#45 – Election Results, A Certainty Pop, And What It All Means For Future Retirees

Wes Moss [00:01:00]:
We saw the Dow Jones industrial average up 1500 points in one day. We’re going to call that the certainty pop. The day after the election. US Stocks adding over one and a half trillion dollars on the day, their fifth biggest one day showing ever. And I can say in the history of the world. Welcome to Money Matters. Your host Wes Moss, along here with Connor Miller, Chief Investment Officer, Capital Investment Advisors, to break down what we think this election may or may not mean for the future for investors, for retirees, what sectors are impacted, what does it mean for interest rates? What’s it mean for the United States debt and deficit, which we are going to get to. Connor Miller, welcome to the studio.

Connor Miller [00:01:51]:
Thanks for having me on. And we look, we made it. This felt like one of the longest election cycles in our lifetimes. The clock started early. We had, you know, one of the earliest debates in a really long time and we made it through. And I think the most important thing you said was having the certainty of it. I think we, we can all appreciate to some degree, you know, I would.

Wes Moss [00:02:13]:
I would venture to say that that is the most shocking thing about the election is this, it’s, it’s, I’m most surprised about how unsurprised we are.

Connor Miller [00:02:25]:
For as much as we talked about, this could potentially be the closest election of our lifetime. It could come down to one state and just a handful of votes. And it was really quite the opposite.

Wes Moss [00:02:38]:
It’s funny, Nate Silver, kind of the most famous pollster, I think the night of the election or maybe the morning of or the day of had gone from essentially said it was he ran 80,000 scenarios and pretty much 40,000 scenarios went to Harris, 40,000 went to Trump. So he said it’s just this one’s going to come out to luck.

Connor Miller [00:03:01]:
It was like 40,000, 14 went to Harris and then whatever that is, 40,000 minus 14 went to Trump and then.

Wes Moss [00:03:08]:
It wasn’t really, as far as the White House is concerned, wasn’t really even close. And I think that’s what we are going to talk about today. So we have Trump back in Washington D.C. regardless of the Senate and we know the Senate and we’re assuming the House, our gop. But we’re very likely in for a huge number of executive driven policies. And maybe it’s also because there’s a couple of things the day after the election. So first of all, I had anticipated this would go many days. It didn’t.

Wes Moss [00:03:42]:
It went till you could tell at 10:30 the night of what was going to happen. And then of course they called it in the morning and then you, you saw futures up. It was like, it was something like 10 o’clock at night. Futures were up 500 points. Then the market started to rally. Futures drop 1000 points. Then the market was up 13, 14, 1500 points on the Dow, which even though the Dow is, is a much larger index number, that’s still a major percentage even for the Dow. And I think that the confluence of one, the market being up, sigh of relief obviously for just the market in general, Wall street in general.

Wes Moss [00:04:22]:
And we saw the Vix, by the way. The Vix went down 35% in the course of a day and a half. That’s the fear index. A third, it dropped more than a third in just a 24 hour period. So all of, all of that to say I remember eight years ago when Trump first won, it was maybe the busiest day I can remember. Just people wait, wait a minute, who is this new guy? What does it mean for markets? What’s happening? This is. And on Wednesday it was really just kind of crickets. Nobody’s calling, nobody’s emailing, nobody’s saying, hey, wait a minute, like what is.

Wes Moss [00:05:02]:
Because one, I think we’ve already seen Trump, then we’ve seen him for another four years not be in office. I think America kind of knows him and for the most part we have a really good idea of what his policies are. And I think anytime you see the market up a lot like that, it just delays people’s fears in general. So again, I didn’t get a whole lot of calls or emails. Connor, I don’t know about you, I.

Connor Miller [00:05:25]:
Was, I was actually thinking about that earlier this week. You know, to a certain degree is Trump was kind of the incumbent candidate just because we had him for four years. There was so much.

Wes Moss [00:05:35]:
That’s an interesting way to look at it. We even talked about that. But that’s interesting. To some extent he was because you know where he stands on a lot.

Connor Miller [00:05:44]:
Of and there was some uncertainty around Vice President Harris just from was her policies gonna match more of the Biden playbook or was she gonna have policies of her own? But you know, we went through four years of this with Trump. So yeah, to, to a certain extent he was the incumbent candidate.

