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

Episode Transcript

Speaker 1 (00:00):
Hello, and welcome to money Sentence. You're listening to the
advisors of Kirsten Wealth Manager Group, Kevin Kirsten and Brad Kristin.
Happy to be with you today. Brad, we were kind
of summarizing the last three years on the last show.
We had a three year anniversary of when this current bull
market started in October of twenty two, and as we
were getting ready for the show, we kind of talked
about the fact that we felt like we had more

(00:22):
to add to that. Certainly, we're not only looking at
the three year anniversary, but a lot of different things
have occurred, including a pretty big election that happened last year,
and one of the things that we talked about in
that election timeframe is trying to analyze what areas of
the market do well under certain presidents, what areas of

(00:42):
the market did did well under Trump's first presidency, And
the discussion was around is it not really what you think.
Sometimes people have these ideas about this president's going to
do this, and this president's going to do that, and
it's going to help this part of them, and it's
gonna help this part of the market. It's gonna be
bad for this part of the market, it's gonna be

(01:04):
good for this part of the market. And as we
were kind of studying those numbers and looking at the
specific sectors and I kind of went back and listened
to some of those shows. It's it's it's basically exactly
what we thought. We really haven't seen much discrepancy. I mean,
one of the things that people discussed is the idea
that all it's gonna be a big energy boom, drill,

(01:24):
baby drill, and Trump's going to open everything up. And
we said, okay, wait a minute, pump the brakes on
that a little bit.

Speaker 2 (01:30):
If he opens everything up, if he allows drilling, it'll
drive prices down.

Speaker 3 (01:34):
Now, that didn't happen.

Speaker 1 (01:34):
It was one of his goals, by the way, that
was one of his goals right out of the gate,
is to get gas prices down.

Speaker 3 (01:39):
That was one of the inflationary things exactly.

Speaker 2 (01:40):
Yeah, and so but you have to think about you
have to read between the lines and say, if if
we're going to allow all that, then prices go down.
It does help inflation, but does it help those companies?
And so let's maybe talk about that first. And that
is are what sectors have done well and not done well?
Since the election, and I think this is really a
surprise for people on both ends of the spectrum, people

(02:04):
who have done well and people who have not. If
you've done well, you think the whole economy is doing well,
and it hasn't since the election. You have tech up
twenty six point three, is as of last night's close,
twenty six point three, communication services up twenty five, utilities
up seventeen point twenty eight, communication and consumer discretionary up
eighteen point five to five. That's really it. Those are

(02:26):
the ones that are doing better than the market. Then
you have a few doing what the same as the market,
like financials up about thirteen, industrials up about fourteen. It's
about where the market is since the election. But then
you have everything else.

Speaker 3 (02:37):
You have.

Speaker 2 (02:39):
The worst of them is since the election is materials
negative five point six, real estate negative one point seventy four,
Energy negative two point eight two. Now, so many people,
including financial advisors, telling me Trump loves energy, gotta load
up on energy. Well, here we are eleven months later

(02:59):
and it's negative almost three percent since then. So you
do have to kind of think about the unintended consequences
of an easy policy there, or what will be the
effect of policy, or if we don't know, just invest
in everything. And if you invested in everything, your overweight
would have been to technology and financials because those are
the biggest parts of the market. And so one area

(03:22):
that consistently has been worse under Republicans, and we pointed
that out a year ago, was healthcare, and that's also
negative since the election, negative a half a percent, and
the last one is Staples negative a half percent. So
there you are with five negative sectors out of eleven,
two doing the same as the market, and then the
rest of them doing much better than the market. So

(03:43):
it's a case for not being all in and making
huge calls because a lot of these areas, except for healthcare,
are small parts of the market. So even if you
wanted to be overweight energy, it's okay to be one
or two percent overweight, but at no point do you
want to have something that's a tiny part of the
overall market be your biggest holding, and that would be

(04:06):
you know, the smallest of those sectors is real estate materials.
You know, energy is only about five percent of the
overall market right now. You can't have that be twenty
five or that's too big of a call. And the
same thing with using individual stocks. It's okay if the
biggest parts of the market are maybe a bigger parts
part of your portfolio. But are we going to make

(04:27):
a call to put some tiny regional bank in there,
or an energy stock that is half a percent of
the overall market and you're gonna make it a big part.
Or you inherit a stock that is a tiny part
of the overall market and now it's fifty percent of
your total because you inherited this big chunk. It is
not properly. That's not the way to invest dollars. You

(04:48):
do have to be prudent with your risk management, and
individual stocks or individual sector overweightings are the art can
lead to these big swings in performance where you're wildly
underperforming the market and you didn't even intend to. Now
that we see what's happened since the election, we are
seeing some of these areas that have underperformed turned the corner.

Speaker 3 (05:08):
A little bit.

Speaker 1 (05:09):
Healthcare biotechnology have not had a good year, but they
are starting to hit a series of higher highs and
higher lows, and so we've been looking to add it
in some of our more tactical portfolios.

Speaker 3 (05:22):
Effact.

Speaker 1 (05:22):
This week, we added a little bit of biotech to
one of our more tactical portfolios, and even energy, broad
based energy. I don't think you have to get too
cute with energy. It's a little bit of an all
of the above. Let's face it. In the next decade,
we're going to need more energy in all shapes and
sizes and forms.

