Kersten Wealth Management Group - Money Sense 10-04-25

Episode Transcript

Speaker 1 (00:00):
Hello, and welcome to Money Cent.

Speaker 2 (00:01):
You're listening to the advisors of Kirsten Wealth Management Group,
Kevin Kirsten and Brad Kirstin. Happy to be with you today. Brad,
we are having a little bit of groundhog day here
where we're repeating the same thing over and over again,
and that is the government shutdown talk. I can't think
of a single thing from a investment standpoint that means

(00:22):
that I care less about that means less, and yet
every single time it comes around, it's like the first
time it's ever happened for one's it's panic and crisis
out of both sides of the island Washington. The market
doesn't care. I actually think it if you look and
we take a look some numbers here today, the longer

(00:45):
it stays shut down, I think the market likes it.

Speaker 1 (00:46):
We save money.

Speaker 2 (00:47):
Yeah, No, the performance is better when we stay down longer.
I was actually surprised looking at the list how few
that we've had, because we've talked about government shutdowns pretty
much every year for the last twenty five years. But
the last one, and maybe it's the last one that
went that actually went to a shutdown, is twenty eighteen,

(01:08):
and in that year we had three of them. I
thought I thought we had one last year. I thought
we had one the year before. But there's all this
eleventh hour government shutdown.

Speaker 1 (01:19):
We narrowly avoided it. Yeah.

Speaker 2 (01:21):
Yeah, So here I'm looking at a list of about
twenty going back to the mid nineteen seventies. But I
would have thought, as much as we talk about it,
there's been one hundred of them. But this list is
only about about twenty deep. And except for twenty eighteen,
in eighteen we had three, and twenty thirteen we had one,
and then you got to go all the way back

(01:41):
to nineteen ninety five before you had another one. So
it's just so insignificant. The market does not care. The
average duration is eight days, the longest is thirty four days.
In twenty eighteen to twenty nineteen. Actually the market found
its bottom right around that date. That the I mean,
the market went straight up from December of December twenty second,

(02:03):
twenty eighteen till January twenty fifth, the market was straight up.

Speaker 1 (02:06):
Yeah.

Speaker 2 (02:06):
So let's talk about that one here first, because I've
had a couple of people call me and say, well,
you know, it's gonna go on for weeks and that'll
be really bad. Well, the average is eight days. There
is only there's very little precedent for it going on weeks.
You only have that the one that you mentioned there
thirty four days, and another one in nineteen ninety five

(02:27):
that went on for twenty two days. After that, there's
none that even cracked twenty days. So there's there's very
little precedent that it goes on for weeks, and when
it goes on for weeks, it's great for performance. The
performance during those thirty four days in twenty at the
end of eighteen was thirty four well, I'm sorry, it
was ten point three percent, and the twelve months return
was twenty three point seven and the other long one,

(02:49):
the twelve month return starting the government shut down or
twelve months later, is twenty one point three. So the
only precedent is really good performance, so we should be
rooting for it. Yeah, I mean, yeah, the three the
three month return is pretty good. I'm actually right on average,
so I don't really know that you can take very
much from it. Yeah, but the twelve month is above
average twelve months, and the batting average is also above average.

Speaker 1 (03:12):
So let's let's go through though.

Speaker 2 (03:14):
LP out at a pretty good piece here, Eight things
to know about government shutdowns, more going into what it is,
not so much more of the language that you hear
around this.

Speaker 1 (03:23):
That's right.

Speaker 2 (03:23):
So, uh, we're actually not going to get a job's
number on Friday as a result of this. But I
don't know, maybe this is maybe it's a good thing.
I don't even know. I mean, Trump has been arguing
with the Bureau of Labor Statistics and firing people because
the numbers haven't been very accurate as of late. It's
not about what the numbers are, it's that you have
to revise so drastically. What is the point of even

(03:47):
this entire department if you can't give me an accurate
number and you have to revise it, you know, at all?
But let alone is drastically if they say, if they
had so shutdowns when the When Congress fails to pass
funding legislation for the upcoming fiscal year, there required to
pass twelve appropriation bills that need to be signed into
law by the President to continue funding the federal government.
There's twelve subcommittees, each responsible for one bill. If any

(04:10):
of the twelve appropriation bills do not pass, the government
shuts down. Effectively, the federal government must stop all non
essential functions until funding is approved. So that's one of
the biggest things is non essential things. So things like
national parks. You can still go to the national parks. No,
there's not gonna be somebody. There's not gonna be somebody

(04:32):
at the gate taking money from you.

Speaker 1 (04:34):
Well, that's true. We had it.

Speaker 2 (04:36):
There was a government shut down that in twenty eighteen,
and we went to a national park. We were on
vacation that week, and we still went to the national
park and we just saved the money. Yeah, because nobody
was there to collect, right, So does it make sense
why that would be something you shut down. The person
that's there is going to collect more money than you're
paying them, But go ahead, shut them down and you

(04:56):
get a free vacation out of it if you're going
to a national park.

Speaker 1 (04:59):
That's right.

Speaker 2 (05:00):
So what is a continuing resolution? The continuing resolution temporarily
funds the government in the absence of the appropriation bill,
typically continuing funding levels from the year before, just keep
everything the same as before. Historically, the continuing resolutions were
utilized to give lawmakers a short period of time to
complete their appropriation bills. I mean, this is all kind

(05:21):
of in the weeds with the government stuff. But you know,
whether it's the debt ceiling Brad, which is another debate
that happens over and over again, or the government shutdown stuff,
why are we even doing this?

Speaker 1 (05:31):
Like, what are we doing?

