Kersten Wealth Management Group - Money Sense 8-16-25

Episode Transcript

Speaker 1 (00:00):
Hello, and welcome to money Sence. You're listening to the
advisors of Kirsten Wealth Manager Group, Kevin Kirsten and Brad Kirsten.
Happy to be with you today, Brad. We have a
market that continues to rally higher. In fact, the Dow
Jones is starting to pick up a little slack and
it's starting to perform as it hasn't really caught up
with the S and P five hundred and the Nasdaq,
which are both at all time highs.

Speaker 2 (00:22):
And that's single stock influence there. United Health finally finding
its bottom I think bottomed out at about two thirty
five and two seventy to day. That's because it's such
a big dollar amount stock and how the Dow works,
it can get pushed around by these bigger triple digit
Dow components.

Speaker 1 (00:38):
If you break down the Dow, it's mostly healthcare industrials
and financials. Goldman Sachs is also a huge holding in
the Dow Jones as well, but people follow it. If
it closes about forty five thousand, it'll certainly make a
headline because that would be a new all time high
for the Dow Jones. But we still think investors even
though we're continuing to hit all time highs. Should go

(00:59):
into the fall with a little bit of shorts intermediate
term caution. This market, given the level it's at BRAD
could drop five percent in three days easily. Three days,
it could drop five percent, could drop ten percent in
two weeks easily, So have a little bit more caution.
We believe that if and when that correction happens, it
should be bought. But what's going to cause it, I

(01:21):
think maybe is the bigger question. And let me let's
just get right into that. We had the CPI report.
You know, the two biggest things that the Federal Reserve
looks at when deciding whether to raise rates or cut
rates would be jobs and inflation. Yeah, a lot about
the economy, but it's it's jobs, right, I mean, it's
they're economy wise. They're not looking at the GDP report. No,

(01:45):
it's jobs. It's full employment.

Speaker 2 (01:48):
And let me give you a third CPI and they're
looking at the level of the S and P five
hundred in any given time.

Speaker 1 (01:53):
The third one is something they would never tell anyone.

Speaker 2 (01:55):
They're never going to tell anybody, But they're looking at
the three months, six month, and twelve months and five hundred.
And how do we know that Because every time there's
a drop in the S and P five hundred, except
for quick ones like in April, they're looking to bail
the market out. So they're looking at the.

Speaker 1 (02:09):
Odds of a cut goes straight up when the market drops,
and goes straight down when the market rallies.

Speaker 2 (02:13):
Yeah, so let's talk that's.

Speaker 1 (02:16):
Actually not happening right now. I shouldn't say that because
the odds of the cut in September have gone to
one hundred percent.

Speaker 2 (02:23):
And I think that.

Speaker 1 (02:24):
You talk about what we were worried about at the
beginning of this year going into the year, what we're
worried about now we've kind of checked a lot of
those boxes going into the year. You're worried about can
they get.

Speaker 2 (02:35):
The tax cuts done?

Speaker 1 (02:36):
Can that got done? Are you worried about? Obviously the
tariffs were a little bit more extreme. I think liberation ay,
a little bit came out of nowhere. So that's part
of the reason why the market was so volatile. But
a lot of the tariff deals are getting done and
are not as extreme as once thought, and the trade
deals themselves are better than most people thought. But I

(02:56):
think we can look at that and say, if the
market needs something it's not prepared for, to give us
a five percent dip or a ten percent dip. Okay,
Liberation Day was that the market was ready for a
little bit of disruption, and it was way worse in
the short term, and then it got way better in
the long term. Well, and look at that announcement day

(03:17):
and think about what could happen the next time the
Fed meets. The next time the Fed meets, everyone is
assuming now they're going to cut if the job the
next monthly jobs number is better than expected, and the
S and P five hundred is up another five percent
and is up mid double digits on the year, up
fourteen fifteen percent of the year, and everyone's assuming that

(03:38):
they're going to cut. I think the market is going
to be disappointed if that's the case.

Speaker 2 (03:43):
Let's go back.

Speaker 1 (03:43):
To the beginning of the year, though, and before we
bounce around too much to too many different things that
are going on, let's start with beginning of the year.
Two consecutive double digit years for the S and P
five hundred. You have to have a little bit of
caution thinking about that third year. But it started off
really well and the S and P started to correct

(04:04):
when Liberation Day and all the tariff negotiations happened, and
corrected twenty percent and has rallied thirty percent since. But
what I will say is two things can be true
at the same time. Did the market overreact to tariffs? Yes,
are tariffs the greatest thing?

Speaker 2 (04:20):
Ever?

Speaker 1 (04:21):
Well, no, that's not true either. And the proof is
the market rallied and people you know, Scott Bessett and
Trump will say, see the market rallied tariffs. Tariffs are
actually a good thing. It didn't matter. Well, if that
was the case, then why is every negotiation not in

(04:43):
terms of the final agreement, not as extreme as what
was talked about in March and April. So the levels
have come down, I would argue, yeah, it would have
been if Trump had held firm to what he said.
What was Liberation Day, I don't even know.

Speaker 2 (04:57):
March something, No, No, it was the Thursday before, it
was April second.

Speaker 1 (05:03):
Okay, he had held to those levels, I think the
market probably would have struggle a little bit more. So
don't tell me that the market, because the Trump administration
will try to come around and say, no, no, it's
it's not even that the.

