#23 – Tesla, Misery Index, NBA Salaries, And Market History vs. Elections

Wes Moss [00:00:52]:
Connor, good morning and welcome to you as well.

Connor Miller [00:00:55]:
It is great to be back on. I feel like it’s been a while.

Wes Moss [00:00:58]:
Jeff Lloyd’s been in here. We gave him a little break. Now it’s your turn. Where’s my break and my turn? It’s always my turn here on a Sunday morning for money matters. And that’s cool. We’ve been doing this for a long time, but I think we’re in year 16. But it feels like we just started because the show always changes and there’s always something new. And that’s maybe why it’s such an exciting career to be in, in the investment industry, the planning industry, because there’s always something new in the world.

Wes Moss [00:01:29]:
The market’s always new, the economy’s always new. You’re always solving new problems. It’s just always brand new. It’s almost like Groundhog Day because everything starts anew every day. That’s what’s amazing about it.

Connor Miller [00:01:43]:
I get the question all the time. People ask you what you do. I say, I work in finance. And like, well, do you like it? I’m like, by the way, if you.

Wes Moss [00:01:49]:
Say finance, it just sounds boring. Well, and then work in finance, you’re like, okay, great, I’m going to get another drink.

Connor Miller [00:01:56]:
I actually had one guy, he was like, don’t you mean finance? I’m like, yes, finance. It sounds much more proper. But you get the question of, well, do you like it? And that’s the thing I like about it most, is that it’s constantly changing. There’s always something in the news that you have to stay on top of. There’s always good conversational starters that you can catch up with, with buddies about.

Wes Moss [00:02:17]:
So I remember when I was early in my career and I would say, I’m a financial advisor. People would run and the. So I. What I, and then I think when I started, then when I started on WSB, when people would ask me that. I would say, oh, I host money matters on WSB radio. And people are like, oh, that’s cool. I want to talk about that. I wouldn’t even say I’m a financial advisor.

Wes Moss [00:02:41]:
I’d say I’m just a money show host. I’m also a financial advisor. But speaking of, there’s so many fun topics this week and a, the market’s been doing well. We had a day of, we’ve seen a new all time high. About a month ago. We talked about what impact once markets hit an all time high. It gets scary. As an investor, you think, oh, I don’t want to invest now because the market’s already at a high.

Wes Moss [00:03:10]:
And we went over the research historically, what happens if you go all the way back to 1929 and the market does hit an all time high? What does that, at least historically, foretell over the next year or so? And I got a lot of feedback around that. And since we’ve hit a couple more all time highs since we talked about that, I want to revisit that data again. It’s very important. It’s very interesting. We’ll do that. We’ll also, this was just jumped out at me because I’m thinking I might want to jump on this deal, which is the Hertz selling EV deal. We’ll talk about that in a second. And then, and this isn’t, this is not, this is not going to ruin your Sunday morning, but we are going to talk about the misery index.

Wes Moss [00:03:51]:
The misery index and a Guardian poll that we’ve touched on from a couple of weeks ago. They now go hand in hand. Remember, most of America, or the majority of Americans, 56% of Americans, think we’re in recession. We’re not in recession, but I understand why people think we’re in a recession. Which leads us back to the misery index. The misery index, very simply is the three month moving average or the three month average, which is the complicated part. But the simple part is basically take the inflation rate plus the unemployment rate, put them together and that’s the misery index. That in itself is only mildly interesting.

Wes Moss [00:04:28]:
What’s fascinating is that how the misery index, the change in the misery index a year before the election because, oh, wait, we’re in election year up to the, essentially the November election month that has four has foretold, that is predicted, I don’t know what the right word that is spelled and led to or predicted 15 out of the last 16 elections. We’re going to explain that here today.

Connor Miller [00:04:58]:
This was a stat that we came across over the last week. And really just sometimes you see these stats that just are pretty mind blowing, and yet we had to go back and fact check it ourselves just to make sure it was true. But just really a wild stat that we’ll talk about here. Coming up shortly.

Wes Moss [00:05:15]:
Misery index. 15 out of 16 hit rates. Trying to figure out what administration either stays or goes, and then we’ll get to this sustainable. This was on the sustainable future tab on CBC this week, and this kind of hit, this maybe caught my attention because I’ve got really, I have two teenagers now, and I’ve got to figure out what they’re. Neither of them have a car yet, but we’re on the precipice of having to worry about that. This has been a rough couple years car wise for America. Prices shot up in Covid for anything that was used. Then they’ve come back down a little bit.

Wes Moss [00:05:56]:
But here’s what’s happening. Hertz is essentially doing a fire sale on their teslas. And you’re a Tesla guy, Conor Miller. So you would know more about this than I would effectively. Hertz went all in and maybe too far, headfirst into EV’s. They thought it was going to be what everybody wanted to rent when they came to the Hertz counter. And now, because they overdid it, they are selling. It looks like thousands of these things for essentially a no haggle, $25,000.

Connor Miller [00:06:31]:
Remember, this wasn’t that long ago that they bought all these. I think it was maybe three years ago, 2021. I mean, this was when Tesla’s stock price was through the roof, through the roof, making new highs every day. And you just. You couldn’t even get Teslas. There was a months and months long waiting list to get them.