Speaker 2 (05:40):
Yeah, with all the new technology we're talking about, you're
talking about things that are going to get powered with
batteries in some cases, but in most cases it's utilities
and energy and alternative energy sources to make all this stuff.

Speaker 1 (05:53):
From natural gas, wind, solar oil. You're going to need
all of it. And Trump has made a concerted effort
to invest government dollars into these areas as well. We
saw the rare earth metals deals he was making in
the last couple of months, trying to put investment into

(06:14):
doing it inside of the United States, so we don't
rely as much on China. And so we're seeing some
of those indexes and ETFs really rally. And those are
some of the indexes in ETFs that we have added
to our more tactical portfolios, and so we're paying attention
to that and you couple that with the fact that
you've had this prolonged rally in technology stocks. Are there

(06:35):
some other areas where you can find some value. Does
that mean sell your tech? No, of course not, but
it means that there is some value out there that
you can find for twenty twenty six and beyond, where
you might see some opportunity in some areas have been
left behind.

Speaker 2 (06:50):
I think it's what we're mapping out for early next
year is how do we start to get conservative. It's
simply going to be a rebalance back, but maybe a
market wait for some of the sectors because you've had
the huge run up, and so if you don't do anything,
you're more heavily weighted to the things that have run
up at the end of that run up than you
started with. So the first would be just to rebalance,

(07:12):
but the next would be, you know, these sectors that
have been left behind, you can certainly add a little
bit to those and just rebalance. And if you're nervous
about all this bubble talk, which we're going to get
even more of in the next three months, look at
how these sectors do on a down day. I pointed
out to you on Wednesday, we had our first down
day since the prior Friday, so you'd had about whatever

(07:35):
that was seven days that were either mild or up.
But we had a nice down day, I say nice
orderly down day, and one that is exactly what you
would expect out of a down day. Were the worst
sectors were the ones that are up the most tech
and tech related, and the best sectors are the ones
that weren't even up on the year. Of those four

(07:56):
I mentioned, three of them were positive on that down
day of Wednesday. So tech was down two percent on Wednesday,
healthcare was up a half a percent, staples were up
a full percent, Energy was up point four, and real
estate was up point three. So it's what you want
out of those other sectors, the more conservative defensive sectors,
and if you had them, you held up a little

(08:18):
bit better. But I think the more important is the
market is telling you if we're nervous about the valuations
in these areas, it will be a flight to undervalued
and then later maybe a flight to quality and maybe
conservative bonds. But if you're nervous now, it's okay to
make that adjustment to these lower volatility sectors and defensive sectors.

(08:41):
We're gonna probably likely not be doing it until there's
certain levels in the market that we're looking at. We'll
be doing it later. It might come before the end
of the year, it might come right after the first.

Speaker 3 (08:51):
Of the year.

Speaker 2 (08:51):
But it's what we're mapping out, which is all these
left behind sectors still are ones that in this current
quarter of earnings are doing fine. Consumer staples are probably
the only one that is really disappointing. Healthcare has some
good and some bad, but probably shouldn't be trading at
these really low multiples because you have a growing economy

(09:11):
and certainly energy and staples in healthcare are going to
give you that defense at the valuations they're trading at now.

Speaker 1 (09:19):
The last two midterm election years we had were negative,
and in those two midterm election years, the SMP five
hundred was down approximately eight percent in twenty eighteen and
twenty percent in twenty twenty two, and if you look
at the low volatility category, it was up slightly in
twenty eighteen. Now these are the lowest volatile names in
the S and P five hundred, you end up with

(09:40):
less tech, but it is a category that we've kind
of started to discuss, adding a little bit of an
allocation to going into the midterm election year, which is
historically is the most volatile year. It is the worst
performing year of the four year presidential cycle, and it
historically has bigger drops that it still averages a positive return.

(10:03):
Midterm election year still has average as a positive return,
but it is the worst of the four years. And
when you look at what low volatility did both in
twenty eighteen and twenty two and how well it held up,
that might be something that we might would look to
allocate a little bit of money to as well going
into twenty twenty six. So there's there's times where you
want to just simply lighten up on your stock positioning

(10:24):
because it's gotten too big after a three year rally,
and just own some treasuries, own some investment great corporate bonds.
But you can also reposition within stocks to reduce your
risk as well, stock to stock growth to to defensive.
And when you look at that lowvall ETF, you end
up with utilities as your number one sector. But and

(10:45):
that's the one place that still is positive this year,
but that in that most of those ETFs, you're gonna
end up with your not your high flying utilities that
we're seeing sign AI deals. You're getting more.

Speaker 2 (10:58):
Of the the state eddi eddie utility come so you're
not getting a lot of it. You're not good, Yeah
that's true, but but you're you're not you're not getting
the things that are training these giant multiples in the
utility space that are making headlines.

Speaker 3 (11:09):
Well.