Speaker 2 (05:32):
Yeah, put it on an autopilot and stop. Government's only
in session so long and they waste all this time
basically treading water when they're doing this, and the debt
sealing stuff, You've accomplished nothing when you're doing it. Unless
the accomplishment is that we're spending less money. That is
an accomplishment, but it doesn't seem like that's really what
you were paid, you know, not spend less money. But

(05:56):
arguing about the budget should not be It shouldn't really
take this long. Well, you should have the negotiations, but
you should never have the gun to your head of
government shut down or not raising the debt ceiling. This
is a ridiculous thing. You can't you have to raise
the debt ceiling. The government has to run at some point.
These aren't realistic negotiation negotiation tactics on either side, but

(06:21):
neither side ever wants to say, Okay, we're just gonna
get rid of this. We're gonna get rid of the
debt ceiling thing because they're like, well, the next time around,
we want that. We want to hold that over your head, right,
But it's really not anything to hold over anyone's head.

Speaker 1 (06:33):
It isn't.

Speaker 2 (06:34):
So what services are affected. Central services, mainly those tied
to public safety, continue to operate with payments covering obligations
incurred historically, border protection, in hospital, medical care, air traffic control,
law enforcement, power, grid maintenance. They all continue to operate
as those are deemed essential.

Speaker 1 (06:54):
Does it save.

Speaker 2 (06:54):
Money, Well, the answer overall is no, because any payments
that are you end up being back paid. So yeah,
people that don't work and then they get back pay
anyway when they come back to right, right, So it
doesn't save anything, you know, obviously in the short term
it does, but it all gets paid back more, I believe,
even with interest, if you're a worker who wasn't getting money.

(07:16):
So in addition, there is a cost to the economy.
Some businesses may forego hiring and investment decisions.

Speaker 1 (07:21):
I doubt that.

Speaker 2 (07:22):
I don't agree with that bullet point from LPL because
those firms can't get federal permits or access federal business loans.
No one is going to stop projects because oh we
might be shut down for two weeks or a month.
So I don't agree with that. So how is it
different from a default? A government shut down, the federal
government temporari stops paying workers who perform some type of

(07:45):
government service. A default occurs when the government exceeds its
debt limit, which we just talked about, and is unable
to pay its creditors. When a government is unable to
pay its bills, it's technically a default. We're a don't
worry as well, because I know a lot of people
probably worry about this. This has no effect on payments
for Social Security, Medicare, and Medicaid. Those are all mandatory

(08:05):
and continue unerripped uninterrupted, no matter what the government shut down, and.

Speaker 1 (08:09):
No matter that.

Speaker 2 (08:10):
People think that, well they think it because I heard
a House member say last night, you know, people rely
on these thoid security payments and they're not going to
get it, and so they don't even know how their
own shutdowns work. So if you look, how is the
market performed, We kind of touched on this already. Markets
have not been materially impacted by shutdowns, So there's been
twenty one since nineteen seventy six. We mentioned the longest

(08:31):
one thirty four, only one other one that cracked twenty days,
so they're relatively short, and so that's one of the
reasons that during the shutdown you don't have a lot
of market movement. Of those twenty one you do have
positive market performance, but eight day performance, I'm not sure
that it's something that's meaningful that you could even tracks.
So who knows what could happen if you have those

(08:52):
I think when you look at the broader it's really
you look even the twelve month out, it's pretty good performance.
But again you have to take a look at the
at the positive and negative periods of time and say,
what was going on in the economy. We're kind of
backfilling the story if you're saying this is that the
market likes shutdowns because the performance is good. It's more

(09:14):
about what was happening and and and not the government
shutdown itself. One thing LPL points out, and this conclusion,
which I agree with, is they actually say, if you
look historically at the approval numbers of people in the
House in the Senate, anytime we have a debt ceiling
debate or a government shutdown. Both sides take a hit,
so all the more reason why we shouldn't shouldn't be

(09:35):
doing this. Yeah, both sides get blamed for wasting everyone's time, right,
and so their approval numbers historically go down.

Speaker 1 (09:45):
Yeah.

Speaker 2 (09:45):
I mean you think about the psychology of it, It's like, OK,
you can't get your house in order. That you can't
you can't balance a budget, you can't agree on what
spending needs to take place. Well, shame on you. We
blame everybody. Yeah, and that makes sense.

Speaker 1 (10:01):
Let's shift to the markets really quick, Brad.

Speaker 2 (10:03):
Not much going on, although the market did finish the
quarter at a high point, not quite at an all
time high for the S and P five hundred, but
the Dow Jones wasn't an all time high as of
the end of the quarter.

Speaker 1 (10:14):
Pretty good third quarter.

Speaker 2 (10:15):
You know, we were a little nervous going into the quarter,
but once you get to this point, the track record
is very good when you have quarters like this. This
ended up being out of the last going back to
the mid going back to nineteen seventy, so fifty five
years the eighth best third quarter, and only a few
of these had good second quarters and then follow it
on with good third quarters. When you look at those

(10:37):
other eight eight best, most of them came after big
downturns that you have these big rallies. But here our
downturn was in the first quarter and had a good
second quarter and third quarter here and after these big
third quarters. The track record's pretty good for a good
fourth quarter. Eighty six percent of the time your fourth
quarter is positive, and the average is five and a

(10:58):
half percent, way better than the long term average for
a single quarter and way better on the batting average
for that the two negatives. Out of these last fifteen
or top fifteen, you could call it good third quarters. Again,
it was kind of at the cusp of the start
of a downturn. Two thousand and seven, it was the

(11:19):
fourth quarter that started the financial crisis, and also nineteen
seventy three kind of the quarter that started that two
year downturn. So if you don't feel like we're in
the throes of a major crisis and we get to
November and December, it's likely to be more pylon to

(11:39):
end the year on a positive note and have another
well above average year. And we're kind of already there.
We're already above average and we're coming into to the
last three months of the year. Now, if you bring
it down by month, it's kind of interesting to look
at when you look at you mentioned positive third quarter,
which historically is not the best of the four court