Wes Moss [00:06:50]:
They essentially made an announcement they were going to buy hundreds of thousands of these cars. It wasn’t just Tesla. It was essentially Ev’s all across the map. It was GM Ev’s and whoever’s making a pure ev. And, of course, Tesla’s included here. But now you can go on the website. And I went to, I think it’s something like hertzcarsales.com to check this out, because I was thinking, wait a minute, for 25 grand, you can. It’s hard to get anything, any sort of vehicle for $25,000.

Wes Moss [00:07:18]:
And there are. There were. And I almost didn’t want to bring this up. Cause I was, I thought to myself, I’m gonna go get one of these because it seems like a really good deal now, Clark, I don’t know if Clark would agree with me on this or not. He’s a longtime Tesla owner. I’ve never owned one. I know you have owned at least one or two.

Connor Miller [00:07:35]:
Just one.

Wes Moss [00:07:36]:
So you have one. But these are the small ones.

Connor Miller [00:07:40]:
So they’re the model three?

Wes Moss [00:07:41]:
Yeah, they’re the model three. They’re all from 21 on the website. They’re all from 21 and 22. There were 58 of these in Stone Mountain. There were like 1100 of them on the Hertz car sale website. And they were all right around. And they were from 24 to 26 grand. They had 40 to 60,000 miles on them.

Wes Moss [00:08:02]:
And I thought, it looks like a really good deal to me. I checked it out. Now I’m not going to buy one. And if you’re listening and you’re thinking, wow, what’s an easy car to go pick up for $25,000? Maybe they’ll get sold out quickly. I don’t know.

Connor Miller [00:08:16]:
I will say I love driving a Tesla. I’m gonna. I will probably drive an electric vehicle for as long as I can, honestly. Mainly because they’re just fun to drive. You get the instant acceleration, you get all the technology, but they’re not for everyone. Right. I understand.

Wes Moss [00:08:34]:
Why would you not like one? I’ve mostly either ridden in yours or sometimes an Uber will be a Tesla. And I’m always surprised at just how amazing the screen is. It shows people walking, by the way. Does it show animals? Like, if a deer were to run across the road, does it show, like, an animal picture?

Connor Miller [00:08:53]:
I don’t know, but it’ll show some strange objects on there, so it probably does. But the two reasons why you wouldn’t want to own one is if it’s your primary travel vehicle, because the charging infrastructure just really isn’t there yet. As much as some die hard Tesla owners want to tell you it is, personally, I don’t think it is. Or if you don’t have access to charging wherever you live, like, for me, it’s just a primary commuter car. Charge it at home whenever I need to. I don’t have to use it.

Wes Moss [00:09:24]:
But everybody can charge it at home, right?

Connor Miller [00:09:27]:
Unless you don’t have a charging station or you. You don’t have a fast charging, which.

Wes Moss [00:09:33]:
Is an adapter that you put in.

Connor Miller [00:09:34]:
Exactly. So those are the two reasons. Otherwise, I love it.

Wes Moss [00:09:37]:
Yeah. I think that the reason we’ve never done it as a family, one, they don’t have giant cars. They’re typically their cars versus big suv’s. And I know Tesla has an suv, but it’s still compact. That’s why it’s never been a fit for our family and long drives. We were always going to Michigan, and that drive is 14, 16 hours. And it’s really difficult to map that out. Or at least I’ve got enough going on with four kids and a dog in a car along with me and my wife to think that I also have to map out when I’m going to charge.

Wes Moss [00:10:13]:
But to me, I don’t know if it’s a good deal or not. It caught my attention. And the car thing, I think I told the story a couple weeks ago. We had to get a new engine in Lin’s only, I think, three or four year old suv, brand new engine. They were so. The dealer was so excited about it because it was under warranty. Great news. You need a new engine.

Wes Moss [00:10:37]:
Wait, wait. I’m sorry, what? But it’s covered. So they were so excited about that, and I was fine with it. And then there’s just always. And I don’t even have. My teenagers aren’t really even driving yet, and so I don’t even know what that’s gonna look like. There’s always some mishap in the driveway. Lynn and I were.

Wes Moss [00:10:56]:
I had pulled up and I was on the phone, actually, with a client of mine. She was sitting in the car. So I got out. She was going to go pick up one of the kids at sports, at lacrosse. And as she was backing up, she rolled down her window and she was talking to me as well. And at the same time, there was an Amazon delivery. So there was somebody walking up the driveway, and she said, hey, there’s a. There’s somebody coming.

Wes Moss [00:11:23]:
Grab the. So it was this confusing thing all of a sudden, and next thing you know, she backs into. She backs into a car that’s sitting in our driveway. So it’s something constant.

Connor Miller [00:11:34]:
Were you watching this? Just in real time action?

Wes Moss [00:11:38]:
Yes.

Connor Miller [00:11:38]:
The whole thing felt like slow motion.