Speaker 1 (11:10):
And once again we're talking about recapping the last three
years here, Brad. If we divide the S and P
five hundred into five quintiles, so top twenty percent to
bottom twenty percent in terms of risk, okay, And the
way that the LPL has defined risk in this uh
this article they put out in their in their weekly blog,

(11:30):
is compared to the markets. So if the what's called beta,
I don't want to get into exactly what beta is,
but to simplify it, when the market goes up down
one percent, the higher beta names will go down more
than one percent, okay, and the highest beta names will
go down even more than that. So if we divide

(11:51):
those names up, in the last three years, the highest
beta names, the highest beta twenty percent of stocks in
the S and P are up three hundred and ten
percent in the last three years. The lowest beta names
in the last three years are only up forty percent,
and it goes right down the line. Okay, so it

(12:13):
has been the high flyers. Many people have participated. The
same is true in small caps. They did small caps
just for the argument, but the spread is not nearly
as big. The high beta small caps are up sixty
percent in the last three years and the worst are
only up forty five, so the spread's not nearly as different.
It has changed a little bit in more recent history.

(12:33):
In the last six months, the high beta small caps
are up fifty two percent in six months, the low
beta names are only up nine. But the point is
it has been the high risk names that have been rallying.
And you've had a three year rally in the S
and P five hundred. Do you want to completely sell
out of those names. No, But if you've left quote

(12:55):
unquote the lower volatility or the lower risk names behind
in your equity portfolio in twenty twenty six, you may
want to have a sleeve in that particular space. And
I know it's hard. You look at AI spending, you
look at what's going on in the economy, but don't
forget the market is forward looking. It prices out six twelve,

(13:16):
eighteen months, and so it is only a prudent thing
to do, Brad, to take a little bit of that
risk and reassess whether it's stocks to bonds or it's
just like you said, repositioning. And we're always mapping it
out three to six months in advance too. Is why
we're talking about it now because and educating people on
what what are you gonna be hearing If we have

(13:37):
S and P five hundred, that's at seven thousand at
the end of the year and seventy two hundred in
February of next year. You think they're gonna be talking
about lowvall.

Speaker 2 (13:46):
No, you think they're gonna be talking about consumer staples
that haven't given you any performance in two years. No,
they're gonna say this time it's different and this is
what you need to invest. The bottom is the same way.
Let's take our first break we come back. I want
to talk about what the headlines were at the bottom
three years ago and what we can learn from that,
because on the way up we get the opposite headline.
If a downturn happens next year, we're going to get

(14:08):
the same headlines we were getting three years ago. And
we'll talk about that. You're listening to the advisors of
Kirston Wealth Management.

Speaker 3 (14:13):
Group, we'll be right back and welcome back.

Speaker 2 (14:16):
You're listening to the advisors of Christon Wealth Management Group,
Bred and Kevin here with you. If you're listening to
the podcast or on ihearten didn't hear any of our
ads We are professional financial advisors in Perrysburg, Ohio. Give
us call any time to give you a second opinion
on what you're doing, or if you're approaching retirement and
aren't working with a financial advisor, we'd be happy to
kind of tell you how what we do and how
we can make your retirement a lot more enjoyable. Let

(14:38):
us worry about it so you don't have to. Kevin
I mentioned before the break that we're pretty much at
the three year anniversary of the low of twenty twenty two,
that midterm election year low, and it was pretty much consensus.
Is one of the we talk about this at the
start of every year. What is consensus? Well, at the
bottom of the market. Here's the Bloomberg headline from October seventeenth,

(14:59):
twenty twenty. Forecasts for US recession hit one hundred percent,
So one hundred percent, we were going to have a recession. Now,
the market priced in a recession, recession of a bear
market going down by twenty percent. We were down by
twenty six percent at this point. So does it really
matter if we go into recession if the market's pricing
it in. Does it matter if the recession comes six

(15:20):
months later, a year later, if we've already priced in
the recession, I would say no. And it turned out
we didn't get either. We didn't get a market going
further down, we didn't get a recession, and even though
all of the economists were all in agreement that we
were going to get a recession in the next year,
we did not get one. In the market kind of
shot straight up. And I would make the argument by
this point, maybe the AI spending accelerated a little bit,

(15:43):
but there wasn't a whole lot that was any different.
The Fed kept going, we had higher rates for a
long time. The market was slower, but didn't dip into
a recession. Technology spending was always high, companies were making money.
It nothing really changed. And yet this recession talk is

(16:04):
what pushed a lot of people to get out and
wait for the all clear. Well, the all clear is
that's what it sounds like. That's what the all clear
sounds like. Consensus that this time it's different, everything's gonna
keep going down, or consensus that we're gonna go recession.
If that's the consensus, then the market is already priced
it in. We talked about this last week. If the

(16:25):
market is already priced it in, what's it matter if
it gets worse. The market's already pricing in the worst case,
and therefore all it needs to do is beat by
a little bit. You get that sometimes with company earnings,
we've priced in all the bad. You get a terrible
earnings report and stocks go up, and the opposite on
the way up. We're pricing for perfection. We have a
great earnings report, and stocks can't go up anymore because

(16:46):
everything's already priced in. So know what is contrarian in
the market in numbers and expectations, and know what is not,
and one of those is what the economists are thinking.
Kind of had a lot of that over the last
six months, even where the economists had a little bit
of a consensus six months ago in April that what

(17:08):
we were going to do. You see this on maybe
just the Economist magazine and what their headlines were. A
revised economic outlook in April is what the economists had
on their on their cover page with picture of Trump
dumping gasoline on money.

Speaker 3 (17:25):
Uh.