Speaker 2 (05:16):
Market doesn't care about tariffs. The market loves tariffs. Well
here's well, there's two things that I think moved the
market from that point. One, you know that the market
cares about it, because on April ninth, when you announced
a ninety day pause on everything, the market shoots up
ten percent. So clearly the market care. Every time you
made the first few deals, the market shot up, So

(05:37):
clearly the market cared. But the more important knowing that
these things were going to eventually happen and it wasn't
going to be as bad, especially after the first few
deals got done. What the market really cared about was
was it going to slow the economy down? And the
real reason that the market moved up and that we
were more bullish in the longer term is every mag

(05:57):
seven company, every company that was doing AI build out
spending said we're not slowing down. We are going to
accelerate how much we're going to spend. There is nothing
with tariffs or trade that's going to slow down our
building of AI data centers and research and development for
all new AI technologies and how we're gonna implement it
into the world. And so if that's not going to

(06:18):
slow down, then the market's not going to slow.

Speaker 1 (06:22):
And we mentioned last week that some of this spending,
when you add it all up, is the equivalent of
a major stimulus package from the government. Okay, the other
things we were looking at. You were mentioning AI technology spending,
but also earnings. Earnings have come in better than expected,
and I got a little bit of information on where
earnings are because not only are they coming in better

(06:43):
than expected, but companies are raising guidance. So that we
kind of checked that box. Would the tax cuts be extended?
We didn't really get more tax cuts. I think that's
maybe something that's getting missed. We extended existing so maybe
not as much stimulus there, but there was still market
concern as to whether or not those tax cuts would
be extended. So that box is checked. Yes, Will the

(07:06):
Fed continue to cut rates? Well going into the year.
The estimate was the Fed was going to cut rates
by April or May, so that's been pushed off. And
so back to your original comment, what's the next thing?
Because tear of negotiations are having a diminishing effect on
the market, and it looks like Trump is coming off

(07:26):
of his hardline as long as a country comes to
him Okay, we do have this ninety day reprieve on
negotiating with China, so we'll have to address that in November.
But so that's that's gone away. Earnings have been positive,
the economy's growing, and you look at the two things
that go into what the Fed's going to decide, which

(07:46):
is inflation and jobs. Jobs have been a little bit weak,
a little bit weaker, not weak, I mean weak relative
to you're at three percent unemployment.

Speaker 2 (07:56):
They've been a little bit weak.

Speaker 1 (07:57):
You can only add so much, so that would lean
the had more to cut inflation. I know, the numbers
aren't as bad as a lot of the doomsday ors
said they would be based on tariffs. They're also not
The inflation numbers are not where they've been when the
Fed has had rates at a lower place. So you

(08:20):
look at most of the twenty tens, our inflation numbers
were between one point three and two percent for the
entire decade, and the Fed had rates low at that
point in time.

Speaker 2 (08:31):
Yeah, but if low rates are going to cause inflation,
why didn't they For twenty years they didn't.

Speaker 1 (08:37):
So no, no, they were trying to. They were attempting to.
But my point is when you had inflation at a
much lower level. Today, the Fed cut and kept rates low. Okay,
Now if they're cutting to say, we need to get
to a level of equilibrium and then we're gonna stop.

Speaker 2 (08:59):
Fine.

Speaker 1 (09:00):
And I think a lot of people are hanging their
hat on the fact that somehow the Fed's going to
make all these cuts and they're going to get their
three percent mortgages again. That will not happen, nor probably
should it happened, because that will cause housing inflation to
go straight back, straight back up, so to me.

Speaker 2 (09:18):
And now you've got everybody saying, oh, the first cut
because the employment numbers were so bad, the first cut
might be fifty basis points, might be a half a percent. Well,
now we're setting ourselves up for disappointment. Now it's all
short term, and most of what we talk about is
how bullish we are on the long term. But these
short term shocks are something that someone with new dollars

(09:41):
or someone who was nervous in April needs to be
worried about. Because if you're nervous in April and you
wanted to bail but didn't, and now you're sitting at
a with a portfolio up nine to ten on the year.
What's changed for you? You were nervous in April. You don't
think that can happen again. That definitely can happen again.
Where you wake up and in two days you lose

(10:02):
five percent in the market, in a week you lose ten.
It can happen. Okay, it can happen for any dumb
reason the market's not not ready for. But then it
can also go away for no reason whatsoever. We almost
had zero news other than ninety day paws on the tariffs,
and the market erased half of it in one day.

Speaker 1 (10:21):
So I would just look at because the Fed will
never say this, but the level of the S and
P five hundred matters in terms of what they do,
and five percent higher than here is about sixty seven
hundred on the S and P. You know that would
probably be forty six thousand on the Dow. At that point.
You're gonna look at those levels because part of inflation

(10:45):
is asset prices are in inflation, Okay, the stock market
is asset prices. If you are at that level and
you have all of this wealth in saying, okay, we
need to cut rates, why yeah, Why the stock market's
at an all time high at that point. Now, if
the stock market moderates between now in September, you're going

(11:06):
to get a cut.

Speaker 2 (11:06):
Yeah. If the next job's numbers week, you're going to
get a cut. But what if the next.

Speaker 1 (11:10):
Job if the next job's number is just as expected, Yeah,
you're probably going to get a cut.

Speaker 2 (11:15):
Yeah, I agree. But what if the next job number
is strong. We're up, it's not a lot. What if
we're up one percent a week from now until September seventeenth,
I think the market is going to set up for
some disappointment, right, and and and the third thing I
would look at is, I hate to say it, Powell
does not like Trump. No, obviously he was. Yeah, I agree.

Speaker 1 (11:37):
So Powell says he's not political yet last September he
cut interest rates by a half a percent instead of
a quarter right before the election. Right before the election.
But I'm not political. He stopped cutting right after the election.
But I'm not political. It's all data, it's all data.
It's all data. He keeps talking about how it's all data.

(11:57):
I wouldn't put it past him to be political, even
look at his own statements. Brad, he says he's completely
data driven.