Wes Moss [00:06:01]:
Well, so we’ll talk about market returns. Well, I mean really we, I don’t know if I’ve ever seen anything quite like that in the day after an election or the day you got some. We had some certainty around it. And some of these sector moves were so dramatic. I mean if you look at and I went back and just you look at financials where in aggregate 7% in a day. The banking index was up 11% just for the day. This is the entire sector of regional. Well, the, the, it was the KBW banking index was up just dramatically all in just one day.

Wes Moss [00:06:40]:
The industrial sector rallied tremendously. Technology rallied. Really the only thing that did not rally, energy 5, 6%. The only thing that hasn’t rallied over the past couple of days would be healthcare relatively flat and then utilities down just a little bit. But a very, it wasn’t just one sector that rallied. It was a very broad, broad stock market. And we talked about this last Sunday is that and we’ve kind of been talking about this all year and I’m kind of in the guilty camp when it comes to saying the economy is good. I also realized early in the year, earlier in the year that people don’t care that the economy is quote, good.

Wes Moss [00:07:22]:
Americans haven’t really cared that the jobs numbers are good and the inflation or the rate of inflation has come down and the jobless claims are low and jolts job openings versus labor turnover and vacancies getting back in line. Americans don’t care about that. And I’ve tried to realize that for a lot of this year. But as we talked about last week, there was a high probability that this election was just going to come down to one thing in one word. And that word simply still is inflation. And it is the biggest component of the economy that people feel. And almost every election comes down to the economic picture. In this one in particular, it was the number one.

Wes Moss [00:08:15]:
It was the number one variable in voters minds and the majority, more than 50% lean towards Trump on issues surrounding the economy. So I’ve spent a lot of time praising the big picture economic data over the last year or two. I’m one of the folks that still has been saying hey Everything’s pretty great. I’ve also known the majority of Americans just weren’t buying that when it comes to the economy, sure, the day is good, but my wallet doesn’t feel good. And that’s really been the story of this year. Most of why my wallet doesn’t feel good are Americans is that we’re struggling to keep up housing costs, rent, groceries, gasoline, healthcare, insurance, utilities, childcare, dining out, dining in, car payments, maintaining a car, homeowners renter insurance, car insurance, clothes, haircuts, your streaming services, public transportation, education, recreation, just the list goes on and on. This is the real world. And the real world has felt kind of out of reach.

Wes Moss [00:09:25]:
It’s been, it feels too expensive. And most Americans, the majority of American have just felt too squeezed. And Wall Street Journal had a really interesting profile about a hairstylist in Nevada who essentially just said, I felt like someone has had their foot on my chest for the last three years when it comes to me trying to just pay for life. And I think that’s why the election went the way it did.

Connor Miller [00:09:52]:
Yeah, I think consumers are really playing this game of catch up. And look, we just, we saw a huge, huge mismatch in what the experts say, if we want to call them experts, and what people feel. And so the experts are looking more at that trailing 12 month data where, yeah, inflation’s only been two, two and a half percent over the last 12 months. But that doesn’t factor in what happened the two years prior to that. And really starting in 2021 when inflation started to pick up, you really haven’t seen wages grow as fast as inflation. And so I think that is the.

Wes Moss [00:10:30]:
Mismatch that we’re meaning that people’s income is still falling behind what it costs to pay for life in the big city or outside of the big city. If you, if you look at what happened in county to county across the United States, it’s, it’s people all over states, not just urban areas and particularly in more rural areas, people felt the impact of inflation. Yeah.

Connor Miller [00:10:52]:
And quite frankly, voters just had a different reference point than economists.

Wes Moss [00:10:57]:
So again, I think about the economy every single day. We talk about it here every single Sunday and we’ve tried to acknowledge it, but it really, that’s what came through this election week and it was, it was loud and clear. The other thing that’s very interesting is we continue to have this seesaw pendulum keeps going back and forth of political uncertainty. And we haven’t seen this much political uncertainty since after the Civil War. And I mean that if you go back over the last 10 elections, so go all the way back to essentially the financial crisis, nine out of the last 10, nine out of 10 of the last elections have thrown the party in power out. And that just goes to this sentiment that it’s a frustrated electorate. The world is kind of frustrated. And each almost in every election.