(12:00):
orders either. It's an iffy quarter at best. But even
when you break it down by month and you look
at September, which is historically the worst month month of
the year, there's not a ton of positive Septembers. But
when September is positive and you go to November, excuse me,
you go to October, and then the rest of the quarter,
the quarter is nearly ninety percent positive. And you mentioned

(12:22):
some of the years where we did have negatives. But
October is a coin flip. Yeah, when September is positive. Yeah,
it's not all clear just yet. You still could get
a little bit of downturn in October, but it is
certainly a by a the dip. There's no You're not
waiting any longer if you get any kind of pullback,
even even some recent a recent October two thousand and nine,

(12:44):
which was an unbelievable year for the overall market in
terms of the rally off the bottom of the eight
financial crisis lows saw a two percent down October with
a huge finish, So the quarter started two percent down
and then from that low went up almost eight percent
through the end of the year. So yeah, so if

(13:06):
you're gonna you know, I think that playbook that we've
talked about previously on this show, which is if you're
going to look for a correction, it was most likely
to happen in September or October. I still think that
it could happen in October, but if it doesn't, you're
going into the best six months of the year November
to April, so it would be very difficult to get

(13:27):
too bearish, and you could possibly see we also talked
about the comparison to the late nineties, you could see
some sort of blow off top in the overall market.
We mentioned on a previous show in nineteen ninety nine
that final six months the S and P went up
about twenty five to thirty percent before the eventual peak

(13:48):
in March of two thousand. We could certainly go back
to June or July and the lows of those months,
and if you saw similar returns, you know, you don't
want to miss out on that. For one, but also
you could see some sort of blow off top that
would make sense to pull back risks. And that's the
reason to get conservatives slowly and get more aggressive quickly,

(14:09):
because that's usually what the market gives you. It gets
back to all time high and then just keeps going.
And sometimes these parabolic moves on the way up and
at the end you don't want to miss out on
because if you're waiting for a twenty percent pullback but
you missed out on twenty five on the way up,
then the pullback was irrelevant if you got out twenty
five percent too early. So slowly pulling back risk at

(14:29):
least even rebalancing and putting yourself in check is okay.
But and all in and all out can have you
missing out on some of these really good periods of time,
just like we've seen for the last three months. And
historically what is coming up now on the best six
months of the year. So that's what we're entering now,
and so the next couple of weeks will tell us
a lot. I think the job's numbers are going to

(14:50):
tell us a lot on how the economy's growing. Really,
the most significant one I think that we got this
week was that the job's number of job open I
mentioned last week kind of at a kind of a
tipping point dip, dip down below seven million. I think
that the market won't like to see it. The expectation
was seven point one. It came in at seven point two.
Each month that we get that job openings number, I

(15:12):
think it's going to tell us a lot about how
how wage inflation is going to increase based on that,
and and just the health of the economy. And we
might not get that, by the way, because of the
government shutdown.

Speaker 1 (15:24):
Yeah, you might know. Where does that come from?

Speaker 2 (15:25):
You mentioned not the job's number, but the job's openings number.
I think that's an ADP one.

Speaker 1 (15:30):
Okay, well, then that would come.

Speaker 2 (15:32):
Yeah, that's a private sector thing, so that would come
no matter what. So and still the private sector payroll
information from ADP And oh, what's the other one. I'm
drawing a blank here, but yeah, that was that was
actually week this week. But those are ones that have
been revised. And so there's a couple here that have
had to be been revised because of late surveys. So

(15:53):
you kind of have to look at a quarterly trend.
People are making a lot out of some of these monthlies,
you got to look at a quarterly trend because of
these revisions, right.

Speaker 1 (16:01):
So yeah, coming up.

Speaker 2 (16:02):
I mean you got the the unemployment numbers that you
mentioned for Friday, but adp employment was his private payroll
that was on Wednesday and it was a miss. But
when you look at the quarterly, it's been pretty it's
been a better trend. So next month, certainly we'll be
something to look at. Do you get two big misses
in a row that would be something the market wouldn't
want to see, or maybe they do want to see

(16:24):
it because they know the Fed will come in, And
so who knows what are you rooting for? You're rooting
for bad news that the Fed comes in, or you're
rooting for a good news because you know the economy
is growing. We're at a little bit of a tipping
point where I think some market pundits think we need
the Fed to be coming in a little bit more
aggressively and just get rates down to help some of
these sectors that would be affected by Let's take our
first pause. You're listening to Money Sense, Kevin and Brad Kirsten.

(16:46):
We'll be right back. Welcome back to the show. You're
listening to the advisors of Kirsten Wealth Management Group, Kevin
Kirsten and Brad Kirsten. Brad, let's talk a little technicals
in the market and see what's going on in the
charts as well. Look at the S and P five
hundred and kind of looking at the overall kind of
levels that the market is sitting. And then also what

(17:08):
does it mean if we have any kind of correction,
what would we be looking for in terms of levels
to come in. You know, if you're bringing new money
to the table or you've been on the sidelines, what
are you looking at? And certainly you look at this
chart of the S and P five hundred and there's
no arguing we're in an up trend with almost no

(17:28):
three percent correction since April. The market moved on and
made a new all time high past the February highs
and continue to make new all time highs when not
so much as a three percent correction. If we look
at the support levels, certainly the twenty day moving average
at sixty five sixty nine or sixty five hundred on
the fifty day moving average, you know, take a look

(17:50):
at that as well. That would be a level that
we'd be selling off approximately two hundred points in the
S and P five hundred, so that'd be that you know,
three percent type cell. If it was a little bit bigger,
we might be a little bit lower. But none of
that would invalidate the longer term trend that we're in.
I mean, I don't think markets or people who look
at technicals, Brad would even get concerned unless we got

(18:14):
below the two hundred day moving average, which would take
us below the February highs. I think that that'd be
the first time anyone would start thinking about, Okay, is
this the start of something bigger on the downside?

