Latest / HPK Provident Advisors: The Weekly Bull / Markets At The Edge Of A Record

Transcript

Markets At The Edge Of A Record · HPK Provident Advisors: The Weekly Bull

• 0:06
  SPEAKER_01: Welcome to Friday Live.
• 0:08
  SPEAKER_01: Every Friday, some of the partners of HBK Provident get together and discuss what we're seeing going on in the economy, the markets, and tying in some financial planning topics.
• 0:18
  SPEAKER_01: So with me today is David Harper.
• 0:20
  SPEAKER_01: Um, luckily, they picked up the slack for me last week.
• 0:23
  SPEAKER_01: I was out last Friday.
• 0:25
  SPEAKER_01: So thanks for covering that.
• 0:27
  SPEAKER_01: I did watch it and enjoyed the episode.
• 0:31
  SPEAKER_00: Oh, we we had a blast.
• 0:32
  SPEAKER_00: Um unfortunately, we really ran over a lot.
• 0:36
  SPEAKER_00: So we promised to keep it a little shorter this time.
• 0:38
  SPEAKER_01: Well, that's okay.
• 0:39
  SPEAKER_01: The previous two that I did solo, I was about eight minutes per episode.
• 0:44
  SPEAKER_01: So it all averages out.
• 0:46
  SPEAKER_01: As they say in the markets, things are mean reverting.
• 0:50
  SPEAKER_01: Beautiful.
• 0:52
  unknown: Beautiful.
• 0:52
  SPEAKER_01: So the typical format we do is we talk about the markets, we talk about some of the blog posts we put out for the week, um, some of the economic data.
• 1:00
  SPEAKER_01: So where would you like to start, David?
• 1:02
  SPEAKER_01: Should we start with markets?
• 1:05
  SPEAKER_00: Oh, always.
• 1:07
  SPEAKER_00: Always.
• 1:08
  SPEAKER_01: All right.
• 1:08
  SPEAKER_01: Well, let me pull up the chart of the SP 500.
• 1:12
  SPEAKER_01: Um we uh it looked like we were having a nice update yesterday, but uh we gave back quite a bit of those gains.
• 1:20
  SPEAKER_01: I think we were close to 1% at the high and ended up being uh closing at a quarter of a percent.
• 1:27
  SPEAKER_01: Today we started off a little higher, and same thing, we're kind of near the flat line.
• 1:32
  SPEAKER_01: So we are technically an all-time high territory, but uh very marginally.
• 1:38
  SPEAKER_01: Um there's certainly some headwinds going into the year, and there's some tailwinds.
• 1:45
  SPEAKER_01: So um some of the recent economic data we had somewhat mixed.
• 1:50
  SPEAKER_01: Um, manufacturing remains weak.
• 1:52
  SPEAKER_01: Uh, ISM manufacturing came in below expectations, still in that contractionary territory.
• 1:58
  SPEAKER_01: On the flip side, I am ISM services, I think, was the highest reading that we've had since October of 2024.
• 2:05
  SPEAKER_01: Um, you guys did go and do a little bit of the jobs report last Friday.
• 2:10
  SPEAKER_01: I was sad to miss that.
• 2:11
  SPEAKER_01: That's always a highlight of my my month.
• 2:13
  SPEAKER_01: The first Friday of the month is non-farm payrolls came in.
• 2:18
  SPEAKER_01: 50,000, um, kind of in in a range that we've been seeing lately.
• 2:24
  SPEAKER_01: Um, we did see an uptick in average hourly earnings, which is a good thing.
• 2:31
  SPEAKER_01: Um unemployment rate ticked down to 4.4%.
• 2:35
  SPEAKER_01: Um I think some of the effects of the of the government shutdown are probably easing, but I don't know.
• 2:45
  SPEAKER_01: I I'm a little skeptical of January economic data.
• 2:48
  SPEAKER_01: It seems like the past three years it's been very strange.
• 2:53
  SPEAKER_01: Um actually, the pattern has been more weaker employment and higher inflation.
• 2:59
  SPEAKER_01: So maybe they're figuring out the seasonal adjustments now.
• 3:03
  SPEAKER_01: Um, core CPI came in at 2.6.
• 3:07
  SPEAKER_01: Uh PPI was closer to 3%.
• 3:10
  SPEAKER_01: So still elevated, but um a little lower than it's been.