Wes Moss [00:11:48]:
And there’s obviously been presidential elections and there’s the mid year election cycles and I’m counting that here is that we’re swaying back and forth between, well that didn’t work with these guys. Hey, it’s still not working. Let’s try the other guys. Hey, it’s still not working. Let’s try the other guys. And that’s been this really interesting flip flop back and forth and it’s created political uncertainty, of course, policy uncertainty. We saw a market reaction that comes back to a sense of certainty. And that’s happened over the last couple of elections.

Wes Moss [00:12:20]:
And we’ve had Republican, then we had a Democrat, now we have another Republican in the White House. And regardless of the party in power, we had a 1% jump the day after the election back in 16. We had a 2 1/4% jump the day after the election in 2020. And we had a 2 1/2% climb for the market in aggregate, obviously on Wednesday of this past week. Very decisive showing. By the way. Connor Miller, these numbers S&P 500 or Dow, what were we looking at there?

Connor Miller [00:12:50]:
These are S&P 500. So the Dow was actually up a little bit more, 1500 points, which translates to about three and a half percent. So even better for the blue chip index.

Wes Moss [00:12:59]:
Right. So when we say the broader market, we’re looking at S&P 500. So it is interesting that just over the last couple of years that next day has been a sigh of relief where the market either knows or pretty much knows where the presidential election is going. Investors whether on either side just say, okay, now we know, now we know. And there’s a lot to be said for that. I think the most interesting, one of the most interesting data points of the week, the VIX going down, the volatility index where people can hedge out risk. The higher the VIX goes, the more nervous investors are that markets are going to take a big tumble. Lower the VIX is the more, the calmer, more placid.

Wes Moss [00:13:43]:
Let’s say the investor sentiment is down 35%. The risk index, the Vix down 35% in just a matter of about 24 hours. The other thought here is that if you go back and look at the last several and this is we’re going back to the last four. Connor Miller, different first year presidential cycle. First year of the new presidential cycle. So 09, 13, 17, 21 so next year, 2025 will be the first year of this new presidential cycle. They’ve been really strong returns in that first year. Then the question is what happens the next year?

Connor Miller [00:14:25]:
This was something that kind of blew my mind this past week when looking at this. So for the last four first years of the presidential cycle, so so not.

Wes Moss [00:14:36]:
The year of the election, but really the year of the inauguration.

Connor Miller [00:14:39]:
Right. So Trump will be inaugurated in January of 2025. So that’ll be his first year. Going back over the last four 2009, the market was up 26%. 2013, 32%. 2017, about 22% and then 2021, almost 29%. So when you take the average there of the last four years of the first year presidential cycles, 27% on average for the market. So the market tends to do pretty well in that first year.

Wes Moss [00:15:09]:
However, on the flip side of that, we’ve seen corrections or even some bear markets in the second year. It’s almost as if it takes a little while for the White House to figure out how to mess something up. And then we’ve seen some interesting second year market performances. We’ll talk more about that and what different sectors of the market did this past week when Money Matters returns. 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 Mr. Mom to you, then guess what, it’s officially time to do some retirement planning. It’s Wes Moss from Money Matters. Weren’t those the good old days? Well, with a little bit of retirement planning, there are plenty of good days ahead.

Wes Moss [00:15:59]:
Schedule an appointment with our team today@yourwealth.com that’s y o u r your wealth.com so you’ve got this move towards the GOP. What is that going to mean for the market? Does it mean for policy? And right out of the gate, I think what we’re going to see. Well, Connor Miller, what are your kind of three big areas that we think are going to be impacted right out of the gate?

Connor Miller [00:16:24]:
I think the first initiatives you’re going to see are on tariffs, immigration and then regulation, which is probably going to have some impacts for the energy industry and financials as well.

Wes Moss [00:16:36]:
Okay, so the right out of the gate, let’s just take regulation as an example and I Think regulation is one of these, or deregulation is one of these words where a few people think that this is a really big deal and really care about regulation and then deregulation. And a lot of people, that word just kind of goes right over and so what’s the big deal about regulation? I happen to be in the former camp. I think it’s a really big deal and, but I think politically when you’re talking about it, the messaging around regulation, I think sometimes just falls flat. That’s why you don’t see it as a number one campaign initiative. Because when you’re deregulating something, what could go a couple ways, it could go well for an industry or it could go not so well. And then it takes a long time to deregulate something. Right. It takes, could take years.