Speaker 1 (18:25):
Yeah? And so how far away are we from that?

Speaker 2 (18:28):
That's probably now you're talking about more like a eight
percent sell off from that point, and really when you're
around sixty one hundred, yeah yeah, so yeah, yeah, about
eight percent from the sixty seven hundred level that we're at.
When we're talking about technicals and the model that we
have that looks at technicals, you're really looking at a
couple different things. Momentum is a technical indicator, and momentum

(18:50):
has had has had investors that look at technicals buying
the dip in technology every time we get it, and
each of each of the sell offs that we've got,
the rallying sector going in has has sold off a
little bit more, but you do have to buy that
dip when it comes, because it has been technology that's
led the way on these v shape recoveries for the

(19:10):
last decade. But the other would be being contrarian and
what that is what led us into international last year
and what has led us into some international sub sectors
this year, because once you have sold off to a
certain point, everything is undervalued at that point, and so
when you start to move off the bottom, it becomes
a technical indicator to buy the to be contrarian and

(19:33):
buy things like biotech and pharmaceuticals which are at a
relative low to buy certain areas of international. When we
first moving in, we were talking about international technology, but
it's starting to broaden out a little bit, with certain
countries giving you some real outperformance this year, Mexico being
one of them that was never negative this year and
is one of the top performing international markets along with China,

(19:57):
and both of those going into the year would be
ones that people were avoiding. But if you're a contrarian
with some of your technical indicators, you would have been
looking at buying those as soon as they made a move,
which they did at the start of the year. So
sticking with the S and P, although the S and
P looks great on a chart, has trended higher, continue
to make do all time highs if you do look

(20:18):
under the hood, Brad, we look at stocks in the
SMP that are in an uptrend or a down trend.
This is defined by the twenty one day, the sixty
three and one hundred and twenty six day moving average,
all trending higher. It did peak in the summer. It
did peak in the summer, and has deteriorated a little bit.
We have a higher percentage of stocks now compared to

(20:38):
July that are in down trends, although the vast majority
of stocks in the SMP, what a little over fifty percent,
are still in uptrends. So you know, you can kind
of see that on this particular chart. Maybe some point
in time we can get the charts on our video
here that we're doing. But you have seen a little
bit of deterioration as well, even within the tech sector.

(21:00):
As you go to the next page, you can kind
of see a little bit of the broad bat based
nature of the rally in tech, uh, sort of deteriorating
a little bit. So that's something you know to pay
attention to.

Speaker 1 (21:13):
Uh.

Speaker 2 (21:14):
Yeah, it's just one of the what's going on under
the hood, of the essences going on under the hood,
and it goes to that, ye call it the that
the ted Ted Williams science of hitting strike zone.

Speaker 1 (21:26):
The pitches, your strike zone starts.

Speaker 2 (21:28):
To be a little bit more narrow, the easy pitches,
the the the the money to be made starts to
start to think, Okay, we're not going to be moving
up as far because things don't look as good, and
so it's prudent to just rebalance a little bit back
and get back to where we were uh to start

(21:48):
the year, and not where we were at the bottom
of the market when we were dialing up risk. That's
really the July adjustment that we were making was simply
that it was just let's just bring things back into check.
But there's still a lot of momentum in the market
and a lot of good things in the market. And
one of those fore technically for technology is how much
earnings have been going up. Those stocks are not that

(22:11):
expensive because earnings have been going up so much We
talked a little bit about this already, but I find
this interesting. If you divide the S and P five
hundred first nine month returns into five quintiles, we're in
the second best quintile that we've had. Number one is
greater than seventeen percent going into the fourth quarter. But
what's interesting is this level. Anything between ten and seventeen

(22:34):
percent as of September thirtieth historically has given you the
best fourth quarter return with the highest positivity rate. So
that's certainly a good sign. Average return five point two percent,
eighty seven percent. Quarters of quarters are positive when you're
up between ten and seventeen percent, So that's pretty good
to see. Yeah, And I think a lot of clients
would think, Okay, I know the market long term average

(22:56):
is about ten. Geez, we're up thirteen. Maybe we should
just be selling because the long term maverage is ten.
The average positive performance for the market going all the
way back to nineteen twenty, if the market's positive is
nineteen point nine percent, nearly twenty percent. And so that
kind of goes to your stat there, which is, if
we're positive this much, it doesn't usually stop here. It

(23:16):
usually finished the year on a strong note, So you
have to be aware of that. You have to be
aware of what are the average positive years, And now
we're working on a third positive that is getting up
to the average for a positive year, not the average
for the overall market, say over a longer period of time,
which would be ten, but the average year, which would
be more like twenty the average positive year. Right, Let's

(23:38):
shift to the small cap index really quick. Small caps
have been something that we've looked at that people have
been waiting for to finally participate. I mean, if you
kind of put it in perspective, Brad, the S and
P five hundred large cap index peaked in on basically
January first of twenty twenty two, and it hit its
bottom in October, and it got back to its all

(24:01):
time high second third week of January the following year
twenty four. So that all time high was right around
five thousand. Let's just use round numbers. It was pretty
close to five thousand. Today, the SMP five hundred is
almost has almost reached six thousand, seven hundred, So five
thousand to roughly thirty five hundred was a round trip
to six thousand, seven hundred. The small cap index peaked

(24:24):
before the SMP in twenty twenty one July of twenty
twenty one and just now got back to its all
time they would if you're gonna make an equivalency on that,
it'd be like the S and P five hundred sitting
at five thousand right now. Okay, that's how far behind
the Russell two thousand small Cap Index is now.

Speaker 1 (24:43):
Two ways to look at it.