Speaker 2 (17:25):
You had Harry Dent in April say the market crash
is coming this year. Hot of stocks could drop ninety
nine percent. Is what Harry Dent said. So and it
says the contrarian's contrarion tells Think advisor, there's no safe
place to invest. A couple months later, the Age of
Chaos with pictures of Trump all over and on the economists.

Speaker 3 (17:47):
That was the last week of April.

Speaker 2 (17:49):
Uh.

Speaker 3 (17:50):
And then they went three more.

Speaker 2 (17:51):
Weeks with the economists having Trump's first hundred days and
just a list of all the what they said were
things that were going to take the economy down, the
dollar crisis unfolding, the Age of Chaos, all these things
that would lead investors just to not be invested because
of all this worry.

Speaker 3 (18:10):
And what do we get.

Speaker 2 (18:11):
We had a market that came up forty percent off
that April bottom, and everything that went down the most
from December to that April bottom, technology and growth stocks
went up the most, and everything that held up, all
these defensive things we're talking about for next year, actually
held up pretty well, but then gave up ground in
the rally in the market and are now negative on

(18:32):
the year. So a lot of what we expected. Maybe
a little bit quicker in this six month rally, but
what you would expect if the market's going to rally.
And one of the reasons we're talking about at some
point in the next three four months lightening up on
the growth area of the market is if we get
a downturn, even if it's five percent, you would expect
that the things that have run up the most will

(18:54):
give up a little bit more ground.

Speaker 1 (18:56):
Well you bring that up. What's the economists have right
now on their on their cover? I think because I
think I think the one thing we missed we talked
about they don't. They get it wrong at the bottom, right,
their headline is just almost irresponsible at the bottom, and
it's a contrarian indicator. Well, you can't forget too. They
get the tops wrong as well.

Speaker 2 (19:17):
Yeah, so this is the coming debt emergency. So they're
still talking doom and gloom. Okay, So if you're using
the economists headlines as contrarian indicators whether you should buy
or sell they're still cautious telling you that that we
have a debt emergency. Now, that's that's at a time
when we we notched our first budget budget progress in

(19:41):
the last month, we actually paying down our debt for
the first time in a while. And uh, some of
that's from the tariffs, some of us just from unexpected
economic growth this year, and a little bit of this
this AI spend making its way through the economy. But uh,
there's no reason to think tax receipts next year are
not going to be through the roof. And so I

(20:02):
would say you're probably the last thing you should be
worrying about is what the government debt picture looks like,
because it's the first time we've had improvement, and yet
the economist puts it on their headline. So if they
get too bullish, we'll be pointing it out here. So
we can kind of use that as a contrarian indicator.

Speaker 1 (20:21):
And and yeah, I mean it's important to see that.
I mean, if I'm seeing articles about the boom in
AI spending, which is obviously you know, occurred, that might
be a little bit of a short, short term top
indicator as well, just like you use the negative news
and the pessimism as an indicator for the bottom. You
know something that I was reading about in lpl's research blog, Brad,

(20:45):
and it was interesting because I'd never even heard of
this until just recently. Something that Trump is calling the
mar A Lago Accord. Now, just read what it says
online about it. The mar A Lago Accord as a
proposed economic plan to restructure global trade by making the
US dollar weaker and more competitive while increasing US manufacturing
and exports. Certainly, weaker dollar makes manufacturing more more valuable,

(21:11):
it makes it cheaper to do, and it's part of
the reason the strong dollar was part of the problem
why we lost all of our manufacturing. Trump and Scott Bessett,
the Treasury Secretary, have often said that in their administration
they're going to try to worry more about Main Street.
I think they're still worried about the stock market, but
they're worried a little bit more about Main Street than
Wall Street. And the weaker dollar will do that. So

(21:33):
the plan involves coordinating with allies to devalue the dollar,
and could include higher tariffs linked security agreements, which Trump
has already done, demands for foreign investments in this country
for lower tariffs, which Trump is already done, coined in
reference to the nineteen eighty five Plaza Accord. The hypothetical accords,
feasibility and potential global consequences have been debated. So first

(21:54):
thing weeken the dollar. Lower the value the US dollar
to make American exports cheaper and imports more expensive. Increase
competitiveness by boosting manufacturing and exports, cutting imports. To address
the trade deficit, strategic use of tariffs. Higher tariffs are
proposed to incentivize allies to participate and reduce the deficit.
The trade deficit excuse me linking security with trade. Trump's

(22:16):
already doing this. The plan suggests economic concessions such as
investments in the US and lower tariffs on US exports,
and the US will then provide security guarantees. Monetary policy
proposals include getting allies to accept the weaker dollar and
potentially lower interest rates on their US Treasury investments. The
name is of course a nod to the nineteen eighty
five Plaza Cord, which was a multilateral agreement among many countries,

(22:42):
so it wasn't just the United States in nineteen eighty five,
but the Marlago Cord term was coined by economists, well,
who cares what his name is, It doesn't matter. Potential
risks and criticisms have been It's considered risky, potentially trigger instability.
Experts debate whether the plan is feasible and what consequences
would be. But the reason I was interested in that

(23:03):
and really didn't in nineteen eighty five, I was eight
years old, so didn't really know what was going on.

Speaker 3 (23:07):
But let's take a look at the history.

Speaker 2 (23:09):
We're going to say we can if we're doing something
similar to nineteen eighty five, why don't we look at
what did well in nineteen eighty five. Now I'm sure
Trump would say this is gonna be great for the US,
but I think we're gonna find that in eighty five
we had good performance.