Speaker 2 (12:05):
But in June. What did he say? And Judy said,
he he doesn't know anyone that isn't predicting inflation. Every
expert he talks to his predicting inflation. Because of terrast.
I thought he was a data guy. Yeah, but now
he's just now he's just waiting for opinions. He's just
got every exporty he's just going to cocktail parties. And
if he if he goes to a cocktail party, what
do you think? Hey, what do you think? I thought

(12:26):
we were looking at data. No, no, no, I want your opinion.
I'm you're an expert. What's your opinion? So he says
the quote's going around on on X, this, this, Q
and A where he says we're gonna get inflation because
every expert I talked to says we're gonna get it
because of terrorists. Well we're not. And even with the
most recent number, it was supposed to be apparel was

(12:46):
supposed to be the big one and new cars were
going to be the other one. New cars be goues.
We have to ship all this stuff in peril because
everything's from China. Everything's from China, and new cars because
a lot of the parts are gonna come from there,
and you're gonna have to pay. They always they were
giving numbers, even yea, every twenty thousand dollars car is
going to be two thousand dollars more. Oh okay, well
that didn't happen. The new cars and the most recent
report zero point zero last month, negative point three month

(13:10):
before that, negative point three. Apparel apparel is point one,
and in May it was negative four point four and
April it was negative point two. So the two things
that you that they said, this is the number, this
is the number you have to look at new cars
and apparel, Well they're both less than the than CPI.
The only thing contributing to a point two CPI on

(13:33):
the current month, where everything that has nothing to do
with with Terra's It had to do with gasoline, food,
away from home, still, all these other things that are
not terraff related. But Powell and his experts, everyone that
he talks to, which is as quote, everyone he talks
to says we're going to get it because of tariffs. Well, no,
we're not getting it. And the other ironic thing is

(13:55):
it was the big bad corporations and their their greedy
profits they're getting and we have to figure out how
to punish them. Because of tariffs, profit margins have gone
down a little bit, and every company is saying they're
eating it and not gonna raise prices, or they're going
to negotiate with the company they're buying from overseas for
lower prices, and those companies are eating it and not

(14:16):
passing on consumers. And yet the CNNs of the world
are still mad about it, even though it's the company
making less profit.

Speaker 1 (14:22):
Well, it's gonna be hard for car prices to go
higher because there was a huge pull forward in March
and April. So anybody and everybody's going to buy a
car in twenty twenty five, bought a car in March
in April, and so now you have higher inventories and
nobody looking which is going to lead to price reduction.

Speaker 2 (14:40):
Price reduction in vehicles, Well, look at look at new
The only used cars actually were four straight months of
negative and they were point five in the current one.
Well that used cars have nothing to do with tariffs.
They're already here, they're already built. So the current month
point five a half a percent on used cars and trucks,
it has nothing to do with tariffs. So you can't say, oh, look,

(15:02):
point two's it's a little hotter than two percent. It's
two point four on an annual. No, if you're telling
me it's because of tariffs and all this trade stuff,
then you have to look at the components that we
be affected by it, and they were less than the
point two. So you can't have it both ways. We're
not getting it. We're not gonna get it. We're long,
we're far enough away from the first tariff's hitting and

(15:24):
we're not getting it. Yeah.

Speaker 1 (15:25):
The only thing I would say is two different things
that I heard. Number One, you look at Trump's prediction
for how much tariff money's going to come in that
he thinks is going to come in. Yeah, it's it's
about double what he's currently taking in.

Speaker 2 (15:43):
Yeah.

Speaker 1 (15:43):
So his assumption is we're only half the way there
in terms of tariff revenue is going to take in.

Speaker 2 (15:49):
Yeah, So you're saying it's going to accelerate when all
of them kick in and we don't have these reprieves
and then a little inflation creeps in.

Speaker 1 (15:56):
It could The other thing I know about Powell is
based on his track record brand he's he's very rarely
gone against what the market is saying, very rarely, when
the market is pricing in for him to cut, does
he disappoint.

Speaker 2 (16:13):
I agree with that. So they do want to telegraph
and if they're if the market is predicting.

Speaker 1 (16:19):
One hundred percent chance of a cut in September, it
would be the first time he went against that.

Speaker 2 (16:23):
Yeah.

Speaker 1 (16:24):
In his entire tenure, he very rarely has gone against
what the market was predicting. So we always want the
market to go higher. Yeah, I always want the market
to go higher. I mean, if I had to pick
between low interest rates and higher market, I'll take higher
market every day. Yeah, because we still have low interest rates.

(16:44):
People want lower, but we have low interest rates, and
the current interest rate market that we have is helping
a lot of our clients who are retired who need
a little bit of money, our amount that is in
fixed income to satisfy the withdrawal deeds, and you're making
good yields on that money now. So I certainly don't

(17:04):
want to see it to go back to zero. But
the other route await to get a wakening. I think
everybody's in for, including Trump, is I don't think mortgage
rates are coming down. Is there any reason, especially if
the economy is strong. The economy is strong, There is
no reason the ten year treasury would come down. Well,
I mean it did over the last week, but you're
just twenty basis points. Yeah, and you're seeing fifteen years

(17:29):
in the five seven five to five eight eight seven
five range. Now, we're not gonna get you're not gonna
get what you had, but they're coming down a little.
What's the historical spread? We talked about that in.

Speaker 2 (17:39):
A previews and a half ten year versus the thirty
year mortgage.

Speaker 1 (17:43):
Okay, so if the ten year treasury settles in at
four and a quarter, okay, okay, and you're you're the
best you're gonna see is five to seven five on
a thirty on a thirty. Yeah, and I don't even
know where the thirty is. Uh yeah, no, I think seven. No,
it's below that.

Speaker 2 (18:00):
It's below that now. So it's still a wide, widespread.