• 3:14
  SPEAKER_01: The likelihood of a January rate cut is very low.
• 3:18
  SPEAKER_01: Um, whether we get any in the first half of the year is skeptical.
• 3:24
  SPEAKER_01: Maybe once Powell gets replaced.
• 3:27
  SPEAKER_01: Um, I'm I'm sure Trump is gonna pick a more dovish Fed member.
• 3:32
  SPEAKER_01: Um, so maybe he'll have more influence on getting them to cut rates.
• 3:38
  SPEAKER_01: Um but I actually just put out an article that was published today that you know the the Fed has very limited tools.
• 3:46
  SPEAKER_01: They can cut interest rates and they can purchase or sell treasuries, mortgage-backed securities, um, which they are purchasing treasuries currently.
• 3:58
  SPEAKER_01: Um, but you know, the the economy is really tied more toward the longer end of the yield curve, which they don't have control over.
• 4:07
  SPEAKER_01: So my theory is like they can go ahead and cut interest rates by a full 1%, but is that necessarily gonna bring down the long end?
• 4:16
  SPEAKER_01: Government debt is exorbitant and increasing.
• 4:20
  SPEAKER_01: Um, and if they were to bring down the Fed funds rate by a percent, I think that's only gonna add to inflation.
• 4:28
  SPEAKER_01: So I think um the like I said, they have very limited tools.
• 4:34
  SPEAKER_01: Um, and if anything, that might keep the longer end of the interest rate curve higher, which is what's tied to corporate lending, um, housing market.
• 4:46
  SPEAKER_01: So um re read it.
• 4:49
  SPEAKER_01: It's I I thought it was a good article, but I'm biased because I wrote it.
• 4:53
  SPEAKER_00: Okay.
• 4:54
  SPEAKER_00: We should take a uh a deeper dive, maybe on another Friday Live, a deeper dive on on the government debt and what impact you know uh the Fed could have like if they cut interest rates, what impact, if any, would that have on the government debt?
• 5:11
  SPEAKER_00: Um specifically the ability to service that debt.
• 5:17
  SPEAKER_00: I mean, just even a quarter of one percent seems like since since it's such a massive uh amount, even a quarter of one percent, does that what what real what real impact does that have?
• 5:33
  SPEAKER_00: Let's deeper dive.
• 5:34
  SPEAKER_01: We'll see, I mean it it's more about the the government spending, all these stimulus, and I mean tax cuts are great for the economy, but they do add to the the deficit.
• 5:48
  SPEAKER_01: Um so I mean yeah, those are certainly two um tailwinds for the year, the feds purchasing mortgage-backed securities, or not mortgage-backed securities, treasuries, which they aren't calling quantitative easing, but more keeping their balance sheet stable.
• 6:08
  SPEAKER_01: Um, and then it's supposed to be a huge tax refund year um with the increase of the salt deductions and all that.
• 6:17
  SPEAKER_01: Um headwinds, I do think the labor market is weakening.
• 6:21
  SPEAKER_01: Um, Neil Dutta, who I'm a big fan of, he's an economist for Renaissance Macro.
• 6:27
  SPEAKER_01: Um, he just he he looks at all these things that I think a lot of economists overlook.
• 6:33
  SPEAKER_01: He flagged that um hours worked has uh essentially been flat since uh July.
• 6:43
  SPEAKER_01: Um, and then he just put out a chart that I saw it was actually posted last week, but it's it's the relationship between uh job openings and the unemployment rate and how that has transpired historically.
• 6:56
  SPEAKER_01: So not necessarily a good sign.
• 6:58
  SPEAKER_01: Um hours worked in manufacturing has been reduced.
• 7:02
  SPEAKER_01: So definitely uh definitely some headwinds there.
• 7:07
  SPEAKER_01: And um, we we had a productivity number come out, which was very strong.
• 7:12
  SPEAKER_01: I think it was 4.6.
• 7:14
  SPEAKER_01: I think that has a lot to do with AI.
• 7:16
  SPEAKER_01: So good for corporations and probably the stock market, maybe not necessarily for uh the consumer, the employment situation.
• 7:26
  SPEAKER_01: Higher productivity might mean less workers need it.
• 7:30
  SPEAKER_01: So just a couple things uh we're keeping an eye on.
• 7:34
  SPEAKER_01: Um we are positioned a little more cautiously.