Speaker 1 (23:24):
By the way, it is great for the US, It
is great for the US worker, it is great for employment.

Speaker 2 (23:30):
The debt situation that you the the government debt situation,
But is it the best place to invest? Is it
best for investors? And twenty twenty six, I think the
most important thing to watch performance wise, And I'd have
to go back in recent history. Have we had two
years in a row in recent history where international is outperformed.

(23:51):
I mean we have The last year of international outperformance
was twenty twenty three, and an outperformed by one point
eight percent.

Speaker 3 (23:57):
Uh no, I didn't. I'm sorry, I'm looking at small caps.

Speaker 2 (23:59):
No.

Speaker 1 (24:00):
Not. In twenty twenty three, twenty twenty two, it outperformed
on the downside. So let's let's ignore that one a
little bit. International outperformance. Here we go twenty seventeen, twenty
five point six on the International index, twenty one point
eight for the US. Very next year underperformed. Yeah, okay,
let's look at can we get two years in a

(24:23):
row here on? I don't think you're point two. I
think you got to go back all the way to
maybe twenty twelve. There was a one percent out performance,
So that's a wash. Two thousand and nine thirty two
point five international, twenty seven point two. Once again, very
next year, international is up eight and the US is
up fifteen. Yeah, so I'm not sure about international performance

(24:46):
in two thousand through two thousand and two. That might
be the last. So that that is the last time.
So let's look at two thousand to two thousand and two,
starting when the market hit its bottom in O three
International thirty nine plus thirty nine US plus twenty eight
four plus twenty US plus ten point eight five plus
fourteen US plus four point nine six plus twenty seven

(25:11):
US plus f fifteen point seven Yeah, seven plus eleven
point six US plus five and a half five straight years. Yeah,
that was and that was that was a weaker dollar
as well. But it wasn't any specific policy that was
we're seeking out a week.

Speaker 2 (25:30):
The only thing we had then that was helping these
countries that were a lot more, a lot more global
natural resource countries. This is the whole brick area where Brazil,
UH and Russia were participating in these in this international market.
And it was the spike in an oil at that time.
I think in the middle of two thousand and seven
we had this spike all the way to one hundred

(25:51):
and twenty on oil. And so the late end of
that run, the last final two years were some of
the countries that were global natural resource country benefiting from it.
So that's what kept it going. Other than that, you
got to go back to the eighties, and so maybe
let's take a break here, we come back from the break,
let's talk about what did the eighties look like, What
did nineteen eighty five. What was the pivot point, when

(26:13):
did this this cored take place? And what was the performance?
We had good performance, but could you have done better
if you didn't ignore the international area.

Speaker 1 (26:21):
We had week dollar periods from two thousand and two
to two thousand and seven international blew the doors off
the United States, and then we had a purposeful week
dollar period in the eighties where we had a policy
in place to weeken the dollar and it was even better.
So I think twenty twenty six, Brad, is huge because
we've had, as we mentioned, one off years where international

(26:41):
is outperformed. If we see two years in a row,
we might be starting a new cycle that lasts quite
a bit longer. Let's take our next pause. You're listening
to Money Sins. Kevin and Brad Kristen will be right
back and welcome back to the show. You're listening to
the advisors of Kirsten Wealth Management Group. Kevin Kirsten and
Brad Kirston happy to be with you today. As a reminder,
we are professional financial advisors and our offices are in Perrysburg.

(27:02):
If you want to give us a call throughout the
week 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 and review things with you four one nine eight
seven two zero zero six seven or check us out
online at Kirstenwealth dot com.

Speaker 3 (27:19):
Brad.

Speaker 1 (27:19):
We have had an allocation at International this year. It's
done very well in twenty twenty five and it's something
we've discussed often on the on the podcast as something
that people want to start maybe just start paying attention
to when you have a cycle that changes, and these
cycles typically run multiple years. If they do see a change,

(27:40):
you don't have to be the first one in I
completely understand that. But it was interesting to read about
what Trump is calling and Scott bessetturcarring the mar Alaga
mar Alago accord, similar to what happened in nineteen eighty five,
which was called the Plaza Accord, which was a deliberate
strategy to devalue the US dollar. And when that happened

(28:03):
in nineteen eighty five, we saw a result in equity
markets in how you wanted to invest. We also saw
a week dollar in the two thousands, from two thousand
and two to two thousand and seven, but there wasn't
really any specific policy. But the outperformance was even greater
Brad in the nineteen eighties. And with Trump putting this
out there, I mean I read off everything that's in

(28:24):
the mar A Laga accord in the previous segment. It's
out there. This is what he wants to do. He's
doing these deals. He's using tariffs as a negotiating tool
to get what he wants. He wants to reduce the
trade deficit. That's a huge thing for him to hopefully
improve manufacturing. We can't change any of that. We always
talk on this show, Brad, focus on what you can

(28:47):
control in your investing life. Some things are completely out
of your control, like Trump's mar A Lago accord. Some
things are in your control one hundred percent. How much
you save, how you allocate, and how you all is
what we're talking about today. I think so many people
spend all of their time at home worrying about the
things they can't control, and they don't spend any time

(29:09):
worrying about the things they can control, which is the
two most big thing. The two biggest things in my
mind are how you out you can allocate your money,
and how much you save and spend. But when you
look at the nineteen eighties, and i'll go back to that,
we mentioned the two thousands in the last segment, the
plaza accord was in nineteen eighty five, US markets went

(29:31):
up thirty one point seven percent that year, international fifty
six point seven. Following year nineteen eighty six, US markets
great year. You're not going to complain you're up eighteen
point seven. Most people wouldn't even know that there's a
better market.

