre AI post AI profit margin
and NPE and about how we're just throwing out the

(22:50):
old legacy nineteen fifties, nineteen sixties PE ratios and we're
going to stop talking about it. You're still hung up
on that with a lot of people who get on
TV as well. We can't possibly stay it. History tells us.

Speaker 1 (23:03):
And it also goes back to what we've talked about
on this show, which is the S and P five
hundred PE in nineteen eighty it was a value index. Okay,
two biggest sectors in the SMP in nineteen eighty, I
believe were consumer staples and energy and energy those are
value low PE sectors. So I wish someone would come

(23:25):
out with this, And you got to send some emails
to some people that have more technology than we do,
but someone will come out to look at if we
could do a smoothing mechanism to thirty two percent tech,
which is what the SMP is right now, and keep
it at thirty two percent tech going all the way
back in nineteen eighty, you would not have had an

(23:45):
eight times earnings or vice versa.

Speaker 2 (23:48):
Take take the nineteen eighty sector makeup and tell me
what the PE is today. It doesn't look the same. Okay,
that's one thing, but all industries are more profitable than they.

Speaker 3 (23:57):
Used to be.

Speaker 2 (23:58):
That in nineteen eighty it needed employees to do everything
and now you don't. There's no remote work. In nineteen eighty,
everything was less efficient than it is. And so because
profit margins are much higher than they and it's not
a blip on the radar, it's a steady to increase
in profit margins across all industries, it justifies a higher PE.

(24:19):
We can stop talking about historic pees. If you're going
further back than five years, it just it's irrelevant.

Speaker 1 (24:25):
I think the only yeah PE that would matter. I
mean when you look at these sectors, Brad, I mean,
communications services is mostly.

Speaker 3 (24:35):
Made up of Facebook and Google.

Speaker 1 (24:38):
So when you look at the breakdown, and I heard
this stat the other day, sixty percent of the S
and P five hundred is basically tech and financials. When
you add up communication services, I mean, a good part
of consumer discussionary is also tech. I mean tech is
not just the technology sector at thirty two percent of

(24:58):
the S and P five hundred, it's much bigger than that. Yeah,
so when you look at those are really the only
pes that you could use as a comparison. So the
only thing I would want to know is, I don't
want to know what the PE of price earnings ratio
of the S and P is compared to nineteen eighty.
Tell me what the price earnings ratio is of the
tech sector compared to itself, compared to itself, that's the

(25:20):
only tell me the price to earnings ratio of community.
Now you can't even do really communication services because once
Facebook and Google got added to it.

Speaker 3 (25:29):
Yeah, it's different.

Speaker 1 (25:30):
The old communication services bell was AT and T and Verizon.

Speaker 2 (25:34):
Yeah, and that even all that stuff didn't have the
same profit margin and could not justify a higher PE
they weren't selling cell phones. Yeah, I mean you could
do the original AT and T versus today and you
say company can't compare it.

Speaker 3 (25:49):
No you can't.

Speaker 2 (25:50):
So it's it's it's none of them is the same.
We used to say you could compare to see if
if a sector was undervalued, compare it to itself, and
it's ten and fifteen twenty year at average PE. I
don't even think you can do that anymore because it's
become obsolete. Because profit margins are justifying a higher PE,
and the profit margins are only going to go up,

(26:11):
not down.

Speaker 1 (26:12):
You can't successfully predict anything based on that PE. But
what you can successfully do is in retirement and in
financial planning. If you get your time horizon right, that
PE doesn't matter.

Speaker 3 (26:26):
Right.

Speaker 1 (26:26):
Okay, you put the plan together where this is the
money I need in five years, this is the money
I need in ten years, is the money I need
in fifteen years, and invest in the proper way for
that time horizon. The PE will not matter to your
long term goals. Let's take our next pause. You're listening
to money Sents Kevin and Brad. Kirsten will be right back.

Speaker 3 (26:44):
And welcome back.

