Q3 Market Update 

Hey everyone, Dave Denniston with Centurion Financial Strategies. First, just want to thank all of my clients for trusting me with your money. Here today, I'm going to do a little bit of a market update. And as always, I don't know what's going to happen in the future. My job is I can't possibly predict it. You know, I to shake one of those little balls up that tells you what to do. But I do believe there some very, very important trends going on. I believe

that we need to stay on top of the data, we wanna look at history, we wanna adjust when risks start climbing. forgive me as I'm gonna go through a good bit of data here to satisfy the data nerd part of myself because I think it's important for it to educate you as part of this process and to acknowledge what we see going on today and most importantly what I am doing to help adjust things on a go-forward basis. Now as we...

Look at the stock market in general. I want you to think of it as a long hike up a mountain. I just got back from Jackson Hole, Wyoming right now, so I very much relate to this. Think of the first part of the trail, right? You go on a hike, the trail's usually smooth, and you gain a lot of ground quickly. But as you get higher and higher, the air gets thinner, the trail gets rockier, and each step, maybe you feel a little more risk of slipping along.

Well, here we are right now today. We are three years into this bull market hike, if you will. And historically, I'll show you the data here ⁓ shortly, but the average of a bull market runs about four years. Could this one go longer? Absolutely, right? There's good reasons as to why this bull market may get higher. We might go higher up the mountain.

but it also makes sense to take a little bit of caution. So let me share my screen with you so we can look at this together.

And we're gonna look here first at this bull market update, bull bear market cycles and everything. So here's we look on my screen, you can see right here in terms of history, this is data from First Trust, they say the average bull market lasted 4.3 years with an average cumulative return of 150%. In comparison, the average bear market lasted about 11 months.

with an average cumulative loss of 31%. So if you look at the chart of what they have here, you'll see lots of bull and bear market cycles. I've done lots of videos on this in the past, but the last one that we had was in 2022. Lasted, it was almost the very, very beginning of January, went a bit over nine months into October of 2022.

And here we are today, literally, I'm recording this on September 30th, 2025, literally three years later, which you'll see here, you'll notice here that the bull run of what it was two and a half years into this, which this is now about a year old, a less than a year old into it, the market had gone up 57%. Well now, as we stand today, I believe we're closer to about 100%.

So we're not too far away from the average bull period, and there's good reason to think that it could go longer. But that's not necessarily always the case. When you go back in history, we'll talk more here shortly about what that looks like. So one of the questions that I asked myself,

Okay, well, what's been happening lately, right? So 2022 was a bad year. We got into that negative 26 % we were just looking at. 2023, great year. 2024, great year. So far, as I record this into September 2025, we are on track for another double digit type year in 2025. And so as I look at the statistics, I'm like, okay, well, how rare is it that we can have four

great years in a row. And as I look back at the data, it's very, very unusual to have four straight years or more where the stock market makes double digit gains. But it has happened. There is a possibility of it happening. The last time it happened was in the late 90s, I think like 95 through 99 right before the tech bubble burst, right during the tech boom. And then in the early 1950s and late 1940s, a post-war boom, both streaks

had big resets that happened afterwards, but it's possible. have to acknowledge it's possible. I think, we think here at the company that it's probably a 10 to 15 % chance that 2026 gives us another double digit gain. It's not impossible, just not the most likely path. I would say a single digit gain of some sort, you know, I'd probably put more 25 to 35 % or something like that, which

That has happened more often as you look back in history where you have three years in a row, ⁓ one slightly positive year, those has happened with more ⁓ frequency. You don't always end in a crash per se. ⁓ Now let's talk about some positive things we're seeing in the market right now. What could cause us to go for an additional year? Number one, tech, right? All of us are getting that buzzword AI, artificial intelligence.

and what's happening there, which is making things so much more efficient. I know here for us, I used AI to help me with the script to help do this video, right? I didn't have to do all of the research, but I certainly did a good bit coming into this and helping to save on labor costs. It's helping us to be more productive and stuff like that. Also, I think it's fair to say that generally, unemployment currently is low. Consumer spending, while it's...

A little dicey at times, it's been surprisingly resilient up to this point. On the earnings side, many companies are still beating expectations, which of course, a lot of the stock market's driven by that. There have also been an awful lot of initial public offerings helping right now showing that, hey, things are pretty good in the market. And maybe that continues through the rest of the year and in the next year. ⁓ Policy support.

There's this old saying that maybe you've heard, don't fight the Fed. And the Fed is closer than ever to making interest rates lower and lower. We just had that happen, what was it, two weeks ago, week and a half ago, something like that. They just lowered rates by a quarter percent and maybe they will keep on lowering them. Certainly lower Fed's rates can act like a tailwind for both stocks and bonds in helping to get some appreciation.

Right? Borrowing costs are that much less, whether you're buying a house or you're a company borrowing money. These positives are all of the reasons why we're not pulling out of the market, right? We still see opportunity that could be possible. However, at the same time, what we really want to keep an eye on are some of the warning lights under the hood. Number one thing I want to address is unemployment numbers. The rate of hiring

although we're not seeing mass layoffs all over the place, that we've gone from a very, very positive job market to one that's now gotten kind of flat. Again, we're not in the negative areas. There's been huge revisions in a lot of ways. Obviously, can't talk about some of these things without potentially tariffs and what could be happening there. So far, there haven't been any...

any major bumps in inflation for the average family with the tariffs. If you look at all the numbers, everything is okay. Inflation isn't as high as it was, and maybe that could continue, but there's a lot of reasons to think that it might get tougher behind the counter as we go and buy more stuff that's shipped in globally on a go-forward basis as the supplies that have been stocked up.