Speaker 3 (29:45):
If you're up eighteen, No.

Speaker 1 (29:46):
You're happy with that, except the international stock index went
up sixty nine point nine the following year. So here
we have out performance of thirty five percent and fifty
percent in two years. Nineteen eighty seven US market was
actually up, even though we had a big crash in
October five point twenty five percent international stocks twenty four

(30:07):
point nine percent positive. Nineteen eighty eight, sixteen point six,
twenty eight point six international stocks, and then finally in
nineteen eighty nine the outperformance stopped. US markets went up
thirty one point seven and the international markets only went
up ten point eight.

Speaker 2 (30:23):
So from let me point out those those final two
years too, emerging markets. When the US market in eighty
eight was up sixteen, was up forty, and the following
year was up sixty five percent. So we have a
little underperformance there in nineteen eighty nine, but emerging markets
picking up the slack. They're up sixty five percent. They

(30:44):
gave up a little ground in nineteen ninety but then
again up thirty more percent, up sixty thirty for the
US market in nineteen ninety one versus sixty seven in
nineteen ninety two versus twelve for emerging markets, and then
nineteen ninety three up ten versus seventy five percent in
one year. So there is a coiled spring in some

(31:07):
of these international markets. And when you look at the
demographics and the spending in some of the emerging market
countries versus ours, there's no reason they need to be
trading at the low valuations they are, especially when you're
comparing two of the same companies. When we added International,
we were making sure that we had technology as our

(31:27):
number one holding. There's a few of the managers that
have backed off of that temporarily, but certainly you could
compare US Tech to International Tech, and the valuation comparison
is astonishing. Even after this huge run up.

Speaker 3 (31:40):
This year.

Speaker 2 (31:41):
It's one of the areas that we're talking about not
backing off of at all. When we want to pull
risk back, it's simply just when we're going to pull
risk back, it's just to tap the brakes a little
bit on the US next year, but not the international markets.

Speaker 3 (31:53):
There's a long way to go.

Speaker 1 (31:54):
The other time that you see significant outperformance is when
you have the US markets slow down a bit and
you get a little bit more of the single digit
type years in the US markets. When the US market,
when the US market has returns of zero to six percent,
international has outperformed in sixty five of sixty five years. Now,

(32:17):
some of it's just because that's a lower return, so
it's not that hard to beat it. But if we
have a midterm election year, you.

Speaker 3 (32:24):
Have a modest positive year.

Speaker 1 (32:26):
Which is pretty normal international markets less than six percent
on the US markets, they've outperformed sixty five out of
sixty five times. So I think it's something to pay
attention to that we've had in the last forty five years,
going back to nineteen eighty two, significant periods where you
wanted to overweight international stocks brand two to seven, starting

(32:49):
in three, three to seven, five year period eighty five
to eighty nine.

Speaker 2 (32:54):
I think you go even longer in eighty five eight nine.
I know you had that one blip in in nineteen ninety,
but international kept going in the early nineties.

Speaker 3 (33:03):
Now, the late nineties you had the.

Speaker 2 (33:05):
US kind of initial tech run up and then Internet
run up, so it was hard to beat. But those
early nineties periods, I mean, especially emerging markets, you have
years of sixty twelve, seventy four a negative year finally,
but those early nineties, you can't discount the fact that
you're up another one hundred and fifty percent in a
three year period.

Speaker 1 (33:26):
Now, you do get a completely different makeup when you
buy international stocks. If you buy an active manager, it
might change. You buy the index, you're gonna get a
completely different makeup of what you own. You're getting more healthcare,
you're getting more financials, You're getting a lower allocation to technology.
So that might be something you want to pay attention to.
But if Trump's plan is successful on tariffs, it's going

(33:47):
and he wants to get the trade deficit down, it's
not going to happen without a week or dollar so
he can do all he wants, But he sees that
the dollar is not getting weak enough to change that
trade deficit. He's go to put more policies in place
to put pressure on the US dollar. So pay attention
to that. It's is this something to get scared about?

(34:08):
And oh my gosh, oh articles to scare you dollars?
You're looking you're playing poker with the face the cards up.
You know what's going to happen if the if the
dollar weekends, So don't get scared about it.

Speaker 3 (34:20):
Just changed the way you're investing. That's it.

Speaker 1 (34:22):
Yeah, you know, there's nothing to be scared about. Just
change what it is. Obviously, part of the reason why
gold is up so much this year, Gold in non
dollar terms is not is still having a good year,
but it's not anything that would blow the doors off.
If you're in Japan and you're a Japanese investor and
you bought gold and yen, you haven't seen the returns
that the US investor has seen. And it's because of

(34:45):
the weaker dollar. And obviously gold did do well in
the nineteen eighties as an investment, but it didn't do
as well as international stocks. So to me, it's much
easier to define, it's much easier to look at those earnings,
your starting point on valuations is much cheaper, approximately thirteen
times earnings compared to the S and P, which is
well over twenty. Emerging market stocks are even cheaper. So

(35:08):
does it mean sell all your US and buy international.