Speaker 2 (24:44):
I know we have you have a lot of issues
with the way the Small Camp Index is structured without
any of the private equity investments that are out there,
But a four year period plus four plus years without
making an all time high is relatively historic for the
small Camp Index.

Speaker 1 (25:01):
So when you look at the chart, it would be
hard to argue if you could sustain a level above
or slightly above where we are today that the Small
Camp Index isn't breaking out.

Speaker 2 (25:12):
Yeah, and part of that is also a valuation move.
It's short on technology when you look at small caps
and the small tech Cap Index, and like we've mentioned,
part of that is because they're not in the index
because there's no technology IPOs in this market, because they're
all private equity until they're mid or large caps. But

(25:33):
there are times where small value or just small blend
without the technology has these huge runs because of valuation.
Those are the companies that will participate in other parts
of the market, maybe financials and regional banks which haven't
done well for the last three months but start of
the year off really doing well, or even some of
the smaller energy, alternative energy and utility companies that we

(25:54):
love in this market because of AI spend and if
they're a smaller company, a billion dollar company doesn't take
much in the in terms of increased revenue and increased
earnings for those companies to double. So it is it's
it's it's more of just a law of large numbers
sometimes with large caps and the law of small numbers
with small caps being able to give you this huge

(26:14):
outsized performance. And I think that's the market that we're
in for a little while here. But if they if
it fails again, there's gonna be a lot of market
participants that just say enough, I can get good returns.
I don't need this headache of small caps dragging on
my performance and giving me all these head fakes that
we've had over the last ten years, and and and
sometimes that's what that's one of the reasons that you

(26:35):
just have this lag and performance because you just have
people who give up on the asset class maybe have
four on K four to one k's that don't even
give the option to go there. So you just end
up with a lot of people with zero allocation there
for long, long periods of time. And if it fails again,
I think that's we're gonna have even more of that.

Speaker 1 (26:54):
So one of.

Speaker 2 (26:55):
The indexes that everybody follows. It's not that important to
the overall mark because it's only thirty stocks. But if
you look at the chart of the Dow Jones, you
know the S and P five hundred, the underlying strength
has deteriator deteriorated a little bit since the summer. What's
interesting about the Dow Jones is it's a little bit

(27:15):
it's almost the opposite of what's going on in the SMP,
in that the Dow Jones has really consolidated since the summer,
kind of chopped around in a range and just recently
broke out to new highs. The SMP has been making
new highs, but under the hood things are been deteriorating.
The Dow Jones appears to be making sort of another
move higher, and so what does that say about the

(27:36):
overall market? And I know we talk about the price
weighted nature of the Dow Jones, but if we just
look at the sector weightings of the Dow Jones as
opposed to just picking out in the individuals, I haven't
looked at it forever, and I know they've made it
from replacements in the last couple of years to get
technology up there a little bit. So it is twenty
seven percent financials. So certainly the Dow Jones breaking out

(27:57):
as a sign that financials are breaking out, and to
me an overall market where banks and financials are breaking out.
Certainly we could always have pockets of weakness, but the
banks get the hardest hit when you have a full
blown recession. Okay, we might have a correction. We might

(28:18):
even have a you know, a larger correction next year
because we've talked on this show how the midterms are
a little bit more volatility. But one of those corrections
that turns into a full blown two thousand and eight
or two thousand and two style selloff over thirty percent.
It's hard to see when financials are breaking out, and
you can see that in the Dow Jones. Okay, and

(28:40):
so twenty seven percent, financials, twenty one percent Tech, thirteen
percent industrials, which is pretty close to the SMP. I
believe what was it thirteen yeah, yeah, yeah, that's about
what the SMP is consumer discretionary thirteen percent. I think
that's also pretty close to the SMP P ten for
the SMP healthcare eleven. That's really close. Materials for staples,

(29:00):
for communications services to energy two.

Speaker 1 (29:04):
Yeah.

Speaker 2 (29:04):
So you have no utilities, you have no real estate,
you have a few sectors that just aren't participating. But
I mean the big swap, honestly, the big swap would
be financials in the SMPR about fourteen percent. If you
took that fourteen percent from financials and gave it to tech,
the Dow jones would be exactly the SMP. And so
that's the all we have similar performance. And then then

(29:25):
you have individual stock performance. I mean, look at the
healthcare you know, a night At health Group is in there.
It's one of the worst stocks this year, but it's
had this huge rally from two fifty to three p
fifty in the last six weeks. So certainly as a
three hundred and fifty dollars stock in the Dow, it's
gonna have this big, big impact on where and why
the Dow is finally getting to its all time high again.

(29:47):
So yeah, it's it's it's tough to even look at
the at the Dow and and kind of makes sense
on why that would matter to the overall market, but
people look at it. International charts you mentioned that before,
also look great breaking out to new all time highs,
consistently leading the overall world the msci EFA International Index

(30:09):
and breaking out above just fairly recently Brad the two
thousand and seven highs, so even more exaggerated than even
more exaggerated than small caps. So you add on top
of that that we have the FED winds that are
back a little bit now, we certainly have some cuts

(30:30):
that are going to be coming along the way. Certainly
a positive thing to see, and we're finally starting to
see as numbers come in. We had a lot of
volatility around interest rates and the tenure treasury right after
the Fed met. I mean, we went under four and
then we went almost a four point two on the
tenure treasury. Mortgage rates actually ticked up a little bit,
and now we're back down again. On anytime we get

(30:51):
a little hint that there's any weakness in the jobs numbers.
You see the interest rate market and interest rates, Treasury
rates come down pretty sure with the anparticipation, the Fed
is going to go through with at least one more
cut this year.

Speaker 1 (31:04):
Yeah, I think I saw treasuries what four oh eight today?