Wes Moss [00:11:40]:
And she had just gotten her car back, and she thinks there was no sensor that went off. And that’s the other thing. We’re used to these sensors warning us, and sometimes they don’t work. And I’m just thinking, what’s the cheapest car I can get in a drive where I know it’s going to get run into probably three times a year and a $25,000 model, three Tesla, if you give it the stamp that it’s not the worst car ever, which I know they’re not, I do like them. I’ve been in these teslas. I don’t know. Seems good to me.

Connor Miller [00:12:13]:
It’s got my stamp of approval really, just across the board, not just Tesla’s. If you, if you were interested in an ev today, it’s, now is the best time that it’s been because all of these are on discounts.

Wes Moss [00:12:25]:
All right. Well, speaking of Teslas and dings and bumps and cars, it’s time to talk about the misery index and what it tells us in any election year. This is not just reelection year. We’re looking at the last 16 different elections we’ll look at today. And again, I know that doesn’t sound like a great topic on a Sunday morning, misery, but this is not about being miserable. But what’s important about it is that the misery index really measures what I would think is what I consider just economic frustration of Americans. Don’t forget, and I would be remiss if I didn’t remind our audience, happy retirees or tomorrow investors, and generally understand the importance of progress and productivity in America. And yes, we’re going to bumps in the road and we experience them all the time.

Wes Moss [00:13:15]:
But stay optimistic. Happy retirees. Stay optimistic. I’m in that camp, too. I’m in the tomorrow investor camp. And I very much do think we live in a world and an investment climate that is in a constant state of improvement, although it’s not always obvious. So that’s kind of just my disclaimer. I still am positive on the future, even though we’re talking about the misery index here on a Sunday morning.

Wes Moss [00:13:39]:
And with that being said, the misery index is high. It’s high and it’s got big election implications. The reality is that most Americans think we’re living in a bad economy. That’s first out of the gate, not a good economy, despite what we know to be strong economic numbers that continue to come in and have now for many years and including this year, Atlanta Fed GDP. Now, Conor Miller this week is up to. What’s it saying for Q two?

Connor Miller [00:14:14]:
It’s two and a half percent, 2.6%.

Wes Moss [00:14:17]:
So in GDP growth for the second quarter. Yeah, that’s strong. However, and this is from a Harris poll conducted by the Guardian, 56% of Americans think we are currently in a recession. First quarter we grew third quarter of the fourth quarter of last year, GDP growth was over 3.5%. So we’ve had lots of economic growth, yet over half of America thinks we’re in a recession. 49% of Americans think the s and P 500 is down on the year. We’ve had 25 all time highs so far for the s and P 500 in 2024, 49% of Americans think the unemployment rate is at a 50 year high. It’s essentially been at a 50 year low for over a year now or almost two years now.

Wes Moss [00:15:11]:
So we know that all this hard data doesn’t necessarily agree with what Americans are really feeling. We’re not in a recession. Technically. We’re not in close to one. And the question is, what does the misery index tell us? So what if the economic numbers. So jobs, PCE, personal consumption expenditures, business investment, let’s say they’re all solid because we know they are from. You can go to the Atlanta Federal Reserve website and look at what they are as of this past week, let’s say. But again, Americans don’t feel like things are going all that well and feel like we’re in a recession.

Wes Moss [00:15:55]:
Because when it comes to the impact of inflation and the lack of wage growth, it makes sense that Americans would feel like we’re in a recession because most Americans have gone backwards financially. They used to run out of money on the 30th of the month. Now they’re running out on the 28th or the 27th. So today, versus a year ago or two years ago, people are feeling tighter, feeling like they’re running out that much sooner. Now let’s go look back over history again. As a reminder, the misery index is just the inflation rate plus the unemployment rate. Now it’s on a three month average. So you don’t technically look at it just at a point in time.

Wes Moss [00:16:37]:
You can do that, but you got to go back to. So where are we today? We stand at about seven, at about seven on the misery index. In the 1970s, it was in the twelve to 20 plus range, right. We had 9% unemployment at one point. We had 12% inflation at one point. That’s 21 right there.

Connor Miller [00:16:56]:
And I think that’s, that’s an important point to make here, is it’s not about the absolute level of the misery index. We’ve had higher levels where the current party or the current administration stays in power. But it’s really about that change, that year over year change. So how am I doing today versus how was I doing a year ago? And so I think voters want to see that their situation is improving, not getting worse.

Wes Moss [00:17:20]:
Well, thank you for skipping to the bottom line here. I buried the lead for too long. Is that the way this works, as when it comes to saying what might happen in the White House, is that if the misery index goes up the year prior, over the course of the year leading up to an election, the party in power is removed, or 15 out of 16 times if the misery index goes down. And this is, to your point, about the absolute level, if it goes down. Historically, we’re looking at 15 out of the last 16 elections. And it is predicted that the party in power stays in power. It’s that simple. And to some extent it makes sense.

Wes Moss [00:18:00]:
Here’s part. This is partially, I think, why the Harris poll shows that most Americans feel we’re in a recession. Because go back to 2016, the misery index was at five. And in 2020, the misery index was right around five. Well, today, even though unemployment is still relatively low and inflation has gotten a lot better, it’s still around seven. So it’s still two points higher than what we got used to in 16, 1718 2020. And I think that’s partially why people, why Americans feel like we’re in bad economic soup. So it’s the change.