They start to have to refresh them with more expensive stuff now, which then gets passed on to us, the consumer. Something else that is often a canary in the coal mine, but not always, is car payments. ⁓ and defaults and stuff like that. So let's take a quick look at this data together that I think is just really fascinating. So auto delinquency rates. You if we take a look here,

There's a lot of data here, but ⁓ this here shows the percentage of loans. It's kind of this pinkish color, salmon colored. It's loans that percentage that fell to 90 days past due. Blue being loans that are at least 90 days past due and then green being 30 days. so ⁓ basically if you look at ⁓

the blue and salmon combined, those are ones that are really delinquent right now, more than 30 days, you're looking at about 5%, which historically over the last 25-ish years, you'll notice this happened in 2010, this happened in 2019, 2020, right ahead of COVID. So we are certainly at near term levels.

for the last 25 years that might be a little bit of cause for concern. Does this absolutely mean that we are in a horrible economy? No, it doesn't necessarily mean that, but it is a warning sign. You can see that overall delinquency rates got super high in 08, 09, 11%. We're at about 8 % today, which is the highest we've been since 2010. So there's certainly some reason for concern.

Let's take a look now at ⁓ something else. If we take a look at overall delinquency rates on loans, I think this is really, really fascinating. ⁓ Overall delinquencies are creeping up, but they are not ⁓ historically horrible. So this rate, this is coming from the Fed, the St. Louis Fed, the delinquency rates on

all consumer loans, all commercial banks. So this incorporates car loans, but incorporates a lot more than that. What I think is interesting about this chart is we are at the highest that we've been since about 2012. But if you look historically from the late 80s through, let's call it 2012, the average delinquency rate was probably about 3.3%. Right now we're at 2.77.

So you could make the argument that as rates have gotten higher, hey, we're just getting back to what delinquencies have been in the past. As a matter of fact, we're still well, well below that. I think you start getting above 3 1 1 2%, right? This might be more of a cause for concern. But obviously, we are much, much, much higher on delinquencies across all consumer banks than we have been for a long time. So again, the sky isn't falling, but definitely.

there is some reason for ⁓ concern as we look at loans and whatnot happening out there. ⁓ Next thing that we wanna take a look at is valuations. Simply put, stocks are not cheap right now and surprises absolutely could cause bumps. There's this thing called the Shiller Cap E Ratio, which I'll show a quick chart on this over.

The Shiller CAP-E, long story short, is ⁓ at ⁓ nearly all-time heights. So the highest this has ever been, which the CAP-E stands for cyclically adjusted price to earnings. So if you look at inflation, you look at ⁓ prices and what companies are earning, we are at the highest that we have been since the tech bubble burst. So ⁓ the general...

know, average about 17, we're at 39. So we're at 2x the average. So this is some reason for concern as we look at companies. And maybe AI is making everyone so efficient, maybe this could be a new normal. If you look at since 2000, we've certainly been well above that average. We've probably been closer, rather than 17, our average has been closer to.

25, 26, 27, 28. So we seem to be living in an era that on average has higher valuations than the past has. So definitely some reason for concern around that. The other major thing, as we look at bigger picture on returns, I wanna give you just kind of a wide angle view as we look at what's been happening in the market on the stock side.

2022, we saw a lot of double digit losses. The Dow was down like 10%, the S &P down about 20%. Since then, it went up about 14 % in 2003, 13 % in 2024. And then we're on double digit gain so far in 2025. Again, through the end of September as I'm this. And then as we look at the bond war,

2022 was tough for both stocks and bonds. The aggregate bond index was down about 13%. Very conservative bonds was up about 6 % in 2023, 1 % in 2024, 6 % in 2025. So as we look at mix of stocks to bonds, know, late single digits would be very, very typical, if not double digits in most client portfolios and a really fantastic.

last few years with bond yields being a lot higher than they've been in a long, long time. You could even say bonds are making a bit of a comeback after their big hit in 2022. So as always, maintaining that balance is important. And what we've done with all of this data and everything in mind, in the last month, month and a half, we've been making some adjustments in our timing models. People that have buy and hold and adjust,

We haven't changed the mix at all. But if you are in some of our timing models, then for example, moderates who are close to 60 % in stocks, 40 % in bonds, we've shifted closer to a 50-50 mix. So we've taken things down five to 10%, depending upon the client, people that are more moderately conservative. We've shifted you down from 50-50 in the timing models down to 35-65%. So we're being much more cautious for many of our older clients that

don't wanna take a whole lot of risk. And for some of our more aggressive people, we haven't made many changes for you folks yet. Because this thing could go higher and be more aggressive, we wanna keep you in the market for longer if at all possible. But let me make clear above all else, we are not selling out of stocks. We're keeping a strong foundation. But this shift means that you've got more cushion if this trail gets steeper.

And when the market dips, we're gonna be ready to add back to stocks at even better prices. So let's keep seeing where this thing is going, where the economy goes, because at the end of the day, nobody knows exactly what 2026 is gonna bring. But what I do know is when your plan is built with balance, when we are diversified, this gives us the opportunity to protect your hard-earned money from the downside.

while still giving you the chance to capture the upside. So obviously, we're active, we're watching the data, we're hiking the trail right with ya, ⁓ every step of the way. We're not ahead of you, we're not behind ya, we're right side by side. If you wanna take a look at any outside investments, you wanna second opinion on your 401k or ⁓ outside stuff, now's a great time to take a look at it together. Again, thank you so much for your trust and your time.

and I'll look forward to talking to you soon. Take care, bye bye.