Speaker 2 (31:09):
Okay, then that's down a lot here just midweek, because
I know it started the week at four thirteen, and
I thought even that was a healthy sign. But under
four to ten again and on a slight trend down
would be would be something that the market would want
to see in your bond portfolio needs to see it
as well. So if we look at just some of
the sectors really quick, consumer discretionary definitely a very highly

(31:31):
economically sensitive category, but still has not gotten above its
February highs. So that's kind of an interesting thing to watch,
and certainly if it did, it would be bullish for
the broad market as well. If consumer discretionary got to highs.
Consumer staples, if you look at this this chart brad
on consumer staples trending down, maybe a little bit more

(31:53):
tariff headwind in consumer staples and inflation headwind there, and
really if you look at staples which is store have
been great defense. You know, people put a little bit
more consumer staples in their portfolio whenever recession occurs, and
a lot of times it's almost better performing than.

Speaker 1 (32:09):
Certain bond categories.

Speaker 2 (32:11):
But the other problem I think with the consumer staples, Brad,
is they're expensive.

Speaker 1 (32:16):
Yeah.

Speaker 2 (32:16):
I mean, we very rarely have had consumer staples trading
at this high of a price to earnings ratio. Yeah,
they were expensive. In the COVID downturn, they held up great.
It was it was a logical move. In twenty twenty two,
they were actually positive when the market and bonds were negative.
There was two sectors utilities since consumer staples, they're historically
defensive sectors that were your place to hide out when

(32:37):
the market was selling off and your bonds were selling off.
Going forward, I've made the case for utilities, I don't
know that consumer staples are in the same boat. I
think you're going to have shrinking margins, where in tech
you have growing margins and the utilities you have growing margins.
And I think that you're right. The terrafs for those
types of companies are here permanently, and so it might

(32:59):
be a permanent reduction.

Speaker 1 (33:01):
Not a recommendation of buy or sell.

Speaker 2 (33:02):
But you've got Procter and Gamble being the number one
holding inside of the consumer staples category. So industrials charts
looks really good. And we mentioned defense. Take a look
at the XLU sector ETF brand that really seems to
be breaking out to new all time highs on the

(33:23):
idea of the tremendous demand for energy that's going to
come from the AI build out. So if you're looking
for defense, and I know utilities are a little bit expensive,
but in terms of momentum and the trend certainly look
like they're breaking out compared to consumer staples, which just
continue to make lower lows and lower highs. I think

(33:44):
you're about wrapping up here. Let's take our next pause.
When we come back, I want to talk about how
to get it wrong, even if you're trying to get defensive.
When we come back from the break, there are a
number of these sectors that historically you would look at
and say, oh, dividends are the way I need to
find my my the magic pill for being defensive, and
I think that's the wrong way to go about it.

Speaker 1 (34:05):
You might end up with.

Speaker 2 (34:06):
Dividends, but overall, total return is what you need to
be shooting for, and dividends are a shrinking part of
the S and P five hundred, and they're also a
shrinking part of some of these sub sectors that historically
would have five six percent dividends. And it's going away
for a couple of different reasons. Let's talk about that
when we come back from the break. You're listening advisors
A Christon Wealth Management Group. We'll be right back and

(34:28):
welcome back. You're listening to advisors A Kerston Wealth Management Group.
Brad and Kevin here with you today. Kevin, I was
mentioning the right and wrong way to get defensive. And
it's okay to use defensive sectors, it's not okay to
just be seeking out dividends. A couple different reasons.

Speaker 1 (34:41):
Why.

Speaker 2 (34:42):
One, there are less and less companies even paying a dividend,
And if you're looking for the growth of a sector,
a lot of those newer companies, small and midcaps especially
don't pay dividends. And even in some of these sectors
that historically pay dividends, like utilities, the dividend is shrinking.
If we look at the overall S and P five
hundred dividend yield, go back to the nineteen eighties nineties,

(35:06):
we were above three percent for the total SMP five
hundreds dividend for probably a good fifteen years. Obviously, it
shrunk a little bit in the in the nineties when
you had this huge tech rally. None of those tech
companies were paying a dividend. Prcosoft was probably the first,
followed by Apple over about another ten to fifteen year period,

(35:27):
and the dividend grew a little bit, but has stayed
around two percent all the way up until about twenty twenty.
And now you just don't have dividends growing. You don't
have companies initiating dividends, and that dividend is now at
its lowest level at one point one seven percent at
the at the end of the second quarter. And it's

(35:47):
just I think it's going to keep shrinking because you
may have companies paying a dividend but not growing it
as much. But you're definitely going to have a lot
of these new technology companies, new alternative energy companies, new
alternative utility company that if you're looking in the utility
space and you want infrastructure and AI spend to be
part of it, these are smaller companies that need to

(36:08):
spend their money on that infrastructure, and not just to
pay out dividends. Dividends are quite frankly, it's for when
a company doesn't have any sure, they don't have anything
better to spend their money on. Apples started paying a
dividend because they couldn't figure out how to spend it,
and so that's what you end up with a lot
of times. And these tech companies, instead of paying dividends

(36:29):
and growing dividends, are out on a spending spree. And
they're spending spree is out acquiring companies. So let's just
take a look at this. We mentioned this in past shows.
Do a little update here. I think it's been two
years since we talked about it. The other talk that
I think people need to ignore kind of a different
subject here we'll talk about both simultaneously, which is all

(36:50):
this talk of how much the S and P five
hundred is the top ten companies. It's at its highest
level ever. Thirty nine percent of the top ten companies
are the market cap of the SMP. But it's not
just ten companies. Amazon has has acquired one hundred and
twelve companies in the last two years. They've added four
more to it. And Nvidia is finally getting in the game,
but they bought ten companies in the last two years.

(37:13):
They're up to twenty eight acquisitions. Apple's up to one
hundred and eighteen acquisitions, six in the last two years.
Google keeps buying two hundred and sixty two acquisitions, three
in the last two years. And Microsoft has has bought
eight companies in the last two years and is up
to two hundred and eleven acquisitions. So don't fall for
the top ten. Companies can't make up this much of it.