Wes Moss [00:18:43]:
Conor Miller, thank you for skipping to what’s important here. It’s the change in the index that matters. It’s been an incredibly reliable predictor. 15 out of the last 16 elections have been predicted by this. And if we look at the change of the misery index, it’s pretty simple. It goes down, party remains in power, misery index goes up. There’s a party change. So there’s a bunch of examples around this.

Wes Moss [00:19:10]:
1960, Misery index went up from even a little bit. In this case, went up from 6.8 to seven and the party changed. Kennedy beat Nixon. 1968, the misery index went from 6.4 to eight and the party changed. Nixon beat Humphrey, who was the democratic nominee after Johnson didn’t run. In 1980, the Misery index went from 18 to a little over 20. It went up and the party changed. Reagan defeated Carter.

Wes Moss [00:19:42]:
So in every one of those cases, as people felt less good, life is not as good. Hey, let’s try somebody new. Let’s try a new party. Throw them out. Let’s see if we can find somebody new. Now, in the 2000 election, the misery index went from 6.4 to 7.4. And guess what party changed. Gw Bush beat the incumbent, Al Gore.

Wes Moss [00:20:08]:
Or the incumbent party was Al Gore. Now let’s look at the other side of the indicator. Let’s go to 2012. The misery index went down from about 13 down to ten. And what happened? Obama won over Romney, meaning that the party in power stayed in power. 1988, misery index went down from, call it ten down to nine. And guess what? The party in power stayed in power. George HW Bush republican nominee after Reagan won, party remained in power, defeating Michael Dukakis 1964, the election, we saw the misery index go again, down from not a whole lot, 6.7 down to 6.2.

Wes Moss [00:20:47]:
And guess what? The party in power, Democrats with Lyndon Johnson won against Barry Goldwater. So we saw the misery index go down, and the party in power stayed in power. This is an amazing amount of accuracy. I think it’s a fascinating historical corollary. It gives it about a 94% accuracy rate because it’s predicted the party in power 15 out of 16 times.

Connor Miller [00:21:17]:
We got to talk about the one that didn’t make it. Right.

Wes Moss [00:21:21]:
There was one that didn’t work.

Connor Miller [00:21:22]:
I know the audience is just dying to know which one didn’t work.

Wes Moss [00:21:25]:
Which one didn’t work.

Connor Miller [00:21:27]:
So, 1976, the misery index went from 16.4 the previous year down to 13.3. So pretty nice improvement in people’s, you.

Wes Moss [00:21:38]:
Would think, kick the bums out. Let’s try somebody new.

Connor Miller [00:21:41]:
The problem. So that was when Jimmy Carter defeated Gerald Ford. The incumbent party lost that year, even though the indicator said they should remain in power. Couple things there, right? The misery index was still at a higher level at 13%. And maybe even bigger was the fact that Richard Nixon had just previously resigned two years prior. So there’s probably some political issues going on. The nation might have been ready.

Wes Moss [00:22:07]:
The other great thing about these historical studies and indicators that we go through, and there’s so many of them over the years, is that when there’s one thing that doesn’t work, you can always go in and explain why. Well, it would have worked, but. But that’s just natural that we want to explain it.

Connor Miller [00:22:26]:
There’s always nuances to everything. And living in 2024, you know, it wouldn’t surprise me if this indicator didn’t work, but it’s got a long track record. And, you know, this is really what we’re watching, is how do people feel heading into November?

Wes Moss [00:22:41]:
And intuitively, it makes sense. American elections are always about the economy, and there are no two better components combined unemployment and inflation, to give us the real feel on american sentiment. The real feel matters, not the headline numbers necessarily. It’s how we’re feeling about it. And when the misery index comes down, hey, hey, life’s a little better, don’t fire the boss. Misery index goes up. Kick the bums out. Try somebody new.

Wes Moss [00:23:09]:
And to me, it makes sense that it works as far as where we stand today on the misery index, if you go back to late 2023, it stood at about 7.37.4 today, with the most recent job numbers, the unemployment rate ticking up to 4%. And the inflation data we have so far, the misery index would stand at around 7.2 or 7.3, almost perfectly flat to where we were this past November. So right now, it’s really not telling us anything about this next election reading. And I would think it really just suggests that the misery index, the level is certainly still up for grabs heading into November. More money matters straight ahead. If you’ve ever done a Jane Fonda workout, or if you remember as a kid rocky running the steps, and if Michael Keaton is still mister mom to you. But guess what? It’s officially time to do some retirement planning. It’s Wes Moss from money matters.

Wes Moss [00:24:10]:
Weren’t those the good old days? Well, with a little bit of retirement planning, there are plenty of good days ahead. Schedule an appointment with our team today@yourwealth.com. dot that’s your yourwealth.com dot. This is according to the Wall Street Journal, Americans have more investment income than ever before. Conor Miller, why in general?

Connor Miller [00:24:36]:
In general, I mean, to me, I look no further than where interest rates are today. They finally normalize to the point of where you can get risk free government treasuries that’ll pay you four to 5% coming off of a decade, where they paid you two to 3%.

