AI Stocks vs Dividend Stocks: Where Smart Money Is Moving

The Dow posting its 4th straight winning month in July.

Meanwhile, we saw Amazon and Microsoft soar after their earnings reports last week.

The market is looking ahead to a heavy week of earnings and jobs data with August trade set to get underway.

Now joining me to discuss this and more is our Kevin, Kevin Kelly, CEO and CCO of Kelly Intelligence and portfolio manager at Amplify ETFs.

Kelly, Kevin, thank you so much for joining us today.

Thanks for having me.

So let's start with the August trade.

It is about to kick off with the Dow on a 4th month winning streak.

So where do you feel the markets stand this morning?

Well, you know, what's interesting is that there's a lot of seasonality that comes into the markets and so we, we know that September and October historically have been very volatile months.

And right now the market is really gonna try to digest two real risks it's seeing, uh, play out in front of its eyes.

And the first one is geopolitical risk.

And the second one is rate risk.

And so we had a great earnings season.

Uh, it's, it's not over yet.

We have about a quarter of, of companies still need to report and that should be, be finished soon, but we saw great earnings, and then we saw great guidance going forward.

And one thing that has lends, lend support for August to be a decent month while the rest of the earnings come out is basically, Um, what you're gonna see is the unwinding of the momentum trade stabilize, and we've seen, if you look at the Goldman, Goldman Sachs has a basket of about 35 Momentum stocks or a, a bunch of momentum stocks that everybody tracks, it's been down 35%, and we've seen that with chips.

And so if we get a stabilization there, it could lend credence to the market moving higher because uh the entire market has had great earnings.

So Kevin, we've seen a momentum unwind hitting US equities, especially with volatility hitting the AI trade.

Do you think that this will continue in the month of August?

So, I don't think that's going to happen.

What I think you're gonna see is a rotation, um, happen into high-quality stocks.

So, uh, you know, if you look at industrials, if you look at financials, there's a lot of great companies out there, especially in the mid-cap to lower large cap range where they have.

Great trailing, uh, free cash flow yields, great forward free cash flow yields, great dividends.

They are increasing their dividends, and so, you have companies that have stable balance sheets that can continue to grow in this market, uh, on the periphery outside of the AI trade.

But what's interesting is Everything's become part of the AI trade.

So when you, when you think about companies uh that are traditionally thought of as AI, they're positioning themselves in the AI market as using AI providing AI pickaxes and shovels.

So you need to be concerned and stay focused on that, um, AI unwind and how it reverberates throughout, but there are great companies, uh, that I think are going to lend.

Uh, uh, momentum into this market going forward as it rotates from AI and tech into these more stable companies, especially concerning, uh, what's happening in the rates markets.

All right, Kevin, so word on the street is that you like dividend stocks, so take us through your outlook for them.

Yeah, so, so the outlook is, you know, we don't, dividend stocks aren't meant to be momentum stocks.

They're not meant to perform as some of the companies have, especially, especially old stodgy companies like Micron or Sandix that really didn't do anything for decades and then exploded higher overnight.

So, what you should expect from these companies is you should expect around 1 to 3% dividend yields and then you should try to anticipate that they're gonna earn around 6 to 7% annualized in their equity returns, uh, by growing their revenues and, and not only the revenues, but also their, their income and what the They'll do with that is they will actually take all the money they're making and they'll either do it in share buybacks, increase dividends, do acquisitions, so they're really positioned well to grow their businesses organically as well as do strategic value and add-ons.

So you have a lot of companies out there and um uh like OshKosh, for one, is an industrial company.

That makes trucks, that, uh, especially, you know, uh, for construction sites that, that people are familiar of, they've got some defense tech.

Um, vehicles that they do for the military, but they have a backlog of about $16 billion coming to them in orders, and the company trades around in, uh, you know, $9 billion market cap.

So, they're generating a lot of free cash flow, they pay dividends, they increase their dividends.