Speaker 2 (26:44):
You're listening to the advisors of Kirsten Wealth Manager Group,
BRED and Kevin here with you. If you're listening on Ihearten,
didn't hear any of our ads or on the podcast.
We are professional financial advisors in Perry's Purg, Ohio and
give us a call in our Peirsburg office. So if
you want to have an initial phone conversation or come
into our office in Perisburg, number is four one nine
eight seven to two zero zero six seven Kevin. A

(27:06):
couple times a year we do redo an outlook, and
our mid year outlook just came out and it will
be under the publication section of our website here by
the time this show airs. And I think had we
done this a couple months ago, it would have looked
a little bit different. But I think it's a I

(27:27):
think we would have been a little short sighted as
to kind of what we were talking about. And I
think that's it would have been with all that was
happening in April and may justified, but it's not really
what's important. What's important with these outlooks are looking looking
out a little bit further minimum six months. You know
where we'll be at the end of the year, where
will we be in a year, and what are the

(27:48):
factors that are going to affect our own expectations for
the market, And so those are the kind of the
broad strokes of what we're talking about with an outlook
like this, and this replaces our beginning of the year
outlook and when we were kind of poking holes and
outlooks for all this we were really talking about on
the show about how you very rarely get a smooth market,

(28:12):
You very rarely get markets that don't give you a
ten percent sell off intra year like we got in
twenty twenty four, and that the tech driven market of
the nineties was probably going to be something that we
have similar the late nineties, ninety seven, ninety eight, ninety
nine gave us all twenty percent sell offs in those years,

(28:32):
and here we are, first half of the year. We
got that twenty percent sell off, and now it's the
growth sectors now leading the way again not surprisingly, and
I think there are so many similarities to the late nineties,
and this year is proving that.

Speaker 3 (28:47):
Yeah.

Speaker 1 (28:47):
So if you look at our outlook for the second
half of the year, it's going to differ slightly from
our full year outlook we did at the beginning of
the year.

Speaker 3 (28:54):
But you look at our outlook for the second half
the year.

Speaker 1 (28:56):
Let's take the economy, and I think the main headline
to me, Brad would be in terms of the numbers
on the economy. Now, this is in the stock market,
this is the economy. Is its noise? It's pretty noisy, yeah,
And the reason I think it's noisy is you look
at something like automobiles. Okay, when Trump was doing all
the tariff announcements, And if you know anybody who sells

(29:19):
cars the area, they'll tell you the same thing. There
was this mad rush to buy vehicle, one of the
best months ever. Yeah, and so you really on the economy,
it's gonna be hard to look at Uh, it's gonna
be hard to look at numbers from the first quarter
compared to the second quarter, because it's going to look
like there's this big.

Speaker 2 (29:36):
Fall off even imports and exports, just the average very
very choppy, and that is the headline risk of the teriffs.
But you look at the whole year, or you look
at six months, and you're gonna get a number that's
not so not so choppy when you're looking at it.
So in the report, we're talking about slow down in
new orders. It's it's really what you said, a little

(29:56):
build up and then a leveling off.

Speaker 1 (29:58):
Right, there was a pull forward and now there's a pullback.
So we won't really know until we get into the
third quarter. On the economy, the job's numbers, although weakening
slightly historically, is still very very good compared to what
four point three percent used to be full employment, and
we got we got used to three percent or three
and a half percent, and now all of a sudden,

(30:19):
four point three percent is a bad number. It's not so.
The job's numbers, in my opinion, have stayed pretty strong.
We're waiting to see what's gonna happen with inflation. I
heard muhammadel Arian talk about the biggest problem here is
we don't know what's going to happen with inflation like
other times we know what's gonna happen. That's exactly what
I was thinking as I'm driving in the car and

(30:40):
he's on the super periods are so percknat all. This
one's really insightful idea that we just don't know what's
going to happen with inflation. So that's the biggest problem
as if we ever know, Yeah, it's always a guess.
All of it. Interest rates are a guess. And I
couldn't believe that, Yes, inflation uncertainty for ever. Yeah mark

(31:01):
it down, Yeah right, all right. I don't hardly understand
why that is.

Speaker 3 (31:05):
That is a headline on.