Wes Moss [00:24:55]:
And there were some periods of time when those yields were under 1%. So there’s been a dramatic change. And you hear about how higher interest rates have slowed things down. It’s made mortgages much more expensive so fewer people can buy homes, and that’s slowing the economy down. You hear about higher credit card rates, you have higher car loan rates, all in an effort for the Federal Reserve to slow things down so inflation calms down. What you don’t really hear about is the other side of higher interest rates. And what this research is pointing out is that from middle income, low income, and, of course, high income folks in America, almost at every income range, they have gotten a real tailwind when it comes to having more money that gets produced, more income from investments in general. And here are the numbers.

Wes Moss [00:25:52]:
Americans earned about $3.7 trillion, and now that’s interest and dividends in the first quarter of this year in 2024. Sounds like what we talk about here on money matters, interest dividends distributions. They add up to a portfolio yield, and you can actually spend that money in retirement, 3.7 trillion. That’s up $770 billion from the first quarter four years ago. It’s up 770 billion. So we essentially, let’s go back and look at it, it was 2.9 trillion and now it’s at 3.7 trillion. 2.9 to 3.7 doesn’t sound like a lot, but when it’s with a t or a trillion, almost a trillion more dollars flowing into this, into pockets, wallets of families in the United States in any given quarter, what could this do? And I think this has implications here for both. One of the reasons why we’ve not really slipped into recession, more money into people’s wallets and pockets and bank accounts.

Wes Moss [00:26:54]:
And two, we’ve been able to at least somewhat battle inflation, even though I wouldn’t say we’ve been winning that battle. Americans still don’t feel like things are all that great because incomes really haven’t kept up fully with higher prices. But if we were to do the math around this, and Conor Miller, you can tell me where I may have some flaws in this argument because it’s not quite as simple as I’m going to try to make this here, but let’s just do this math. $770 billion more in a quarter. So we multiply that by four. Now we’re at a little over $3 trillion more, $3 trillion more income this year than where we were four years ago. Even on a massive economy our size, 3 trillion still moves the meter.

Connor Miller [00:27:40]:
Yeah, for context, the us economy, about $27 trillion just shy of that.

Wes Moss [00:27:46]:
And I actually looked at personal income in the United States when personal income in last year, 2023, was about $22 trillion. So percentage. So we take our 3 trillion, divide that by personal income last year. That’s a 14% increase in income in general. Now, that’s relative to four years ago. So it’s not a year over year number. Now look at it this way to your point, PCE, that’s a huge component of GDP. This is 70%.

Wes Moss [00:28:18]:
It’s what, it’s personal consumption in America. Personal consumption expenditures. Let’s simplicity, let’s say that’s about 70% of the input to GDP. So 70% on 3 trillion is about 2.1 impact GDP this year or last year it was $2.27 trillion. 2 trillion added to that, or from a ratio perspective, means that the potential increase in a vacuum to GDP just because of these higher interest rates, 8%, 8.1% growth. And if you look at the numbers, I know it’s not that simple, but we’ve had a similar amount of growth over the last four years. I think you could point a lot of that towards higher income. Now, some of it’s higher wages, but some of it, and a lot of it has to do with higher interest and dividend payouts that go directly into the bank account of the happy retiree.

Connor Miller [00:29:15]:
I was going to say, you just simply divide that number by four. You get about 2% per year. That’s probably been one of the key differences between whether or not the US economy continues to grow or slips into recession. And I think this may have been something that a lot of analysts weren’t taking into account a year and a half ago when everyone was predicting recession.

Wes Moss [00:29:42]:
Yeah, it is funny. I’m not going to say the firm, but I remember talking to an analyst a year ago about this and asking, well, what about all that extra income that should be coming into family bank accounts? And it wasn’t even on the radar. I remember them saying, well, I think that could move the meter. That could matter. But maybe it’s not that simple, too. With economics, of course, it’s not just in a vacuum. You can’t necessarily look at one particular number. But that’s a pretty powerful.

Wes Moss [00:30:12]:
That’s like a water main break in midtown that just floods the streets. That’s a flood of money coming in. And I can only say that because we’re back not under a Boyle advisory here in Midtown.

Connor Miller [00:30:26]:
And really an important point, because so often we’re talking about the other side of the coin in this conversation being the government debt and the deficit. Well, there’s a lot of Americans that own that government debt that are now getting paid more from it, which continues to stimulate the economy.

Wes Moss [00:30:46]:
Or you could look at on the downside, is that now it’s higher interest costs for us government. So it is not as simple as the calculation I laid out. There’s some circularity to this 100%. If I go back and look at where GDP was in 2020, it was about 21, call it $21 trillion in 2020. Then it jumped to 23 trillion in 21, 25 trillion in 22. And last year, we clocked in at almost $27 trillion in total gross aggregate annual GDP for the United States. And from our calculations, part of that, and a lot of that’s only come in the last. Call it year and a half to two years as the Fed has raised rates.

Wes Moss [00:31:32]:
But it’s a real tailwind, and it may be one of the things that has really kept us out of recession. You go back, I was looking at GDP per quarter. If you go back a couple of years ago, we had two negative quarters of GDP. We had two quarters. And the National Bureau of Economic Research is that it’s the NABR the NBER.