Speaker 1 (18:03):
It's still not going to make that two million dollar
house that people are buying any any more palatable because
it's not a three percent mortgage. It's it's pretty significant.
So I think that with real estate, the prices are stuck.
They might go a little lower, but they're not going
significantly higher. People think that they're just gonna, Oh, I

(18:26):
bought two years ago, so I get to, you know,
buy my my five hundred thousand dollar house, I get
to sell ver seven fifty because that's what happens every
two years, right, right, a fifty percent increase. It's just very,
very difficult to see. I think the advice now on
real estate should should be the same advice you always
look at, which is, if you're buying a house because
you need a house, and you're going to stay there
for five to ten years, then don't worry about the

(18:49):
pricing now, but.

Speaker 2 (18:50):
That match the mortgage to that. If you're going to
stay there for five years, sure, and you can get
a five year arm for a percent less than a
thirty year, why are you getting a thirty year?

Speaker 1 (18:58):
But the people go in who think they're gonna flip
it around in a year or two, even in this
environment where interest rates might go a little bit lower,
I think they're probably gonna get burnt. We get back
from the break, Brad. We often bring out some charts
that when the market is panicky like it was in
March and April, and obviously we talk about recovery. We
talk about how quick recoveries happened and that all panned out.

Speaker 2 (19:21):
But what we don't do is.

Speaker 1 (19:22):
Talk about that downside when the market's at an all
time high. I saw a chart that we had pulled
out in twenty twenty two when the market was down
talking about mid term elections and how volatile those midterm
elections years typically are for the stock market. Well, here
we are coming up on twenty twenty six mid term
election year. So I want to kind of run through
some of those numbers so people can remember. I mean,

(19:46):
I talked to people just this week didn't even remember
that twenty twenty two was negative. I mean, that's how
investing works for people. It's a short term memory for
a lot of people, and you have to remind yourself
how often the market corrects and by how much You're
listening to money Cents Kevin and Brad Kurston will.

Speaker 2 (20:03):
Be right back and welcome back. You're listening to the
advisors of Kristen Wealth Manage for Group Bred and Kevin
here with you. Kevin, we're coming up on the one
year anniversary of the Fed's rate first rate cut from
last year, and one of the stats you're talking about
giving some stats here from the low points that we do,
and now let's do some bit some high points. One
of the stats we were giving a year ago is

(20:23):
that one year out from FED rate cuts, going back
to the last twenty the market was positive twenty out
of twenty times. Well, we're gonna be positive this time
around too, So it's gonna be twenty one out of
twenty one. And if we look at the second FED
rate cut, which was the Thursday after the election, we're
already up significantly from that point, and so it's likely

(20:45):
to be twenty two out of twenty two. And now
we have this September seventeenth likely cut, and people would say,
even if we get a drop, people are going to say,
you know, the market sold off after the FED cut,
or the market sold off right aft, or you know,
the market must not have liked it. The market typically does.
It is stimulative, and twenty out of twenty twenty one

(21:08):
out of twenty one so far have been positive one
year later, and that really is the time rise that
most people should look at when we're talking about being
cautious in the short term. We're talking about the next
really couple months. If the market doesn't give you a
drop in the next couple months. There's a lot of
cases that could be made that this is nineteen ninety six,
nineteen ninety seven, and we're in this AI spending build

(21:29):
out that is going to drive the economy for the
next three four years. Same thing with next year. We're
talking about the midterm election year. If the market rips
in the first quarter, we're going to probably start to
talk about being cautious just because of the seasonality of
the midterm election years, and history would tell us that
we need to be cautious. Take a look at twenty
twenty two, we had this ten month long bear market. Well,

(21:50):
the market was down twenty six point two percent. Go
back to the the the midterm election year of twenty eighteen,
a nineteen point nine percent sell off in the four quarter.
Then you go back four more years. You have all
this disruption in these midterm election years, especially if you
start the year off on a high note and need
to start pairing back a little bit so that you

(22:11):
have dry powder to buy the dip, because the dips
are inevitable, they should be expected, And even though we
had a big one this year of twenty percent, already
we're probably not going to go the whole year with
at least without at least a five percent dip. And
we haven't even made the adjustments we're gonna make yet.
We did a little bit of rebalancing in some portfolios
to take what were seventy thirty portfolios that became seventy

(22:35):
five seventy seven percent in stocks, take them back down
to seventy thirty. But there's a lot of all stock
people that are still all stock, and we might tap
the brakes a little bit in the coming weeks, But
a lot of this talk that we're doing on the
radio show is just to prepare people for a market
that's going to rip higher, and you just can't fall

(22:55):
in love with it or get fall in love with
individual stocks or think I'm up twelve, but my buddy
says he's up twenty, or in Vidia, I just saw
he's up forty. I got to buy that. These are
the times that you have to be prudent about how
you're investing and not get caught up in the herd
mentality that is likely to come if the market continues

(23:18):
to rip higher.

Speaker 1 (23:19):
Yeah, and in fact, some of the other you know,
you constantly are seeing these push and pull characteristics of
the market. I saw when the FED cuts and the
markets at an all time high. So there's it's not
like there's no precedent for the FED cutting when the
market's at an all time high. If they end up
doing that, so it's not as if they've never done it.

Speaker 2 (23:40):
It can't be too many instances.

Speaker 1 (23:42):
The last year, the Fed cut rates twice, I'm sorry,
within two percent of the other time, guys, is what
I saw from Ryan Dietrich twenty for twenty a year later.
So when you look at other periods of time where
the FED cut in the market was an all time
high or within two percent of an all time high,
certainly happened last year in September. We've talked about being

(24:02):
a little bit of skeptical of that one, given that
the FED cut a half a percent and it was
very close to the election. Powell has been in office
how long?