Wes Moss [00:17:29]:
So it’s a hard thing to wrap your arms around. But I think the best examples of at least what the market’s thinking are the two examples that we saw on Wednesday when we had that 1500 point rally in the Dow two and a half percent on the S&P 500. We saw most sectors do very, very well. But what were two of the biggest sectors of the day, financials, Banks and energy, both which you just mentioned, could those industries could benefit from less regulation, which could mean as an example for banking, what could that be?

Connor Miller [00:18:06]:
Yeah, you could be getting rid of some of the red tape involved in mergers and acquisitions which we know banks are tied to and generate profits from. So there’s a direct impact there.

Wes Moss [00:18:18]:
Or banks actually merging. Right. There’s something like 4,000 regional banks with less regulation. Perhaps there’s more consolidation as another, as another example. So sure.

Connor Miller [00:18:29]:
And then on the, on the energy front, you know, eliminating some of the environmental impact regulation around oil, natural gas, specifically liquid natural gas exports, you saw a lot of those companies rise on Wednesday and so it really could have, have some significant impacts.

Wes Moss [00:18:49]:
Then I think we move to your point to tariffs and what that right out of the gate you think of tariffs? To me, I think of inflation. Right. I think. And by the way, I’m looking. Let me back up for just a second. If you look at some of these sectors, the consumer staples had a, well, I’m sorry, Consumer discretionary had a huge rally.

Connor Miller [00:19:12]:
Tesla one of the biggest.

Wes Moss [00:19:13]:
And that’s because Tesla’s a big weight in that. Again, the energy sector, huge rally. The financial sector, huge rally. The industrial sector, a huge rally. Just the list goes on and on and on. And really almost the only sector that didn’t have a really big week would be utilities and. Utilities and staples to some extent. But I would say it was very much a broad market rally.

Wes Moss [00:19:42]:
Again, which has been another theme in 2025. We’ve seen a much broader stock market in 2024. In 2023, we. It was very much tech driven. It was the Mag 7. It was only a few companies pulling all the weight. This year it’s been very different than that. So I think that’s been a good thing for investors.

Wes Moss [00:20:00]:
But let’s go back to the story around tariffs. Inflationary or maybe Connor Miller. Not as much as people might think. And why?

Connor Miller [00:20:12]:
Well, that’s the thing. When you think about tariffs, the one of the first things that comes to mind is inflation, right. If you’re importing a good and you put a 10% tariff on it, theoretically that good probably becomes 10% more expensive. I think in this case it could be where the bark is louder than the actual bite of it because of how the tariffs are going to be implemented. Yes, if you got broad based global tariffs implemented, there’s probably some significant inflation impact.

Wes Moss [00:20:44]:
For example, if there were to be, and there’s been some mention of this. But again, this is where I think going back to your analogy, more bark than bite, there could be a 10. Imagine a 10% tariff on every single thing that were to come from another country into the US Every single thing.

Connor Miller [00:21:01]:
And we import a lot of goods, right?

Wes Moss [00:21:02]:
So, so now everything would be, somebody would have to eat that cost. It’s now, is it the consumer, is it the company? Do they eat some of it? The cost? Does the US consumer eat some of the cost? But imagine that having a huge impact on rising prices.

Connor Miller [00:21:18]:
Whereas if you, whereas if you use tariffs more strategically and Trump has gone on record saying this, that he views it as more leverage from a foreign policy standpoint, if they’re more specifically targeted towards China, for example, still could be substantial on that relationship between the US and China. Not as much of an inflationary impact as you would see broad based and.

Wes Moss [00:21:45]:
One of the statistics, I think that was shocking this week to think about that the proposed tariffs on China are a very big deal, right. Depending on where they end up, are they going to be 30%, 40%, 60%? We don’t know where they’re going to end up. But some of the estimates that would cause cost up to 40, 50 billion dollars. That’s a big number. However, it’s only about a 4 of a percent of GDP. So as much smoke as there is around this, is there going to be A lot of inflationary fire. And if it really is just aimed at specific countries, I.e. china, then it may not be as inflationary as we thought.

Wes Moss [00:22:27]:
I think the other thing it would do, Connor Miller, that we’ve talked a little bit about, is it moves the supply chain even more rapidly out of China. If we have more China tariffs, specifically, what more and more companies are going to accelerate. Hey, we got to get our manufacturing out of here. And they probably end up in neighboring countries or around the world.

Connor Miller [00:22:47]:
Yeah. India, for example, had a. Their markets had a really big day on Wednesday. It was really fascinating to see all of these pieces unfold as we started to know the results.