Speaker 2 (31:07):
The only headline really is that it's been lower than
everyone has anticipated since the first tariff announcement. It was
lower right away, it was lower three months later, and
it's been lower six months later, and so you look
the real time numbers, they're still below two. You do
have gonna have two back to back months where you're
throwing off a zero and a point one. So you're

(31:29):
gonna go up a little bit, but we're gonna stay
below three. It's probably gonna tick up to two six,
then two seven, and then we're gonna be a steady decline.
Now we have in here a little bit of talk
of is there gonna be a slight re acceleration of inflation.
I think that's the worry for people got down all
the way to two point one and now we're going
to tick back up, But we're only ticking back up

(31:50):
because of how we do the annualized inflation. The worry
is that it's tariffs that are going to cause us
to go up to three and a half to four,
and that the Fed will have to raise rates. Well,
I think that is pretty far fetched. We don't have
that scenario right now, and I think anyone talking about
that or waiting for it might never be an investor
in this market because it might never happen.

Speaker 1 (32:10):
Right, And so moving on to the outlook on the
overall stock market, I mean, if you look at the
stock market around on the whole. Certainly, the one thing
that still continues, Brad is the earnings growth has been
driven by tech and that's certainly, in the end is
what drives stock prices. But one thing that certainly you
can't ignore is that the tariff headlines are having less

(32:34):
and less of an impact on day to day see
even on the day to day yeah, right, and so
we're going to continue to have volatility. We did get
the big beautiful bill passed, so the tax we'll do
that on future shows, get more into the weeds on
the tax cut extension and some of the changes. But
when you look at what happened, what's going to happen

(32:55):
for the second half of the year. We're not going
to have to debate the tax bill, so that it's
one big uncertainty that we talked about a couple of
weeks ago that's off the table. Tariff tariffs are still
going to be a big you know, back and forth.
Trump's doing a lot of tariff announcements today, but it's
pretty small countries that we don't have much of a
trade back and forth with. Yeah, the big one will be,

(33:18):
of course, China and the European Union.

Speaker 3 (33:20):
I think the.

Speaker 2 (33:20):
Vietnam one was big, and I think that if we
can take a look at that deal, or even the
deal with UK as the framework for what we're going
to be looking at, we're going to be looking at
our tariffs on imports going from zero to ten two
and a half to twenty something like that, and there's
going down a lot of these countries are going to
zero from a much higher level, and we're staying at

(33:45):
ten fifteen to twenty percent.

Speaker 3 (33:48):
And so.

Speaker 2 (33:50):
How they could say that that's not good for the US,
especially if if what they said was going to happen,
which is it's going to cause inflation, Well, it hasn't
caused inflation. And if it doesn't cause inflation, and all
it does is make you make individual consumers buy more
in the US because US companies and products become more profitable,

(34:11):
it has to be good for the US. And no
one's talking about it being a benefit to the US.
Not sure what trade deal they thought we were going
to come out with, but all the trade deals that
I hear seem like a very good deal for the
US a terrible deal for the foreign country. I can't
believe they're even agreeing to it, but they are, and
yet no one is painting the picture that it's good
for the US well.

Speaker 1 (34:31):
And at the very least, just the headline tariff uncertainty
is not spooking markets to the tune of a minus
five percent like it was in March and April, and
so that's definitely encouraging, give you a little bit more
comfort to know than no matter what the headline, the
market probably can absorb it, especially after we get through
the second quarter earning season. We'll have two earning seasons

(34:54):
under our belt with tariff talk, and we'll be able
to see what companies are saying. In my I don't
think companies are going to say that it's affecting them
that much, and so that'll be bullish for the market
to finish the year. But I do think that we're
probably going to be setting ourselves up for one more
about of more milder volatility at some point between July

(35:17):
and November. Seeing not seeing the kind of downturn that
we saw in March and April where it was almost
twenty percent, but certainly you could see one more about
of five to ten would not be unexpected.