• 7:38
  SPEAKER_01: Uh we have a little bit more cash than we normally have just in the event of a potential pullback.
• 7:45
  SPEAKER_01: Uh expectations are very high for the year.
• 7:47
  SPEAKER_01: I think the SP full year earnings projections are 14.8%, which is very robust.
• 7:55
  SPEAKER_01: And a lot of that has to do with the increase in productivity.
• 7:58
  SPEAKER_01: And then we're also trading at 22 and a half times earnings, which is in pretty rarefied air.
• 8:04
  SPEAKER_01: So a couple things that just makes the markets a little more susceptible to volatility and pullbacks.
• 8:10
  SPEAKER_01: So we're uh we're we're comfortable being a little more cautious going into the start of the year.
• 8:17
  SPEAKER_00: But we're still but we remain optimistic.
• 8:21
  SPEAKER_01: I remain cautiously optimistic.
• 8:23
  SPEAKER_01: Yes.
• 8:24
  SPEAKER_00: Yes.
• 8:25
  SPEAKER_00: Uh for for good reasons that you've outlined.
• 8:28
  SPEAKER_00: Okay.
• 8:28
  SPEAKER_01: Yeah.
• 8:29
  SPEAKER_00: But but so uh the takeaway is there are winds behind us and there are winds in front of us.
• 8:36
  SPEAKER_00: You are getting buffeted by winds here in 2026.
• 8:41
  SPEAKER_00: Um, yeah, uh we'll help you navigate it.
• 8:45
  SPEAKER_00: And that's good.
• 8:48
  SPEAKER_01: Yeah, and then uh as always, we do a daily blog post.
• 8:52
  SPEAKER_01: So um given my absence, Brian did uh LPL generated market insights, which is a good read.
• 9:01
  SPEAKER_01: Um, and then we had an article come out that uh David can touch on about um 529s converting them to routes.
• 9:11
  SPEAKER_00: That's a great idea.
• 9:13
  SPEAKER_00: Okay, for those that 529 plans were are uh they were established to help people with college savings plans.
• 9:25
  SPEAKER_00: Okay, young couples.
• 9:27
  SPEAKER_00: And if you start young when the child is one, two, uh that has a chance to grow by the time they need it for college.
• 9:35
  SPEAKER_00: And with uh with the onset of merit-based college um uh grants and so forth, there's a good chance that there may be some money left over from those 529 plans.
• 9:49
  SPEAKER_00: Well, what do you do with that?
• 9:50
  SPEAKER_00: Uh years past, um the only option we had was to try to change a beneficiary.
• 9:57
  SPEAKER_00: Uh, maybe uh the child, maybe the grandchild.
• 10:01
  SPEAKER_00: So if the parent uh got the 529 plan for their child and there was money left over after they finished their their higher education, well, we're waiting for the grandchildren to come and then change the beneficiary.
• 10:16
  SPEAKER_00: Now, uh, and this is a recent change, just in the last couple years, where you could take those excess 529 plans and convert them to a Roth.
• 10:29
  SPEAKER_00: Now it had there's stipulations and regulations that you need to be mindful of.
• 10:34
  SPEAKER_00: Um, the 529 plan had to be in use for 15 years, and if you would change a beneficiary, that variable may restart that 15-year time period.
• 10:46
  SPEAKER_00: So be mindful of that.
• 10:48
  SPEAKER_00: Um, and it can only the distribution or the contribution can only be um for that individual's uh particular year.
• 11:00
  SPEAKER_00: So a Roth right now, you can an IRA or a Roth, a typical one is like seven thousand dollars for anyone under uh under 50.
• 11:10
  SPEAKER_00: Okay.
• 11:11
  SPEAKER_00: Well, if you've got a 529 plan, uh you can actually fund that Roth tax-free to um from your 529 plan.
• 11:22
  SPEAKER_00: But but you can't go up above that seven thousand dollar limit.
• 11:26
  SPEAKER_00: Um so you might have time for the following year, okay?
• 11:30
  SPEAKER_00: But the most you can ever convert from a 529 to a Roth for that particular beneficiary is$35,000.
• 11:40
  SPEAKER_00: Well you need to talk to your tax accountant uh uh about the particulars on that to make sure that you're within those parameters.
• 11:50
  SPEAKER_00: But it is a it's a good gift that the government provides, and if you have the ability to take advantage of it, uh we strongly recommend it.