Connor Miller [00:31:56]:
The National Bureau of Economic Research.

Wes Moss [00:31:58]:
Can you believe I didn’t remember that acronym, the NBER? But if you go back to Q one of 22 and Q two of 2022, we did see two negative quarters of GDP growth. We were down about 1.6 and then just a fraction of a percent. They never called it a recession because the unemployment rate really hadn’t gone up much. But we didn’t really have that tailwind of higher rates just yet because it wasn’t until what, the summer of 22 where inflation really peaked. And then the Fed went on their campaign to try to break it down. Well.

Connor Miller [00:32:37]:
And really that was what we were all taught growing up in our economic classes, was two consecutive quarters of negative GDP growth. That’s recession. We got it. There it is. Stocks actually fell kind of like they do in a recession. They fell 25% that year from peak to low. But the missing piece there, and this is why NBER never actually called the recession, is because the most important piece of the economy.

Wes Moss [00:33:02]:
That’s an easier way to remember the NBER.

Connor Miller [00:33:07]:
The consumption. 70% of the us economy that never stalled, that just continued to grow. It showed its head in inflation. And ultimately that’s why they didn’t call the recession even though we got the two consecutive quarters of negative growth.

Wes Moss [00:33:24]:
We talked about the misery index. It’s interesting that there’s no calculation in that when it comes to personal income growth. That’s one of the offsets. You could make the argument that there’s more income. I would probably make the argument knowing the sentiment of America right now. There’s 56% of Americans. Americans feel think we are in a recession. It’s not just they feel.

Wes Moss [00:33:45]:
They think we’re in a recession. Half of America, or 49% believes that the stock market is down on the year. And 49% of America thinks that we are at an all time a 50 year high of unemployment. All of those are. That’s not accurate when it comes to the numbers, the temperature, the data. But when it comes to the real feel, which is impacted by this misery index, inflation plus unemployment, Americans don’t think it’s all that great. Conor, chart of the week goes back to the year 2023. That was last year quarter one, when everything was driven by the mag seven at least for earnings.

Wes Moss [00:34:29]:
And now this year and the projections into Q one of next year 2025. This coming from FactSet and where they cobble together all the different analysts and they say, what do you think earnings are going to be for the overall market? You go back to last year, and everything was coming from the mag seven. All the earnings growth coming from the mag seven or all the net income growth. The net income was, what we’re talking about here was coming from mag seven, which is a handful of companies, seven of the big ones we mostly know.

Connor Miller [00:35:00]:
Apple, Microsoft, Amazon, Nvidia, Tesla, Google.

Wes Moss [00:35:05]:
Now, starting this year in Q three, so we’re looking at next quarter, it starts to even out looking at where we’re getting net income growth from the mag seven. And then all the other companies, the other, call it 493 companies in the s and P 500 start to contribute essentially just as much. I mean, what is your take on that?

Connor Miller [00:35:32]:
Last year? You know, at one point, I think it was as late as October, 100% of the gain in the S and P 500 came from just those seven names. At the end of the year, I think it was around 60 or 65% of the overall gain came from just those seven names. And to their credit, a lot of the earnings growth came there. Actually, all, pretty much all of the earnings growth in the second half of the year came there.

Wes Moss [00:35:57]:
And what happened came from tech, from.

Connor Miller [00:35:59]:
The mag seven came from the mag seven. What happened is the market now assigned this huge multiple, meaning the price that they’re willing to pay for those earnings or for that net income because of the growth, you’re paying a higher multiple for them. Really what’s encouraging for the other investors out there, particularly income investors that have a more balanced, diversified approach, is when you look at the earnings growth and what we’re expecting later this year and on into early next year, it really evens out a lot. And so the mag seven got off to a headstart last year. But when you look to Q three of this year, in Q four, about 13 and 14%, it’s about even of what you would find.

Wes Moss [00:36:46]:
So 13% for the over, for the general market, for net income growth, and about the same 14 for the mag seven.

Connor Miller [00:36:54]:
Exactly. And so how I view this is if you’re paying a reasonable value or a reasonable multiple for a company, I think this is going to matter more, because one of the reasons you pay a premium for something is because it’s growing faster. If you’re not seeing, if you’re seeing the same growth, well, then you might as well. You want to search for value more. You want to find the more reasonably valued companies. And ultimately, I think that will pay off well.

Wes Moss [00:37:22]:
Again, according to Wall street estimates coming from FactSet, we’ve got a team of 500, 493 have been on the bench. It seems like it’s about time for those 493 to get in the game. Maybe that’s what we’ll see here in coming quarters, and that I like to see markets broadening out from an income, and particularly net income growth perspective. More money matters. Straight ahead. The market has hit, call it 25 all time highs in the year so far. We went back and looked at data from 1929 to 20 until now, until this year. And the reason is because anytime the market gets to a point where it’s already done well, I think we naturally think, well, maybe it’s not such a good time to invest.

Wes Moss [00:38:17]:
We hear let’s buy low and then we’ll sell when it’s high. So to me, I think it’s a psychologically difficult time to be investing just because things have already gone pretty well. Connor Miller, you looked into a lot of this research. On its face, doesn’t it make sense that we pumped the brakes? Things already have done well?