(37:34):
I mean, I don't know how many hundreds I just
went through there, but it's more like seven hundred companies
in those five I just mentioned, And so that's totally irrelevant.
And if companies, even in the smaller the smaller companies
are going to be merging or buying up smaller companies,
that's what they're going to spend their money on. So

(37:55):
if you're looking for these sectors because you think they're defensive,
one of the things you don't need to be doing
is looking to see what the dividend is and looking
at a portfolio, say that one pays a higher dividend,
therefore it must be better. I would actually make the
opposite argument, some of these sectors are gross sectors and
they shouldn't be paying dividends at all. I'll go for
the lower dividend paying one because now I know it's

(38:16):
a portfolio that's built around growth and not dividends. Total
return is what matters, not the dividends, well much of
what surrounds almost any dividend strategy. I'm looking at one
of the largest dividend ETFs that's out there. In fact,
this divid in ETF. I'm not going to say the name,
but the title is the it's it's based on the

(38:40):
Dow Jones US Dividend Index and the title is US
Dividend Equity ETF. I mean, this is something that has
seventy billion dollars in this ETF.

Speaker 1 (38:52):
Okay, is that right? Yeah, seventy billion. And the performance
it's not bad.

Speaker 2 (38:59):
But I mean you look at your like, twenty twenty
four is only up eleven percent, twenty twenty three it
was only up four percent. Okay, did hold up well
in the bear market of twenty twenty two, so you
know it was pretty good defense at that point in time,
and the returns aren't bad. But when you look at
when you focus on dividends and what you end up getting,

(39:19):
and you know, maybe somebody needs to perfect this a
little bit more. Maybe you want dividends, but you don't
want to deviate from the S and P. You know,
come up with a dividend index that is the same
waiting as the SMP, and maybe you wouldn't get if
you're seeking out dividends first, you're gonna end up with
this skewed waiting to sectors that only pay dividends. So
let's look at this particular and people say, why why

(39:40):
would I go for dividends? Do I underperform?

Speaker 1 (39:41):
Why?

Speaker 2 (39:42):
And many people do it with ETFs, they don't do
it with individuals. So it just because you're making a
sector betteen. This particular ETF is nineteen point two percent energy,
nineteen percent consumer staples. Two charts that we looked at.
We didn't look at energy, but consumer staples doesn't look
great year to date.

Speaker 1 (40:01):
Right now on the chart.

Speaker 2 (40:02):
Another area that hasn't done great is healthcare, kind of
turning the corner a little bit, but healthcare is fifteen
percent of this index. Information technology nine percent. Another area
of the market that looks like it's breaking out financials
eight point eight percent. Kind of surprising a little bit
that financials wouldn't have some good dividend pay part part
of that, and the shore not allowed, yeah one their stick.

(40:23):
Until recently, they weren't allowed to grow their dividend. They
were allowed to maintain it. And so you went, you
went twenty years where they couldn't. They could not grow
the dividend. I mean energy and consumer staples. I mean,
regardless of the dividend strategy. And this particular ETF yields
four percent on the nose. So that's really good. There's
a really good dividend yield. But the problem is, if
your underlying investments are losing value, it's not enough, it's

(40:47):
not enough to make to benefit you from having that
higher dividend y And so here's the other problem, a mistake.
And I hear this all the time. So if you're
not one that thinks this, your buddy does, okay, and
your neighbor does, and most people think this. You just
mentioned that ETF was four percent dividend. Oh well, it
was eleven percent last year. But I also get the dividend. No,
that's part of it. Oh it's eleven percent, but I

(41:09):
but what is it after fees that's after that as well.
They can't post it without the dividend included, and they
can't post it without whatever fees are included on them
on the fund, the ETF or any of it with
that out of their same goes for your statement that
might have an advisory fee on it. It's already out
of there, so you don't have to do any math
to come up with their return. What kind of world

(41:31):
would we be in where the regulators would allow someone
to post something where the investor had to do a
bunch of math to figure out what their performance was.
It's already all off of there. So if you're thinking
you're doing a dividend strategy and it's the return plus
the dividend, you're wrong. It's already included in it. And
a lot of these the only return on some of
these is the dividend, and it's not that good, so

(41:54):
you don't need it. It's not saving you any money
on taxes. The tax performed tax is about the same.
And I would even make the argument if it's in
a non retirement portfolio, you should be avoiding dividends, especially
if you're not taking any income out of the portfolio.
Dividends are going to be a drag on your performance.
It's one of the worst ways to get a good
at total return is to have higher dividend than the

(42:15):
overall market. Yeah, and you have to pay attention to
that sector makeup. We harp on it on this show, Brad,
But it is extremely important if you're going to make
a call. And so many times we look at portfolios
and analyze them, and the first thing you say when
you look at it is if somebody's underperforming, then the
second question is, well, did you mean to be twenty
percent underweight tech compared to the index? Well, no, I

(42:38):
didn't have that conversation. We talked about dividend or we
talked about value. But that's what ends up happening. It's
the same story with international. For if you underperform the
last ten years, not this current year, and I would
just say, well, did we mean to be twenty five
percent international? No, I just wanted dividends. Well, the international
companies pay higher dividends. That's how you ended up there.
And sometimes that's a mistake because you're just seeking out

(43:01):
you're you're getting there the wrong way.

Speaker 1 (43:03):
That's right.

Speaker 2 (43:04):
Let's take our last Baus. You're listening to Money Sense,
Kevin and Brad Kurston will be right.

Speaker 1 (43:07):
Back and welcome back.