Speaker 2 (35:10):
No.

Speaker 1 (35:10):
But I think the average investor in the United States
BRAD is in the low single digits when it comes
to and.

Speaker 2 (35:15):
I would say there's a lot of people with none
and a lot of people with maybe five percent there,
and I think just increasing that a little bit can help,
but diversify, but also improve performance if we get a
weaker time.

Speaker 1 (35:27):
And here's another good story which could help the could
help the investor in the four oh one k's a
lot of people invest in their four oh one K,
don't pay much attention to it. And all things being equal,
if you're in one of the target date funds, okay,
we think we believe that you can probably make better

(35:47):
selections than what's in the target date funds. They've come
down in costs. They're okay, if you're not gonna do
anything else, it's better than.

Speaker 3 (35:54):
Nothing, okay. But what I will say is we.

Speaker 1 (35:56):
Might be in a boom period for the target date
funds because when you look at people in four to
one K plans who allocate their own money, they almost
buy no international Why because people who allocate their own
money in four to one ks look at the five
year return or three year return.

Speaker 3 (36:11):
And just buy the best thing.

Speaker 2 (36:13):
And that's worked because momentum has worked and these growth
themes have continued.

Speaker 1 (36:17):
But the good news is in four to one K
plans is most of those target date funds, depending on
the one you look at, twenty to thirty percent allocation
to international stocks.

Speaker 3 (36:27):
And depending on which fun family.

Speaker 2 (36:29):
Sometimes families will make more of a call with it
and can be up to thirty percent of the total
in international, probably the least amount in a seventy thirty
eighty twenty fund. It's probably gonna be fifteen, but you're
gonna have more than what you would do if left
on your own.

Speaker 3 (36:45):
Yeah.

Speaker 1 (36:46):
So for some people, they need to actively go out
there and talk to their financial advisor and see if
they have enough of an allocation to international. If we
are going into one of those longer cycles, some people
might be in a target day fund and they might
do just fine. Let's take our next pause. You're listening
to money Sense Kevin and Brad Kirsten, We'll be right
back and welcome back to the show. You're listening to

(37:08):
Kevin Kirsten from Kirsten Wealth Management Group. This is Money
Sense and this is the last segment doing the show
just myself today with Dennis and Brad out of the office.
But we're just kind of following along with a little
bit of volatility in the summary of not only what's
happened here in the market, with a little bit of
a correction, about eight percent correction from high to low,

(37:28):
and the market's been bouncing back ever since. Certainly, just
to kind of recap, it's normal we get at least
one double digit correction each year. We get at least
two or three corrections between five and ten percent each year.
And this is only our second correction that is between
five and ten percent. Oh oh, by the way, the

(37:48):
SMP is still up double digits on the year, so
certainly is normal. Certainly is normal for this time of year,
September being the most follable month of the year. But
let's look election. We have Kamala Harris, I guess it's
Kamala Harris. They still have a convention. This is weird.
Normally going to the convention where someone has all these
delegates and then they're the presumed candidate. I don't know.

(38:13):
Does she have delegates now? I don't understand how this
is working. Can someone go against her if they want?
But she's already named a vice presidential person who I
honestly had never heard of. Got a couple of clients
in Minnesota told me about him a little bit, not
much of a I certainly have a named person. Maybe
Minnesota was up for grabs. Certainly think some other states
would have been made a little bit more sense. In particular,

(38:35):
Pennsylvania seems to be going farther towards Trump after Kamala
it was announced that Kamala would be the presumed candidate.
So be interesting to see. And I think we just
saw we got a couple of debates coming up too.
But how about do stocks.

Speaker 3 (38:50):
Predict the election outcome?

Speaker 1 (38:52):
So there's always a lot of twist and turns before
the election, But the roller coaster of this election year
is kind of unprecedented. You look at typically you have
have either a new president or an incumbent. Don't have
a lot of track record for someone coming in. I
guess maybe after Nixon resigned would be maybe the closest
thing we had. We don't really have that incumbent anymore.

(39:15):
Kamala Is certainly as a vice president, wouldn't necessarily be
considered that traditional incumbent. So when you look, you got
Trump with the assassination attempt, Kamala Harris taking over for
Biden as he drops out. Certainly a lot of ups
and downs, but the recent shakeup inside the Beltway has
created a tighter election race and shortly reduced the probability
of a Republican sweep. I think that's a little bit

(39:37):
more short term in nature. Just given the fact that
there's one a new person's announced, there's always this honeymoon. Oh,
everyone's excited because it's a new name out there. So
we'll see where those polls go in the coming weeks
once the dust settles. So, according to the Polymetric Polymarket Data,
betting odds for Republicans to win the House and Senate

(39:57):
this year dropped from fifty five to thirty five percent
over the last couple of weeks.

Speaker 3 (40:01):
So we'll see where that shakes out when the dust settles.