• 12:01
  SPEAKER_01: Do you know if uh this just popped into my head?
• 12:04
  SPEAKER_01: Do you know if uh are you still eligible if you're above the income threshold for a Roth contribution?
• 12:13
  SPEAKER_00: Yes.
• 12:14
  SPEAKER_00: Yes.
• 12:15
  SPEAKER_00: That that's another stipulation that still has to be satisfied.
• 12:20
  SPEAKER_00: Um I believe like 95% sure that it still has to be, you still have to be eligible for Roth to have your 529 convert to a Roth.
• 12:30
  SPEAKER_01: Okay.
• 12:32
  SPEAKER_00: I can't imagine the government relaxing that.
• 12:36
  SPEAKER_00: Um it's already a gift where you can fund that Roth with tax-free monies uh from your 529.
• 12:45
  SPEAKER_01: So uh and then our post that came out yesterday was talking about um why you might want to um start a life insurance policy even if you're younger.
• 13:00
  SPEAKER_01: So do you want to touch on that one too?
• 13:02
  SPEAKER_00: Oh, absolutely, you know, it makes a lot of sense um when you're young, because the cost of insurance uh increases with age.
• 13:14
  SPEAKER_00: And if you have end up with a health issue, you that increases exponentially.
• 13:21
  SPEAKER_00: Okay, so if you end up uh uh in your 20s, say 20, 24, 25, you can pretty much get a$500,000 life insurance policy.
• 13:32
  SPEAKER_00: Um that and the cost of insurance probably is under$20 a month.
• 13:38
  SPEAKER_00: Well, you put in$100 in a permanent plan, and so that other 80% is invested um to so when you the older you get, um you don't necessarily have to increase your premium.
• 13:53
  SPEAKER_00: They can stay at that a hundred dollars.
• 13:55
  SPEAKER_00: Uh so case in point, I just talked with a client this morning.
• 13:59
  SPEAKER_00: You know, they had a life insurance policy.
• 14:01
  SPEAKER_00: Now they were in their 30s uh when they got it, okay.
• 14:06
  SPEAKER_00: Um but since for the last 20 years, he's been putting about a hundred dollars a month in.
• 14:13
  SPEAKER_00: Okay, and the total premium that he's done over the last 20 years is about$28,000.
• 14:21
  SPEAKER_00: Well, the contract is worth$38,000 plus because of the side investment.
• 14:28
  SPEAKER_00: So he doesn't necessarily have to increase uh uh his premium now that he's in his 60s, all right.
• 14:36
  SPEAKER_00: Uh but you get the idea that he's basically had this life insurance for free for the last 20 years.
• 14:43
  SPEAKER_00: He's his uh his value is ten thousand more than what he ever put in, plus he had some protection for his for his family in case something had happened to him, and um so life insurance it's better when you're younger because you get a chance for it to grow.
• 15:03
  SPEAKER_00: Uh we're not really keen on whole life insurance, universal life, variable universal life, we like much better because they have they offer more flexibility.
• 15:15
  SPEAKER_01: And Dan, we mentioned the the uh limitations with uh income limits on Roth contributions.
• 15:22
  SPEAKER_01: So if you do a IUL, you can essentially um take money out tax-free, which is what we like to call the rich man's Roth.
• 15:33
  SPEAKER_00: Yes, so there's some there's some strategies that life insurance and life insurance products offer that you can't get anywhere else.
• 15:43
  SPEAKER_00: And not just it's not just for the um life insurance is not just for um the necessity, it can also become a luxury.
• 15:54
  SPEAKER_00: Uh and that's where that's where life insurance can really take off.
• 15:59
  SPEAKER_00: I don't know of any real good estate plan that that doesn't use life insurance product in some capacity.
• 16:09
  SPEAKER_01: So and then this is the art.
• 16:11
  SPEAKER_01: Another thing, Mike, yeah, I touched on it a little already, but feel free to give it a read.
• 16:17
  SPEAKER_01: Um, and then as always, I'll have my Monday look ahead post come out uh next week.
• 16:23
  SPEAKER_01: Um, even though the market will be closed for MLK on Monday, the blog posts will be live.
• 16:32
  SPEAKER_00: Um so our offices will be closed on Monday.
• 16:36
  SPEAKER_00: Okay.
• 16:37
  SPEAKER_00: Uh, but don't forget uh we have a seminar coming up, uh a 2026 Outlook on Wednesday the 28th at four o'clock, is it Mike?