Speaker 2 (43:09):
You're listening to advisors of Kristen Wealth Management Group. Brad
and Kevin here with you. A couple of minutes left. Kevin,
we were talking about dividends and the right way and
the wrong way to do it. And you know, I
don't even know if you're never going to hear somebody
say that dividends are the way to invest, but just
people just end up thinking that's a good way to
invest because I get dividend, I get my return plus dividends.

(43:29):
And I said that you know in the prior segment
that if you're thinking that the higher dividend is the
better portfolio, you're doing it wrong. I want to expand
on that, just to touch If you're looking at two similar,
similarly weighted portfolios and they had this a very similar
sector makeup, I would make the argument that the lower

(43:51):
dividend paying one is going to be the better performing
one over time, and history would prove that out as well.
The portfolio that you were mentioning, I think would say
it was a four point six percent dividend payer.

Speaker 1 (44:02):
No it was right on four. It was right on four.

Speaker 2 (44:03):
Okay, okay, we just pulled up another one that the
title in it is rising dividend.

Speaker 1 (44:08):
We've used in a lot of our We've got it,
we've got in models.

Speaker 2 (44:11):
You know, if there's if there are times that that
we like the sector makeup of it, we will use it.
But it is seeking out companies that increase their dividend
and doesn't have too strong of a mandate where they'll
they you know, they have to do it every year,
but historically we'll increase that dividend. The current yield on
that portfolio was barely over one. So here you have

(44:33):
what sound like two very similar portfolios, and the lower
yielding one on a three, five and ten is outperforming
by three full percent you, no, it's worse on a
three year base. On a three year basis, it's ten
full percentage points or one thousand basis points.

Speaker 1 (44:49):
That's not sound better.

Speaker 2 (44:50):
Oh, sorry, per year? Yes, Oh okay, on a three
year number it is a thousand basis points. Yeah, okay,
that sounds better. Well, that's a lot. No, ten full
percentage points better per year, and on a five year
basis it is four percentage points better. Okay, Now it
doesn't have a very high yield, even though it is

(45:12):
an index that is looking for companies that pay a dividend.

Speaker 1 (45:16):
So they're looking for them.

Speaker 2 (45:17):
To explain why, because if you have if you have
the ability to increase your dividend, you have a company
that is growing and it has increased earnings. If if
all you have is the other dividend index, start with
a minimum level of dividend, yeah, so what.

Speaker 1 (45:34):
Do you end up with?

Speaker 2 (45:34):
You would end up with a company with a falling
stock price that hasn't lowered their dividend yet. So I'm
at one hundred dollars a share and I pay a
five percent dividend, and a year later, I'm at fifty
dollars a share and I haven't lowered my dividend yet.
Guess what my yield is?

Speaker 1 (45:49):
Ten? Is that a good company?

Speaker 2 (45:51):
No, give me that the fifty dollars company that pays
a one percent dividend and is now at one hundred Okay,
guess what that dividend is until they increase it half
a percent?

Speaker 1 (46:02):
Okay.

Speaker 2 (46:02):
I want the growing company that, oh, by the way,
happens to pay a dividend instead of the shrinking company
that is only trying to keep shareholders by continuing to
pay the dividend go into debt to do so. So
this divid index that we've utilized in quite a few
portfolios brad To be eligible for inclusion in the index,
the company has to have paid any kind of dividend
in the trailing twelve months that is greater than the

(46:25):
dividend in the twelve months before that.

Speaker 1 (46:27):
That's all. That's it.

Speaker 2 (46:28):
It doesn't matter if it was a one percent dividend
that went to one point one, it doesn't matter. The
one the dividend index is that we don't like are
the ones that set a floor to say we start
at three percent and the yield needs to be higher. Yeah,
so think about that. This yield could be lower, but
as long as they pay a dollar amount that's higher

(46:48):
than it's in the index, and that is a sign
of a healthy company. The fact that the company is
paying a higher yield, that that could have gone down
in the last twelve months, and it also might be
a sign that's going to continue to go down. Weed
out your companies the wrong way if you're looking for
high dividends. Two other screens that I really like here
on this dividend index that we utilize.

Speaker 1 (47:07):
Okay, and we're always looking for total return.

Speaker 2 (47:10):
If we happen to get a dividend, great, But if
you look at this divid index, which is outperformed, what
is maybe the largest dividend etf in the world, significantly
positive earnings per share in the most recent fiscal year
that is greater than the three years prior. So that
is a great screen that is usually not in a

(47:30):
divid in portfolio where you're screening for is the company growing? Okay,
you've only got about a minute left in the show here,
so there's some other Hold on a second, we only
got about a minute left the show. Trailing twelve month
payout ratio no greater than sixty five percent, So we
don't want to see a company that is spending every
last penny to pay avt to pay that dividend. Yeah, right,

(47:50):
And the same goes for debt. I'm not sure if
it's in this portfolio, but we've utilized there's a debt
screen on this portfolio. If you're going into debt to
pay your dividend, it should be eliminated from portfolio. But
there are a lot of portfolios that don't even look
at it. You need to be looking at the debt
ratio and if it's going down or staying the same,
you're healthy. If it's going up and you're increasing your dividend,
it is definitely the sign that you're basically buying your

(48:12):
shareholders by continuing to pay that dividend. Yeah, if you
have any questions about dividend strategies or the right way
to do it, give us a call at the office
four one nine eight seven to two zero zero sixty seven.
Thanks for listening everyone, we'll talk to you next week.
You've been listening to Money since brought to you each
week by Kirsten Wealth Management Group. To contact Dennis Brad

(48:34):
or Kevin professionally, call four one nine eight seven two
zero zero six seven or eight hundred eight seven five
seventeen eighty six. Their email address is Kristenwealth at LPL
dot com and their website is Kirstenwealth dot com. Opinions
voiced in this show are for general information only and
are not intended to provide specific advice or recommendations for

(48:55):
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 FINRAP SIPC