Speaker 2 (35:27):
Some pretty consistent seasonality with that late July. When I
say late Jay, the last day of July two of
the last three years, or into September. September has been
weak for three years in a row. I don't think
this year is probably going to be any different. There's
gonna be a lot of self fulfilling prophecy with everyone saying, well,
look what happened last year in the year before, and

(35:49):
then just kind of getting themselves a little bit more conservative.
I used to get the same thing on the upside
with something like the Santa Claus rally or the the
rallies that happened around Thanksgiving, and then eventually those kind
of fizzled because everyone was front running it. I think
the same thing could happen for one more year with
the late summer sellof, and eventually you get people front

(36:12):
running it and then the seasonality goes away. But I
don't know that it's going to go away yet because
of where we sit off this.

Speaker 1 (36:18):
Bottom outlook for fixed income Brad, you look at the
ten year treasury as sort of your benchmark for what's
happening with interest rates. I can't tell you how many
people come out and say, I'm really worried about the
ten year treasury. Am I the only one that looks
at and say it's been shockingly stable, right? I mean
this ten year treasury has been trading between four two
five and four four or five. To me, it's been

(36:40):
shockingly stable. I mean to the fixed income markets look very,
very healthy. The US aggregate bond indexes up three point
two percent year to date. You're getting a return. You're
getting a return on your money for owning a little
bit of bonds, and I think that's a good thing,
especially for retirees to balance out the risk that they
have in stocks as opposed to five years ago. When

(37:03):
you balance out the risk you had in stocks by
making less than one percent. Now you're getting a reasonable
rate of return on your money for money that you
allocate to. I think the time we need to see
the ten year be stable is after the next rate
cut or two. Remember the low point for interest rates
in twenty twenty four was the day or two before

(37:26):
the first rate the rate cut. You had the tenure
at a low point. Fed cuts one time, and you
have the ten years start to spike up and continued
on higher all the way through the last cut, which
which tells you that the tenure was pricing in all
the cuts that we're going to get, and hopefully that's
not the case right now, because right now the ten

(37:46):
years probably factoring in only a few cuts. If we
got to spike up in rates after the FED cuts
one time, I think that would be not a good
sign for the bond market for the rest of the year.

Speaker 3 (37:58):
Right And.

Speaker 1 (38:00):
I think on the housing front that as that relates
to the FED and what they're going to do with
interest rates, I think the only concern I would have
is if they start cutting and the thirty year mortgage,
which has come down a little bit here recently, the
thirty year mortgage comes down significantly, you could have a
flood of listings, which would put some pressure on the

(38:22):
housing market. But you know, I think people forget because
the housing market had such an effect on the overall
stock market in two thousand and eight, which it actually
I would maybe push back on that idea. It was
really the banking and financial component, the mortgage component, that
brought the stock market down, not the housing component. For

(38:42):
much of the nineteen eighties and nineteen nineties, we had
a pretty modest housing market. It really wasn't an investment
that people talked about like they talk about it today.

Speaker 2 (38:51):
Well, in trades were much higher.

Speaker 1 (38:53):
Yeah, And so you had a period of time people
I will hear people say stock market can't do well
if the housing market doesn't do well well. The housing
market didn't do that great in the eighties and nineties
and the stock market roared. Yeah, okay, so we may
be back to a period of time where we could
get a little bit of slow down in housing and
it might not affect the stock market. And the reason
why is because lending is so much healthier than it

(39:14):
was in two thousand and eight.

Speaker 3 (39:15):
Yeah.

Speaker 2 (39:15):
But if you're as a stock investor, if you want
financials to continue to do well, they've done well this year,
you do need a little bit more activity. And I
think that activity could come with a thirty year in
I don't care if it's five, nine, five. Get a
five number on that thirty year and get a low
fives on the fifteen year, and I think you're going

(39:35):
to get anyone on the fence to list and get
get some more activity out there's just not enough listings
out there.

Speaker 1 (39:43):
Continuing on with the outlook, Brad, let's close out with
a couple other categories that certainly would be something that
you have to be very careful of, and that is
alternative investments and commodities. Number one rule for either one
of these categories is liquidity. In my opinion, make sure
that whatever you do in alternative investments in commodities that

(40:03):
you can have access to your money. If you want
to do something in alternative investments, do it in an
exchange traded fund. Do it in a mutual fund. Same
thing with commodities. Do it with something that you can
get in and out of quickly. If you want to
have an allocation, make sure you have liquidity and size
it the right way. You shouldn't be If you want

(40:24):
to have a little bit of gold, fine, but it
shouldn't be thirty percent.