So we think there's companies like OshKosh out there that That people can look at.

Uh, you're reporting from a, a great, uh, site today at the New York Stock Exchange.

Its parent, uh, the Intercontinental Exchange, ICE has a great moat around its businesses.

It's really intricate to the financial markets as we've seen, they're, they're robust and growing.

So there's companies even like ICE in the financial sector that, that people could look at.

And so let's talk about last week's meeting with the Fed.

Fed Chair Kevin Warr saying that he's looking beyond PCE to gauge inflation.

The July jobs report is also due out on Friday.

So tell us your key data outlook and any impact on monetary policy.

Yeah, so the jobs report is gonna be very important and especially because we're gonna see, we're gonna look at labor force participation rate, we're gonna look at wages.

If wages, wages rise, and, but not at a hot rate, but they continue to, to go up, that leads to healthy inflation that the Fed wants to see.

We see inflation hasn't been gangbusters.

Uh, to really worry the Fed right now.

So I think we've got to keep our eyes on the wages number.

We've got a, a labor force participation rate.

Uh, one thing to take into consideration, and, and I know investors are always kind of saying, hey, the Fed doesn't get politicized, but, you know, we don't think that a September rate hike is is in the cards because that's before midterms and so we've got the elections coming, so we think if the Fed were to do anything, it would be after the midterms and probably in the December range, but we have to keep our eyes on the geopolitical uncertainty as well as oil because if we think about oil.

Oil is in everything from plastics and to our gasoline, and so that will be the key metric to follow for inflation for the Fed because we use it every single day.

It is the biggest input into inflation that hits consumers' pocketbooks, and so I think oil is, is the main uh indicator that investors need to watch uh for the Fed, especially heading into a September meeting.

All right, so now let's switch over to crypto.

So, with crypto in a bear market, are you paying attention to the four-year cycle?

Do you see any opportunity right now?

Yeah, what we like about crypto is that the price is completely detached from what's happening in the actual crypto market and in the digital asset networks, and so we've seen robust build out and demand for businesses and they're actually implementing crypto.

Uh, for example, all you need.

To do is look at Western Union, right?

Western Union refuses to be Kodak.

So what they've done is they completely have transformed their business model where now you can send remittances all across the world and they can settle in seconds and lower fees.

They're using uh Solana for that.

They're partnered with um Anchorage.

So, the way to think about what's happening with crypto and the price action right now is that just like stocks and I talked about seasonality, where it could be volatile in September or October for equities, we see for Bitcoin, it historically has a, a strong October and November, and given the price action that's come down and where we are in the four-year cycle for Bitcoin.

We think there's a bottoming process that's happening over the summer months and into that historically strong 4th quarter for Bitcoin, and you can look at a lot of technical indicators, so we're really uh encouraged by what's happened with um the bottoming process here, and we think Bitcoin's going to do very well, uh, in the 4th quarter.

Conversely, if you look at Ethereum or any of the other, you know, major ones like Solana or even XRP we're seeing uh which, which more are utility coins and crypto.

We're seeing robots. build out, especially for real-world assets.

So, if you look at the demand tailwinds behind them over the long term, we're talking about secular growth.

We're talking about 35, 10 years.

It's all been happening this year, and that's because the Genius Act of last year.

Now, the overhang has really been the Clarity Act.

And so, now that that looks like it's not gonna pass it, there's probably, you know, you look at Galaxy Digital, they think there's a 30% chance.

Now, that once we remove that overhang, then, then the utility coins can start to be priced off of their, the utility that they're, that's happening in the marketplace today.

Real-world assets, like I said, for example, equities are looking to be tokenized and trade 24/7.

Uh, you've got the biggest exchanges in the world building out those processes, that'll be another boom for, uh, the utility cryptos.

Awesome well, Kevin Kelly, thank you so much.

CEO of Kelly Intelligence, thank you for joining us today.

Thanks for having me.