Speaker 1 (40:04):
Most polls point to former President Trump eking out of
victory in November election drama in India, France and UK
this year serves as a fresh reminder that anything can
happen on election day. We certainly saw that when Trump
beat Hillary Clinton the first time around. Trailing the polls
going into election day. I think Republicans need to hopefully
plan on being up five points going to election day

(40:25):
if they want to win. Given the way things have
gone the last couple of years. I'll never forget going
to bed and Pennsylvania being up by Trump. Trump being
up in Pennsylvania by nine hundred thousand votes and eventually
that dwindled away. Who knows that that was a very
strange thing. Nine hundred thousand votes in a state is
a big margin of victory, and yet it all went away. So,

(40:46):
according to a study from Polling pro five point thirty eight,
the expected change in a presidential candidate vote margin in
state polling is eight point four percent when election is
ninety five days away, which is the current count right now.
So we could see a lot of change in those
polls going into election day. While the betting odds and
forecast can provide valuable insights to potential election outcomes, the

(41:08):
data can be noisy to avoid some of that noise
and potential biases. Keep an eye on how the market
performs during the three month period before election day. So
that would take us to basically right now, a period
that officially starts on Monday, August fifth. Strangely enough, that
was our big volatile down day. Why does this three
month window matter? Since nineteen twenty eight, whenever the S

(41:31):
and P. Five hundred was positive during the three months
leading up to an election, the incumbent party remained in
control of the White House eighty percent of the time,
twelve out of fifteen in the win column. In contrast,
when the market was lower during the three months before
an election, the incumbent party lost the election eight of
the last nine times, So a little bit better of

(41:52):
a predictor when it's a lower market in terms of
a loss. When combined market performance is predicted twenty of
the past twenty four elections cessfully, it's a pretty good
track record when you look at it. Let's see some
of the ones where the stock market was wrong, because
most of them the stock market was right. He got
Eisenhower in fifty six, market was down and he won.

(42:15):
You have Richard Nixon. The first election of Richard Nixon
market was up and he lost, so you had that.
You had Ronald Reagan Republican in nineteen Wait a minute,
the incumbent lost. Excuse me, Ronald Reagan won. The incumbent

(42:37):
loss and the market was up and Jimmy Carter lost,
so you have that as not being a successful prediction.
And then most recently Joe Biden the market was up
and Trump lost, So that would be one that didn't
count towards being a successful predictor given where the stock

(42:57):
market went. So when we look at it, let's look,
we have August fifth being the first day, obviously a
big down day, so that certainly makes it with that
predictor a little bit more difficult. But we'll see where
the market ends up in November. With July officially in
the rear view mirror. The stock market season alley tends
to cool off in August, so be aware of that.

(43:20):
Since nineteen ninety, the S and P five hundred has
posted an average decline of point six in August, so
that's certainly making it the second lowest positivity right across
the calendar. Guess what September is the lowest, So given
that we're only at August tenth here, I think that
there's going to be a little bit more up and down.
It's not just going to be a V shape recovery

(43:42):
in this correction. When the S and five UNDERD is
positive in August, the average return for September has been
pretty good, so we'll August will give us probably a
pretty good predictor of what we're going to see in September,
whether we see continued volatility or not. At the sector level,
you want to own technolog utilities, and real estate in August.

(44:02):
Those are the best performers in the month of August,
so we'll see.

Speaker 3 (44:05):
How that shakes out.

Speaker 1 (44:05):
Technologies had a rough start to the month of August,
so we'll see. So just kind of summing this up
in terms of how it pertains to the elections as well.
The S and P five hundred extended its three month
winning streak with a one point two percent gain in July,
so May, June, July all up, year to date return
was really good going into August, and now we've had

(44:27):
that correction, but we're still holding in there with a
double digit gain. Going into July, the S and P
was up sixteen percent, so we're now in right around
ten percent for the overall market, So the straw momentum
now faces a seasonally week stretch with August and September
historically down months. Volatility could also ramp up based on
the historical progression of the volatility index, which tends to

(44:50):
peak in September and October, just like the market tends
to bottom in September on October. So keep it on
on stocks perform now into election day, as performance during
this three month period has been had an impressive track
record in predicting the election outcome. So we'll see whether
or not that bodes well for Kamala Harris or Donald Trump.
I think, more importantly, we're gonna get these debates, and

(45:11):
I hate to say it, Kamala is reading a lot
from Q cards right now. When she gets into a debate.
I think the stumbling and bubbling and the word salad.
We'll come back and we'll see if she can improve
upon the debate performance of Joe Biden. I'm skeptical of that,
and I think Donald Trump should take a little bit
of a playbook out of what he did with Biden,

(45:32):
which is she starts mumbling and bubbling during the debate.
I think Trump should definitely let her go, don't interrupt her.
Just like when Biden was mumbling and bubbling in debate,
he stayed a little bit more quiet than in past debates,
and I think that served him well for that debate,
and I think it would serve him well for this
debate if Kamala starts bumbling around. So we'll see. I

(45:54):
think the first debate was scheduled for September tenth, I
believe is what I just saw come across my phone.
So it'll be be very interesting to see how those
debates play out. Thanks for listening everyone, We'll talk to
you next week.

Speaker 2 (46:10):
You've been listening to Money since brought to you each
week by Kirsten Wealth Management Group. To contact Dennis Brad
or Kevin professionally, call four one nine eight seven two
zero zero six seven or eight hundred eight seven five
seventeen eighty six. Their email address is Kirstenwealth at LPL
dot com and their website is Kirstenwealth dot com. Opinions

(46:31):
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