Speaker 3 (40:26):
Of your account.

Speaker 1 (40:27):
Okay, you want to have a little bit of alternative
investment to maybe provide a hedge against something like rising
interest rates, buy a market neutral exchange traded fund or
market neutral mutual fund so that you have the stability
of those bond like returns without the interest rate risk.

Speaker 2 (40:46):
With daily liquidity or even minute to minute liquidity if
you're in an ETF form. It's the one thing with
technology that should we shouldn't be talking about anything with
any kind of lock up periods. In the future, you
should be able to have access to all markets at
all times. And anyone talking to you about about a

(41:07):
long lock up period for your dollars, there's got to
be a better way. There is a better way. If
you're thinking, wow, that seems like a long period of
time to be locking up my money. Not just without
without a penalty, I'm talking about completely locking up your money.
You're right. In twenty twenty five, there are there is
access to everything. I don't care if it's commodities or

(41:28):
private equity, equity, private any kind of alternative strategy, hedge
fund strategy. There is a better way. And if you're
not being shown the better way, give our office a call.
We'll be happy to tell you that the alternative you
weren't being shown, which is something that's probably in an
index form that gives you the same exposure to what

(41:48):
you were being introduced to. Same goes. There's a lot
of gold talk now because gold's done well this year
and it's sitting at an all time high. You should
have minute to minute liquidity. I love how the gold
talk is. You know, inflation adjusted just made a new
all time high. Oh from nineteen eighty three. Yeah wow,
So that means I've got to nowhere this since nineteen
eighty three.

Speaker 1 (42:09):
So it's fine. It's been a good addition for the
last two years. But just size it right if you're
gonna do it, just make sure when people come to me.
We're not big gold people, we're not big commodity people.
But if someone wants an allocation, we'll put it in there.
But it's got to be sized right for your overall portfolio.

Speaker 2 (42:25):
Yep, let's take our last pause. As we come back,
we're going to finish up the outlook that you'll find
on our website kirstenwealth dot com listing the advisors of
Christon Wealth Management Group.

Speaker 3 (42:33):
We'll be right back.

Speaker 1 (42:34):
Welcome back to the show. You're listening to the advisor
of Kristen Wealth Manager Group, Brad and Kevin with you're
wrapping up the show talking about our outlook for the
rest of the year, and Brad, let's just wrap it
up by why don't you give me a couple of
things that you're concerned about between now and the end
of the year and a couple of things that on
the other side of it. On the positive side that
you think might be a catalyst to move stocks higher.

Speaker 2 (42:54):
In particular, I, if I'm doing concerns, I have kind
of two different types of concerns. Concerns that it is
so easy for individual investors to move money around and
change their portfolio that when we get to all time high,
that's the time to be patient. Let the market just
do what the market does. It makes all time high

(43:16):
after all time high, and it keeps moving even if
you don't think it should, even if the person on
TV doesn't think it should. Now's the time to be patient.
You know when you shouldn't be patient. When the market's
giving you these unusual quick five percent, quick, ten percent, quick,
twenty percent sell offs, that's there's no time.

Speaker 3 (43:32):
To be patient.

Speaker 2 (43:32):
Then the market doesn't stay down for very long this
in this downturn, it stayed down more than twenty percent
for two hours on April ninth. That's how long you had.
Now's the time to be patient. So that's one of
my concerns, is that people will screw things up by
getting too clever because it's just so easy to move
money around. My other concern would be, like in twenty eighteen,

(43:55):
we started talking about tariffs earlier in the year kind
of fizzled, nobody cared, and then Trump dug in at
the end of the year, and the fourth quarter of
twenty eighteen was a terrible one. I hope we're moving
on to bigger things by the time we get to
the end of the year and that even Trump with
tariff and trade war stuff, is done with it. Hopefully
he's getting as tired as the market is about talking

(44:17):
about the terriffs and trade.