Connor Miller [00:38:36]:
Yeah, we get that all the time. Right. People, families that we work with, no one wants to buy in at the top of the market. Right. And obviously, that’s only an indicator that we know in hindsight. But when you look at the number of years where the market sets all time highs, look, we’ve, we, we went basically two years without setting 120 22. We only saw one all time high. I think that was on January 1 or January 3 that year, the first trading day of the year.

Wes Moss [00:39:06]:
And then we went straight down after that.

Connor Miller [00:39:08]:
Straight down, down 25% at 1.2023. We didn’t see any all time highs. Fast forward to this year. Now, like you said, we’ve seen 25 all time highs. There’s been a lot of strong momentum in the market. And so, yeah, I think it’s natural for people to feel hesitant around investing into that. But we went back and we looked at the data. This is going back to 1950.

Connor Miller [00:39:34]:
And what happens to the market after you set an all time high? If you’re investing at all time highs and the returns on average are pretty good.

Wes Moss [00:39:45]:
So the returns on average post an all time high. Are you looking at a one year, three year, five year?

Connor Miller [00:39:50]:
Exactly. So you look at one year out for only investing in all time highs, on average about 11% return. All other dates over that period, about 12%. So a little bit worse, but still pretty good. No one’s going to scoff at an 11% return. Go three years out, again, about 11%, 10.9% return, three years out, just slightly under all other dates. And then even the five year average another 10% average annual return.

Wes Moss [00:40:20]:
It reminds me of participation versus perfection. If you think about that study we’ve done that’s looked at having the very worst possible timing you could have where you’re buying at a market peak, you compare that to buying in a market trough, and then you compare that to cash. The returns are not as divergent as you might think you would think. Well, if I could buy at the very low, very bottom, which we know we can’t predict over and over again, even if you nailed the bottom, using history as your guide, so you get to money more than quarterback and you nail the bottom, those returns aren’t necessarily that significantly higher than if you did the absolute worst timing where you bought at a cycle top. And I think this goes into that. If you’re looking at the data, it’s somewhat streaky. You go back to the, for example, the 1950s. There are a bunch of years where we saw lots of new time highs.

Wes Moss [00:41:16]:
In the 1980s, we had a bunch and nineties, but a bunch of years in a row where we had new all time highs. And then we, if you think about 2001 all the way to 2006, it was a desert for all time highs because we were going through the tech bubble, then we’re going through the financial crisis, and then it really wasn’t until 2013 we started to see new all time highs again. And they’re very, you could almost say they’re clumpy. So once you start making all time highs, historically, it creates a lot of momentum. I think the first thing to think about is that all time highs don’t happen by accident. Think about all the things that have to go right. You’ve got to have a good to decent economy. You have to have decent inflation, you have to have moderate interest rates, you’ve got to have earnings growth, you’ve got to be in a positive cycle for economic growth and earnings growth.

Wes Moss [00:42:09]:
So a lot has to go right in order for the market to ultimately reflect earnings enough to reach an all time high. So to some extent, it is this flywheel that’s already gained some momentum. We got there. Markets did well. The flywheel, to some extent, can keep going, and that’s why you can continue to see subsequent and new all time highs. And I think that’s why the data is saying what it’s done. But again, psychologically, it’s not the easiest time to be investing, and that’s why I think it’s important. Here we are in a period of time where we’re seeing these new all time highs.

Wes Moss [00:42:45]:
I think it’s important to review this data so they’re not rare. All time highs are not rare since 1950. If you’re looking at the S and P 500, it’s hit over 1250 all time highs, 1250 plus times to get to where we are today. That averages out from 1950. And it is more clumpy and it’s not a steady drip every single year for these all time highs. But if you were to average out, if you were to average it out, that would be more than 16 new all time highs every year. And again, post investing in all time, it’s not as bad as you think. Connor, you just told us that on average, over the course of a year.

Wes Moss [00:43:29]:
So you buy at the top at an all time high. On average a year later, over the course of this 1950 to 2023 period, you’re up eleven and change, 11% and change versus a little over 12% for those one year periods. It’s also interesting and a little surprising that once we hit these all time highs or post an all time high, big corrections are fairly rare. It’s not that they don’t happen, it’s something not that they couldn’t happen, but if you look out over the course of okay, let’s go to an all time high and then look a year down the road, only 9% of the time post all time high have we seen the market be in correction mode of down 10% or more. You go three years out, only 2% of the time were down 10% or more, and you go five years out. And during that period of time, you have not seen markets 10% lower at that .5 years out. So, of course, the future is very uncertain. It’s always uncertain, particularly in the short run.

Wes Moss [00:44:37]:
But history shows us that stocks and the equity markets, as we know, generally rise over time, over the long term. And reaching these new time highs sounds like a Huey Lewis song. These new all time highs, it’s pretty common, maybe more than we even think. And it doesn’t, at least historically, indicate that returns are going to be a whole lot less moving forward. Doesn’t necessarily spell an upcoming correction. In fact, all time highs might actually suggest that there’s more growth on the horizon.