Speaker 2 (24:13):
Uh? He was a trumpet point, he wasn't he? Yeah?
I know he was in there in twenty nineteen. Ohought,
I think it was twenty seventeen or eighteen.

Speaker 1 (24:19):
So the FED cut in late twenty nineteen and the
market was within two percent at all time high before
twenty nineteen, there was no cutting anywhere near an all
time high going all the way back to nineteen ninety six.
So the track record's pretty good.

Speaker 2 (24:35):
Though.

Speaker 1 (24:36):
If you look at twelve months out, the average return
is fourteen percent and the market's never been lower. But
that doesn't mean, and this is what we're talking about
in this show, that doesn't mean you can't have some
short term scares. I mean, that's all we're talking that's
all we're talking about.

Speaker 2 (24:51):
When a long term track record on something like that
is good, then any selloff is a buying opportunity. And
the same thing even with midterm election years, with all
all of the good things we have coming up, if
we get if we get a year out and we're
starting to see a little volatility in the midterm election year,
we're going to be on here contrarian and telling everyone

(25:12):
to be buying that dip. And let's talk about those
those those those pullbacks in midterm election years.

Speaker 1 (25:19):
Well for let me look a little bit beyond that.
Let's look at all years. Just remind people, what do
you get and what do you have to tolerate. I
saw this from Fidelity. Number one market on average is
positive seventy three percent of the time. So these are
calendar years. So we're on our third consecutive year in
a row, and it's not perfect, but it doesn't mean oh,

(25:42):
we're third year, the fourth year has to be negative.
That's not perfect, but we will have more negative years.
I think investors sometimes when we go long enough without
a negative year, completely forget that that can happen. So
you receive nine to ten percent annualized gains when you
buy the overall broad market, but you have to accept
on ADGE three corrections of five percent or more per year.

(26:02):
We've had none this year. One correction of ten percent
or more, we've had one. One correction of fifteen percent
or more, we've had one. Those are a little less often,
only every three years, and the twenty percent correction which
we did get is only once every six years. That's
one of the things that's very unique about the current
period of time.

Speaker 2 (26:20):
Bran.

Speaker 1 (26:20):
We've had four we've had four and six years, and
the averages one. So even though the last six years
are a net gain and a really good one, we've
had much more volatility in the last six years than
is historically normal. But let's fast forward to the midterm year.
Our last two midterm years calendar years have been negative
twenty two and twenty eighteen, and the midterm year historically

(26:44):
has a bigger intro year pullback than any other year
average years about thirteen percent, I believe right right now,
we look at all years, YEP, midterm year is seventeen
point one seventeen point one, with the last two having
pretty decent amount of volatility. Twenty twenty two intra year
pullback was twenty six point two and twenty eighteen was

(27:07):
basically twenty percent.

Speaker 2 (27:08):
You look at twenty.

Speaker 1 (27:09):
Fourteen sort of a modest single digit year, but also
had a seven percent pullback. Twenty ten had a sixteen
percent pullback that was a midterm year, and twenty ten
finished positive. So they're not all negative years. That doesn't
mean you're gonna have a negative year, but historically, out
of the four year presidential cycle, that midterm year is
the worst performing year. Still positive, but is the worst

(27:30):
performing year. Two thousand and six was sort of a
mild single digit year, had a seven percent pullback. Two
thousand and two was a big negative year from hi
to low, had a thirty four percent pullback and finished
down on a two thousand and two finished down twenty
eight twenty nine percent. That yeah, nineteen ninety eight a
positive year, but a twenty percent pullback in the summer

(27:52):
nineteen ninety four a negative year. So there's quite a
few negative years in that mix. For midterms, and had
a nine percent pullback from high to low. So there's
some pretty big pullbacks. But here's what they all have
in common. You need to buy every single one of
these pullbacks. The average return one year later from the
midterm election low is thirty two percent. So many people

(28:13):
are asking us to make predictions on the S and
P five hundred. I sit down every day and I
don't like doing it, But if you're going to look
at probabilities, that's the best you can hope for in
terms of a prediction, And the probabilities would state we
probably have some kind of five percent correction between now
and the end of the year that more than likely
should be bought, and we probably have a decent amount

(28:35):
of volatility in twenty twenty six once again that.

Speaker 2 (28:38):
Should be bought.

Speaker 1 (28:40):
And so you look at how you can adjust your
portfolio risk to maybe have a little bit less risk
going into one of those pullbacks. So you can buy
into it and then buy into it and the same
thing I think would apply if the markets have that
year end rally, which is also typical.

Speaker 2 (28:55):
Let's say our next pause and talk a little bit
about earnings. It's been one of the reasons the upside
to these earnings and the expectations is one of the
reasons the market is not just maybe delayed this five
percent pullback that should be expected, but is kind of
moving to all time highs with each one of these
these earnings announcements. We'll talk a little bit about that
and the revisions that we're seeing as a bullish sign

(29:18):
when we come back from the break. You're listening to
Money Cents Brad and Kevin Kirsten. We'll be right back
and welcome back. You're listening to advisors of Kristen Wealth
Management Group. Brad and Kevin here with you this morning.
If you're listening on Iinhearten didn't hear any of our
ads or on the podcast, and didn't hear any of
our ads because I know they throw in a lot
of other ones. We are professional financial advisors in Perrysburg, Ohio.
Give us a call any time to review your portfolio

(29:39):
or if you hear anything on the show you have
questions about, give us a call or email us at
our Perrysburg office four one nine eight seven two zero
zero six seven Kevin earnings have been good, but the
outlook and the earnings expectations and revisions have been even better.
Usually it's about a coin flip fifty to fifty earnings
upgrades downgrades, revisions up to down, but it's been about

(30:02):
two to one of guidance higher versus guidance lower for
the earnings revisions.