• 16:49
  SPEAKER_01: Uh five o'clock.
• 16:51
  SPEAKER_00: Five o'clock.
• 16:52
  SPEAKER_01: Yeah, so we'll we'll go in more depth on some of the topics we discussed today and what we're looking for, um what we see happening in the stock market, the economy, the Fed, and all of the above, maybe throwing some financial planning topics, but it's it is gonna be more market-driven than um financial planning topics.
• 17:15
  SPEAKER_01: So, with the the turn of the year, any advice for people, um investors, families got any insights for us?
• 17:30
  SPEAKER_00: Well, with all the different winds whirling around, okay, be mindful of your steps.
• 17:41
  SPEAKER_00: The steps that you have laid out and planned, there's a reason for them.
• 17:47
  SPEAKER_00: Um we we like uh helping you to plan for your future, okay.
• 17:53
  SPEAKER_00: Um and when um when times get different different or difficult or so forth, uh don't panic because in most cases uh you're we try to put you on solid ground.
• 18:09
  SPEAKER_00: So 2026.
• 18:11
  SPEAKER_00: Um I won't go into a whole lot of detail uh from last last week's thing.
• 18:16
  SPEAKER_00: We talked about a flahootie.
• 18:18
  SPEAKER_00: Um expect the flahooties to come.
• 18:21
  SPEAKER_00: All right.
• 18:22
  SPEAKER_00: And uh you can weather that very well.
• 18:26
  SPEAKER_01: Yeah, I would say if you're managing your own investments, um, the stock market's done very well over the past couple years.
• 18:33
  SPEAKER_01: So given that dynamic, you're if you haven't done a rebalance, your equity positions have probably gotten uh much greater weight than your fixed income.
• 18:46
  SPEAKER_01: So with that comes additional volatility and risk.
• 18:49
  SPEAKER_01: So just make sure you're uh positioned appropriately for your willingness and ability to take risk.
• 18:56
  SPEAKER_01: You're gonna make sure you have enough for your liquidity needs.
• 19:00
  SPEAKER_01: And if you need any advice or consultation, we're here to help.
• 19:05
  SPEAKER_01: Uh, we have our number and website listed on the page here.
• 19:10
  SPEAKER_01: Um, and you can also subscribe to our Facebook page, YouTube.
• 19:15
  SPEAKER_01: Um, everything goes out on Facebook.
• 19:18
  SPEAKER_01: All of our blog posts goes on our website.
• 19:21
  SPEAKER_01: You can also register for the event on the website.
• 19:24
  SPEAKER_01: Um and if you don't have anything else to add, David, I will throw on the lovely disclosures and then we'll see you next Friday.
• 19:35
  SPEAKER_00: Have a good week, folks.
• 19:37
  SPEAKER_02: All right, take care.
• 19:39
  SPEAKER_02: Security is offered through LPL Financial LLC, member FINRA, and SIPC.org.
• 19:44
  SPEAKER_02: Advisory services offered through LPL Financial LLC, a registered investment advisor.
• 19:50
  SPEAKER_02: Brian Peluso, Michael Kutch, and David Harper are registered representatives of LPL Financial LLC.
• 19:56
  SPEAKER_02: Content discussed is for informational purposes only and not.
• 20:00
  SPEAKER_02: Intended as an offer or solicitation to buy or sell any security or investment strategy.
• 20:05
  SPEAKER_02: Any opinions expressed are those of the authors and do not necessarily reflect the views of LPL Financial or its affiliates.
• 20:12
  SPEAKER_02: All investments involve risk, including the possible loss of principal.
• 20:16
  SPEAKER_02: This communication may include links or references to third party websites.
• 20:20
  SPEAKER_02: These links are provided as a convenience only.
• 20:22
  SPEAKER_02: LPL Financial and its representatives are not responsible for the accuracy or content of such sites.
• 20:28
  SPEAKER_02: Brian, Mike, and David and HBK Provident Advisors may only transact business in states where they are properly registered or exempt from registration.
• 20:37
  SPEAKER_02: Please contact us directly for information regarding licensing and registration status.
• 20:42
  SPEAKER_02: Past performance is not indicative of future results.
• 20:46
  SPEAKER_02: You should consult with your financial advisor, tax professional, andor attorney regarding your specific situation before making any investment decisions.