Connor Miller [00:45:13]:
Well, and the important point here is if you’re a long term investor, which we are here at Capital investment advisors, and we know that on average you see 16 new highs set every year, you’re always going to be either invested or investing into periods of the market where it’s setting all time highs. And so that just that becomes a norm. And we know based on historical data that that’s not the worst time to be invested.

Wes Moss [00:45:41]:
Lot of all time highs. If you look around the economic data set, all time high GDP, we’ve got all time high personal consumption expenditures. We’ve got all time high inflation because guess what? Inflation doesn’t usually go down. So we get an all time high for inflation every single year pretty much, unless we have massive deflation, which we very rarely ever have. So there are a lot of economic data points, if you think about it, that do as we continue to expand and the population continues to grow and we have more babies in the United States, even though the pace has slowed down, as we continue to expand the population, the income base, the number of jobs in the United States, and then of course, spending, which makes up 70% or so of overall gross domestic product, you hear the word all time high and you think, ooh, that’s got to be some sort of bubble. But if you zoom out and look at the bigger picture as we grow as a country or population, the planet’s population, it doesn’t seem as scary to think business continues to expand at greater and greater scale.

Connor Miller [00:46:51]:
And maybe even a better way to phrase it really is all time high for now.

Wes Moss [00:46:58]:
All time high for now. Wow. Connor Miller, I’m so glad to have you on here. One of the things we had yet to cover is this balance of power and what happens, different political party combinations in the market. And you did a really nice recap this week for that. Walk us through what happens.

Connor Miller [00:47:18]:
Yeah. So we talked about the misery index earlier in the show.

Wes Moss [00:47:21]:
It was so light and fluffy sunshine.

Connor Miller [00:47:24]:
What that could potentially mean for the outcome in November, we obviously don’t know what that’s going to be. We won’t know, nor do we know.

Wes Moss [00:47:31]:
What the misery index is going to end up in November. So I know that people are going to be watching very closely the CPI rate and the unemployment rate, and they’re going to be adding it together. Looking at the three month average, we’re going to compare it back to where we were a year ago.

Connor Miller [00:47:46]:
We’re going to see how people are feeling ahead of going to the polls. But look, here is, this is the most important takeaway, regardless of who wins in November. I know we all have political beliefs, right?

Wes Moss [00:47:58]:
If you’re a Democrat, you think if Republicans win the White House that it’s going to be the end of the world. And if you’re a Republican and you think it’s going to stay democratic, you think it’s the end of the world.

Connor Miller [00:48:06]:
Well, here’s how.

Wes Moss [00:48:07]:
Reality of the world.

Connor Miller [00:48:08]:
Here’s how I’m going to position this for you today. Okay, so we have this broken down by whether there’s a democratic president or a republican president, and then whether. Who controls Congress? Right. Do the Democrats control both houses? Is it divided or do Republicans control? So who do you think, if there’s a divided Congress, which party in the presidency? What do you think the stock market does best under?

Wes Moss [00:48:33]:
I would say. I don’t know. I don’t want anyone to say I’m politically biased.

Connor Miller [00:48:39]:
So the Republicans actually do the best here, but catch this by 0.1%. So if there’s a republican president or a democratic president and a divided Congress, average rate of return, 13.7% for republican, 13.6% for Democrats. I think we could live with both of those numbers.

Wes Moss [00:49:00]:
That’s a great point.

Connor Miller [00:49:01]:
So in the effort of being fair here, now, if there’s a republican Congress, now, let me ask you the same thing. How does the market do under democratic president or republican president?

Wes Moss [00:49:11]:
I don’t know. You tell me.

Connor Miller [00:49:12]:
Democrats actually do slightly better here, again, by the same narrowest of margin, 0.1% 13% if you have a democratic president and Republican Congress, 12.9% if you have a republican president and Republican Congress. This is data going back to 1933. The point being is the market really does well regardless of what regime you have. And the market just has market.

Wes Moss [00:49:43]:
It looks through, it drives through.

Connor Miller [00:49:44]:
It’s going to make money regardless of who’s in office.

Wes Moss [00:49:48]:
Well, I know some political, economic, and market analysts that would tell you that there are different houses of control, are better for some different sectors, and I can’t necessarily disagree with that. But the numbers don’t lie. History is very clear that almost any political combination here in the United States, one system that you can put throw together the market, has done pretty darn well under almost all of those different combinations, and I think we’ll leave it at that here today. For this edition of money Matters, you can find me and Connor Miller, our whole money matters team. It’s easy to do so throughout the week. You can find us and contact us through our website, which is yourwealth.com, that’s y o u r or, and have a wonderful rest of your day.

Mallory Boggs [00:50:45]:
This is provided as a resource for informational purposes and is not to be viewed as investment advice or recommendations. This information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. The mention of any company is provided to you for informational purposes and as an example only, and is not to be considered investment advice or recommendation or an endorsement of any particular company. Past performance is not indicative of future results. Investing involves risk, including possible loss of principal. There is no guarantee offered that investment return, yield, or performance will be achieved. The information provided is strictly an opinion and for informational purposes only, and it is not known whether the strategies will be successful. There are many aspects and criteria that must be examined and considered before investing.

Mallory Boggs [00:51:32]:
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