Speaker 1 (30:09):
And by the way, the norm, even in a positive
earnings environment is for companies to lower guidance.

Speaker 2 (30:15):
That's right, Yeah, that's the average. Even on companies who
have good earnings, they're trying to lower their future expectations
so it's easier for them to beat. But it's not
what we're seeing today. The average is a fourteen percent
upside revision up and the average on the down is
five percent down. Normally current this current quarter, normally it's

(30:35):
eight up and nine percent down and about fifty to
fifty on on revisions up to down, and it's it's
it's kind of flip flopped. And so I mentioned a
lot of companies who are doing AI build out or
AI spend, whether it's infrastructure or just internally spending more,
they're all accelerating the amount they're spending. And even with

(30:58):
the data center build out, the construction is up two
hundred and eleven percent over a year prior. Over the
last twelve months, forty billion dollars spent on AI data
center construction. That's going to eclipse before the end of
the year. Office construction in the last twelve months, and
so data center more than offices in the United States

(31:21):
in the coming in the next year, and it's probably
not gonna stop. We're going to have this for three
four years. You're going to fill them with chips, You're
going to fill them with infrastructure. Companies are going to
benefit from it, the electrical grid, turbines, anything that has
to go with powering it, water and the infrastructure that's
that's with that to cool the chips, all of that.

(31:43):
This build and this spend is going to last for
a little while, and then you're gonna hear us talk
in a couple of years about how similar it is
to the nineties build out for the Internet and fiber optics,
and how it didn't really it's it didn't go away,
but it had to slow because you had already built
out all the infrastructure. And the same thing is going

(32:05):
to happen with the data center build out. You're still
going to have some but it's not going to be
forty billion increasing by two hundred percent a year that
type of build out and spend. It'll shift and then
we'll be looking at who benefits from it, who keeps
these things running, and what companies in what sectors are

(32:27):
going to be the beneficiaries of higher earnings and higher
profit margins because of all of it and all of
the new companies that will be created because of it.
You're seeing that a lot with with AI are the
new companies being created. A lot of the IPOs that
are that are taking off are new companies that didn't
exist five years ago that are benefiting from all of
the AI technology.

Speaker 1 (32:49):
It's not all tech though. The number one sector on
earnings revisions meaning moving their earnings estimates higher, was financials
this quarter. That was the number one sector for earnings
revisions higher. Communication services was second, and then tech was third.
But if you look at those three areas financials, communications services,
and tech. Now, communication services certainly has a lot of

(33:10):
tech in it, but fifty two percent of the names
that saw earnings revisions higher came from those three sectors,
so interesting to see, and financials with the number one sector,
so it wasn't all tech. It is a little bit
more broad based. So that's certainly encouraging to see Brad that,
let's face it, companies make more money, their stock prices

(33:32):
are going to go up. We can overcomplicate this thing,
but if companies are making more money now. The only
thing caviat I would say is the week dollar, which
has dropped ten percent across all currencies this year, played
a big role, and companies noted that in their earnings reports.
The dollars sort of leveled off a little bit. So
you know, if we saw a rally again in the dollar,

(33:54):
we might get a diminishing benefit from that part of it.
But if the dollar just stays here that and if
it will continue, doesn't have to keep dropping for companies
to see that benefit from a week dollar to their
earnings report. So that certainly goes to the companies that
have our more multinational corporations. You know, we look for
that a lot of times when the dollar gets weak.

(34:14):
We're looking for portfolios that have that multinational exposure because
they do benefit from the week dollars. So that's a
component of those earnings revisions as well. But if you
lay a chart here on the companies that revised higher
and the S and P five hundred not surprising, you
get out performance on those basket and names compared to

(34:35):
the S and P five hundred. Earnings matter. Earnings matter.
Like we could talk about interest rates and tariffs and
all these other things. I'm going to tell you right now,
if five years from now a company has earnings that
are fifty percent higher than today, I'm going to take
a wild stab that that company's stock price will also
be higher. So that's really what matters. And we can

(34:58):
talk about all this other noise. We're blue in the face,
And of course it does trickle down. If we have
bad tax policy or bad trade policy or bad regulations,
it certainly could take a bite out of earnings. But
that really is all that matters at the end, and
this earning season was better than expected.

Speaker 2 (35:15):
It's that all these revisions, though hopefully companies learned their
lesson over the last six months, because the amount of
companies downgrading when they had to report around that March
April timeframe when the tariffs were first coming out. We've
never seen a v shape recovery in earning's revisions like
we did over the last four five months. Every company

(35:37):
guiding down and now every commoany guiding back up. I
was everyone assuming that the first talk of tariffs was
going to be the last, that it wasn't a negotiation. Everyone,
every economist and every expert, and everyone doing these earnings
reports whip sawing around like they thought the first thing

(35:58):
we tore, even the S and P five hundred year
end targets that you see every company come out and change.
How embarrassing for those companies that they immediately come out
and react to the first story of tariffs and guide
earnings or SMP targets. They put it out in December,
they revise it in March and April, and then they

(36:20):
have to come right back out and revise it again.
What are we doing?

Speaker 1 (36:23):
And if you had somebody on CNBC in March and
April saying things like the S and P in five
months is not only gonna be in an all time high,
but well above the all time highs laughed off the stage. Yep,
I mean literally made fun of Okay, I can think
of one that never changed.

Speaker 2 (36:42):
It was Tom Lee and he was on the whole
time saying it's gonna be a not event.

Speaker 1 (36:47):
Or formerly from LPL Ryan Dietrich saying the same thing.
And yet they will bring someone on that says the
S and P is going to get cut in half
to three thousand.

