Decoding the US Economy and Stock Market: Separating Perception from Reality

I want to share my thoughts on the US economy and the US stock market:

There is perception vs. reality. We focus on the facts and reality, thinking less about the 24-hour news cycle and more about the data. Hard to imagine, I know.

US Stock Market:

Point #1:

The Presidential election determines the outcome or return of the stock market. That is FALSE. No matter which side of the aisle you land on, there is no significant gain in the market for a Democrat or Republican President. Going back to the 1920s, the average return in an election year is 11.52%.

Regardless of your opinion or feelings, millions of bright Americans wake up to grind out their jobs with sweat and hard work for quality companies. These quality companies have stood the test of Presidents and different market cycles. We invest in quality companies and focus on those with a proven and simple business model.

Point #2:

The market is at a new all-time high; it is going to crash. As you guessed it, that is FALSE!

Here is the data – JP Morgan published a study looking back over 35 years at investing in the market at the all-time high (ATH) vs. any other given year. ATH investing showed a 13.4% return, while any other year without an ATH was 12%. If you look at that same period three years out from an ATH vs. any given year three years out, the returns were 48% and 40%, respectively.

This means you are potentially 8% better off staying invested and focusing on the facts rather than the perception that the market is approaching a bubble or doomsday collapse. When things are doing well, it does not mean they will peak when you believe they will. Momentum is hard to stop, and we have a ton of forward movement for the economy.

US Economy:

Interest rates will stay high forever – this is FALSE. The Federal government would like to cut rates just as much as we would like to see them come down. The goal of raising rates is to help slow or stimulate the economy in the right direction, AKA inflation.

And I know what you may be thinking, the Fed caused inflation. They did create a surplus of cash by printing money and handing it out like free checks. It created supply but not demand, and prices of everything shot up. I would agree with you that they are trying to correct the path we are headed on.

The Federal government is projected by 90% of economists to cut rates by 0.25% by September and a 60% chance of 2 rate cuts of 0.25% by December.

Here is the data – GDP or Gross Domestic Product is how we measure the growth of our economy. Even with high rates, we are seeing growth. Q1 grew at 3.3%, while Q2 grew at 1.6%, and it is projected to grow at 2.6% overall for 2024. That is like saying your net worth/income is growing at 2.6% every quarter. There are signs of slowing ahead, and the Federal government would like to see inflation and a slowing economy before cutting rates.