Speaker 1 (44:18):
Well, certainly the market rally emboldens him to double down
on his tariff talk because it's a lot more difficult
to dig your heels in when the market's down twenty percent,
So that's it's gonna be hard. It's gonna be hard
pressed to want to pull back. If the market is
not dictating to him, then he needs to. But I
would say the concerns I would I would have is

(44:40):
and I don't think this is gonna be like Jay
Powell says, We're gonna see this some spike in inflation,
but a gradual trickle higher to inflation, which then leads
the FED to back off of cutting interest.

Speaker 3 (44:56):
Rates at all at all.

Speaker 1 (44:58):
And also couple that with the possibility of some creeping
higher unemployment numbers as well would also lead the Fed
to dig their heels in. And if we have some
sort of fourth quarter battle you mentioned twenty eighteen. We
had a fourth quarter battle between Trump and J. Powell
in twenty eighteen as to whether to cut rates. I

(45:20):
think that that could bring some market volatility. I do
think that we have some diminishing effect of the tariff headlines.
So I think the big concern for me going into
the end of the year would be what's going to
happen with big numbers? To watch CPI and employment PCE
is the Fed's preferred measure of inflation. But even if

(45:40):
the CPI numbers come in and as expected, I think
that's positive, they would have to miss for a couple
months in a row to be negative, and then wait
to see what Ja Pole says. Is he gonna dig
his heels in. I don't trust him personally. I don't
trust him to do the right thing. He didn't do
the right thing when inflation was high. He hasn't done
the right thing when inflation is low. So we'll see

(46:01):
how that affects stocks going into the fourth quarter. So
that would be my big concern. My big positive, and
I think that we'll see if this outweighs. Everything will
be earnings. I think companies are gonna are are the
profit margins are high, sales are pretty good. I think
earnings are gonna be the big positive. And will that

(46:21):
be enough. I don't know how closely investors follow that
day to day. I mean, if you if you sort
of did a word headline in terms of what's affecting
the market the most day to day. Of course it
was tariff three months ago, but I think it's gonna
be unemployment, inflation.

Speaker 3 (46:39):
I'm not so sure. Earnings.

Speaker 1 (46:41):
Earnings move the needle long term. We talked about that
at the beginning of the show. International stocks, US stocks.
What do you want to own? What's the sales growth,
what's the earnings. That's the longer term outlook. But between
now and the end of the year, if we were
driven by for the first half of the year, if
the if the big headline was tariff, I think the
second half of the year, the big headline will be
inflation or lack thereof. Yeah, to be able to move

(47:04):
stocks higher.

Speaker 3 (47:05):
Yeah. Yeah.

Speaker 2 (47:07):
We always talk about if one thing is bad, the
other has to be good. If we had If the
taraf toalk was bad for the market, if we don't
have tariff talk, it has to be better for the market.
Market didn't like to hear all that. Now it's starting
to wane. If it continues to just get out of
the headlines, it has to be good for the market.
It's the same thing with taxes. If raising taxes or

(47:29):
not letting them renew was going to cause a recession,
If raising taxes or not letting them renew was going
to slow down the economy, then what we just got
with taxes have to be good for the economy. It
has to expand the economy. It has to be an
expectation of higher GDP.

Speaker 3 (47:44):
That has to be good.

Speaker 2 (47:45):
And we got that out of the way.

Speaker 1 (47:46):
So next week the One Big Beautiful Bill Act that
came through extending the tax cuts, but there were some
additions and there's some changes. So next week we're going
to dive into the One Big Beautiful Bill and talk
about some of the changes that could effects. Thanks for
listening everyone, we'll talk to you next week.

Speaker 2 (48:06):
You've been listening to Money since brought to you each
week by Kirsten Wealth Management Group. To contact Dennis brad
Or Kevin professionally call four one nine eight seven two
zero zero six seven or eight hundred eighty seven five
seventeen eighty six. Their email address is Kirstenwealth at LPL
dot com and their website is Kirstenwealth dot com. Opinions

(48:27):
voiced in this show are for general information only and
are not intended to provide specific advice or recommendations for
any individual. To determine which investments may be appropriate for you,
consult with your financial advisor prior to investing. Securities are
offered through LPL Financial member FINRA SIPC