Speaker 2 (37:00):
And they'll keep them on and ask them questions like this.

Speaker 1 (37:02):
Is really thoughtful, thoughtful, like, okay, person who says it's
going to go up, and by the way, reminds most
of the time it does. Most of the time it does.
Oh yeah, you know. Person says it's going to go down.
Oh you're interesting. Person said it's going to go up.
That's the that's careless. You're gonna hurt people. What's careless
is not knowing the history of the moment. I'll literally say,
you're going to hurt people. Yes, you predict the market

(37:24):
it's going to go higher. It's careless to not know
the history. It's careless to not know what actually moves
the market. And it's also careless to make these predictions
about things you can't know. And I was just complaining
to you this week that they have these so called
experts on that will say something, and in this case,
this gentleman said that the last time the FED cut

(37:46):
rates in twenty twenty one, small caps outperformed. Well, they
didn't cut rates in twenty twenty one at all. The
last time they cut prior to that was March of
twenty twenty and oh, by the way, in twenty twenty one,
small caps didn't outperform. So both things he said weren't true.
Small caps didn't now perform in twenty one and rates
didn't get.

Speaker 2 (38:04):
Cut in twenty twenty one. So he was trying to
make the point that if we cut again, small caps
a rally. I agree with that point, but then the
stats he's giving aren't accurate. You have three on the
panel and one host on here, and no one's calling
them on it, and that just that's the sort of
thing that bugs me because then I'll have a client
that'll call and say I heard somebody, some expert on

(38:26):
saying this is going to happen. Well, they can't know
that that's going to happen, and the basis for their
argument is not rooted in anything that ever happened in
the past.

Speaker 1 (38:36):
I would argue Brad you know, people say when someone's
positive on the market and someone's negative on the market,
and I hate to be so harsh with this, but
they'll say, well, that's what makes the market. We got
some people that are that are positive and some people
that are negative. There is only one way to be

(38:56):
when it comes to stocks. There's only one way to be. Yeah, okay,
and depending on market conditions, I'll give one little caveat,
but there's only one way to be.

Speaker 2 (39:06):
So let's talk right now.

Speaker 1 (39:06):
When the market has ripped higher at an all time
high number one, it's okay to be one hundred percent
bullish and just invests. Yes, okay, we're investing for a
lot of people who are preparing for retirement, maybe ten, five, ten,
fifteen years off. You can be more bullish for those folks.

(39:26):
People are in retiring. You gotta be a little more careful.
You gotta be a little bit more tactical. Have some
fixed income for tactical purposes. But even when you're saying, oh,
we're probably overdue for a correction, the only way to
be is still long term positive for the prospects of
the stock market and short term cautious. Yes, that's the
only way to be. Yeah, it's not all in, all out.

(39:48):
Even when we were saying there's there. If someone says
I'm long term negative on the prospects for the market,
you should run out the door. That is that is
it's just wrong, It's just wrong.

Speaker 2 (40:02):
And how would a client hear that? How you would
hear that is, I think that the next seven to
ten years are going to be bad. Therefore you need
to be in this thing that is going to protect
you for the next seven to ten years. If you
hear that, that person doesn't.

Speaker 1 (40:17):
Know the history of it. And here's the problem with that.
If you're locked up in that, even if the next
seven to ten years are below average, I won't say
bad because almost very rarely is it outright bad, especially
for a diversified investor.

Speaker 2 (40:30):
At some point in those seven to ten years there's
going to be a buying opportunity and you won't be
able to take advantage of it.

Speaker 1 (40:34):
Absolutely, And so that's the other thing I would say
is you need to be long term positive on the market.
You can be short term cautious like we are right now,
and then if the market does give you that short
if that short term caution pans out to the tune
of a ten, fifteen, or even twenty percent correction like
we saw in April. Then there's only one way to

(40:55):
be at that point. Yes, bye, yes, because then.

Speaker 2 (40:58):
We start to talk about the stats after a ten
percent drop in the market, what is the next twelve
month average? Well, it's way better than prior to that.
It's way better than the long term average. Therefore, you
need to be more bullish. But I think the most
important thing, the reason we talk about preparing for the
downturns the most is you have to know what it
feels like. It feels like. Maximum pessimism is what it

(41:21):
feels like. That's the bell at the bottom. You turn
on the TV and everyone says, Oh, it's gonna keep going.
You turn on the TV and everybody says, oh, I
knew last week. I got all my clients cautious that
that day at the top, that's when I got all
my clients cautious. That's what they parade these people on
that basically come on and lie and tell you that
that's what they're doing. And oh, by the way, because

(41:41):
I was so smart and last Thursday I got out
at the top of the market, I'm also telling you
it's not over yet. That's what it always sounds like.
No one comes on and says, this is a great
buying on. I was negative and now I'm and now
I'm positive. I was negative last Thursday and I'm gonna
buy tomorrow. They don't say that.

Speaker 1 (41:56):
So that's where I think we're a little bit unique
as we're coming on and we're saying, okay, have a
little bit more short term caution. And I would also say,
if that correction doesn't pan out, you have to change.
You have to change because if you look at history,
especially starting on about November first, historically those are the
those are the best six months of the year. So

(42:19):
even if that correction that you thought might happen doesn't
pan out, you have to change and adjust quickly. And
you can't do that if you have someone telling you
that the sky is falling. So get into this annuity
where you're in there for ten years and you're stuck.
I mean, even somebody who bought it right before the
two thousand and eight financial crisis, Okay, they'd have felt
threeen months later, they felt time to buy, it's time

(42:41):
to buy. They would have felt great in year one. Yeah, okay,
but seven to ten years later when they were finally
out of this penalty period that they were stuck in.
The person who just rode through it has way more
money than you. You just didn't see the drop. So
it's it never pays to be long term now negative
on this on the US stock market or stocks in general.

(43:04):
But you do need to remain tactical year to year
like what we do everything, especially.

Speaker 2 (43:09):
When you have a withdrawals coming out. If you're adding
to your four to one K, you can increase the
amount you're putting in on dips, but it's not as
necessary to make all these changes. Why it's necessary when
somebody's taking money out is we need to have something
conservative that has not dropped for those withdrawals. And sometimes
it takes, like in twenty twenty two, it's ten months

(43:30):
down and sixteen months to get back to where we were. Well,
guess what, then you need two and a half years
worth of withdrawal money in something that didn't drop, and
then you have to have the discipline to only sell that.

Speaker 1 (43:41):
You know, when you were younger and you were coaching
your kids, you know, teams or whatever, and you would
be so proud when you would teach the kids something,
whether it was Little league baseball or whatever, and then
in the game they would do what you taught. They
hit the cutoff, they hit the cutoff man in the game,
and you're like, oh my gosh, that's awesome. We practiced that.

(44:02):
I would say as a financial advisor, I'm never more
proud than when we're in a correction and the phone's
ringing off the hook, not with people panicking, but with
people saying, how can I get you money to invest
right now?

Speaker 2 (44:14):
You and I both were saying that in April. We
had so many people call in April to say, I
know you're making changes, don't pedal to the medal for me.
That's right. I know I was worried in the last downturn.
I'm not worried today. Don't stop what you're about to
do more.

Speaker 1 (44:29):
Let me invest some more because I'm still working and
I'm working towards retirement. Let's take our last pause. You're
listening to Money Sense. Kevin and Brad 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 Kurston. Just a couple of minutes left, Brad. As
a reminder to everyone out there, we are professional financial
advisors and our offices are in Perrysburg. Give us a

(44:50):
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 sixty seven,
or check us out online Atkurstenwealth dot com.

Speaker 2 (45:06):
Brad. If you look at the.

Speaker 1 (45:09):
Data center build out that a lot of companies are
mentioning in their earnings reports, and certainly we talked about
how this AI buildout is the equivalent to a full
blown government stimulus package. In the month before chat GPT's
release in November twenty two, private sector construction spending on
data centers was one fifth the spending in offices. Since then,

(45:33):
data centers is up two hundred and eleven percent to
forty billion annually, while office construction has fallen to forty
six point seven billion annually. So it used to be
one fifth of office now it's almost one for one.
So you can definitely see where the demand is for
new construction after doubling in twenty twenty one, the amount
of like, so, what do you need you build one

(45:54):
of these data centers. You even look locally out on
State Route five eighty two in Perrysburg or I don't
know if that's actually Perrysburg, but that's where Facebook's going.

Speaker 2 (46:01):
I believe, yep.

Speaker 1 (46:01):
I mean, you see there's there's a basically a power
power new power yeah, a new power plant.

Speaker 2 (46:08):
So yeah, so that part of that spend. You know,
it doesn't look like these data centers have much in it,
but they have all the chips, they have, they have
water that has to cool them, and then they have
to have all this infrastructure for either a smart grid
solution and and so some of them are doing fuel
cell technology, some are doing mini nuclear reactors, and others
are just trying to be self contained on their own

(46:30):
electric grid or tap into the electric grid and increase
prices incidentally on everyone around it. You're seeing that a
little bit, and there's some documentaries, uh showing that in
in with some of the ones that were being built
over the last couple of years. The new ones are
a little bit better and they're putting more power capabilities
in UH in and around the data center. But all

(46:50):
that benefits the the UH, the electrical companies UH that
are going to have basically an ongoing new customer that
might be equivalent to one hundred thousand home, the infrastructure
companies that have to go in and build all this stuff,
and even some of it's just the traditional utility companies
that are going to benefit from it. All of that
is a small part of the overall market, and it's

(47:12):
going to be growing. Utilities are only two point three
nine percent of the S and P five hundred. Industrials
are a small part of it. Energy energy has become
a tiny part of the US economy. All that's going
to be growing in order to power all this stuff
and have all of these these capabilities be something that
everyone is using more of and and and so we're

(47:34):
we're in the infancy of all of this. And so
if you're thinking how do I play that, it's not
just semiconductors and not just the semiconductor ETF or index
to take advantage of the more long standing is going
to be all this other stuff that we've going to
talk about and have been talking about. And if so,
if you want to there's a couple kind of one

(47:55):
stop solutions for it. There's portfolios that are going to
be more leaned towards it, I think in that's what
we're going to be doing is just going from two
point three percent of the utilities in the portfolio to five,
going from five percent energy to eight, going from eight
percent industrials to ten. A little bit of a lean
that way because you know that's where the earnings are

(48:16):
going to become.

Speaker 1 (48:16):
The if the what they call the Magnificent seven. But
the big tech companies are spending hundreds of billions of
dollars to build out AI infrastructure. Figure out where that
where that money's going are, Where is that spend going?
Where is that spend don't want to figure out where
it is?

Speaker 2 (48:31):
Give us a call during the week and we'll be
happy to share with you portfolios that are leaning that
way or portfolio models that we have built that are leaning.

Speaker 1 (48:39):
That That's absolutely right. Thanks for listening everyone, We'll talk
to you next week.

Speaker 2 (48:45):
You've been listening to Money since brought to you each
week by Kirsten Wealth Management Group. To contact Dennis spread
or Kevin professionally called four one nine eight seven to
two zero zero six seven or eight hundred eight seven
five seventeen eighty six. Email address is Kirstenwealth at LPL
dot com and their website is Kirstenwealth dot com. Opinions

(49:07):
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