Wes Moss [00:22:59]:
So there’s another conversation I want to have about interest rates. And this goes back to some of the projections around the deficit. What does that look like, Connor Miller? And is it true? And let me set this up. This has been a perennial question. We all know the debt’s terrible. The national debt is a massive, multi, multi $35 trillion number. And it’s only going up because we also have a deficit, which is an annual number that’s making the debt worse. However, the projections that we’re looking at could see the deficit go down, get less bad starting over the next 12 months.

Connor Miller [00:23:40]:
Like you said, I think it’s important to set this conversation up by talking about the difference between the debt and the deficit. This doesn’t have an impact on the nominal level of debt. Actually, it continues to go up. But the relative deficit compared to this year is expected to go lower next year by about $300 billion.

Wes Moss [00:24:00]:
Not a small number.

Connor Miller [00:24:01]:
Not a small number. And the reason for that is wealth is going up, incomes are going up. And so the amount of taxes that the federal government will receive next year are higher than this year, which helps move us in the right direction of lowering that deficit.

Wes Moss [00:24:18]:
Okay, so we end up with this. Oh, by the way, you know, it was such a crazy week and everything’s been focused on politics. We almost forgot to mention the Fed. The Fed had a meeting this week. It was normally on a Wednesday they announced, but they announced it on a Thursday. And very uncontroversially, or to be I was highly expected. And that’s why I don’t think it was a whole lot of news. But they cut another quarter of 1%.

Wes Moss [00:24:42]:
So now they have a new target range of 4 and a half to 4.75. So they went a half a percent. Now they want a quarter of a percent. So rates are 3/4 of a percent lower, at least short term interest rates than they were before the Fed started cutting. But here we have this interesting scenario around the possibility of the deficit looking a little bit better next year. And when I say a little, $300 billion is not little, it’s little in relation to a multitrillion dollar deficit. But at least we believe, at least from our lights and our analysis show, that we’re going to see a lower deficit next year to the tune of $300 billion. And again, speaking of the Fed cutting rates, they could continue to cut rates.

Wes Moss [00:25:31]:
So we could also see improving financial conditions. And there are a couple things to this. One, lower rates, you could call that improving financial conditions. Two, the end to quantitative tightening. So the Federal Reserve and the treasury stopping other measures or slowing down other measures that are trying to keep rates higher to slow the economy down. That’s supposed to halt in early 2025. And then once you return, we return to a more normal yield curve with short term rates lower than long term rates. It’s supposed to be an economic history.

Wes Moss [00:26:09]:
You could start to see more foreign buyers coming in, buying our Treasuries. What would happen there? Well, what’s that do? Remember the price action on a Treasury, more buyers pushes prices up. And what does that do? It lowers rates, it lowers interest rates. And then we have this giant, what’s been talked about is a $700 billion liquidity bazooka. That’s essentially money sitting in the US treasury account ready to be spent into this economy. So that’s another big deal that treasury general accounts usually much lower than that. So we could see a big amount of that money get spent, put in the economy. Deficit comes down, interest rates more normalized or normalized.

Wes Moss [00:26:54]:
And because we’re likely going to see the government spending down all this liquidity in the treasury general account, the government doesn’t have to issue as much debt. So then we have less supply of Treasuries. Again, more buyers, lower supply. You could see prices go up and what happens, interest rates go down. One other piece, I know we don’t have a ton of time, but the one other area that we need to at least touch on is taxes. So what’s happening with the tcga?

Connor Miller [00:27:23]:
So the three things we mentioned, tariffs, immigration, deregulation, those are all executive order actions. That’s a great, that’s why they’re day one items that Trump can come in and he can sign executive orders and get those implemented how he wants. Taxes are a whole different animal. They require an act of Congress. And so we think once those three Things are accomplished, they’re going to immediately move to extend the Tax Cuts and Jobs act, otherwise known as the Trump tax cuts from back in 2017.

Wes Moss [00:27:55]:
By the way, that’s what the TCJA is. Mal Producer Mallory looked through and said, wait, whoa, what’s the tcja?

Connor Miller [00:28:01]:
That’s exactly right. And those are, are going to sunset at the end of next year. And so this is going to be.

Wes Moss [00:28:06]:
One of those set to sunset right now in the end of 2020 at.

Connor Miller [00:28:11]:
The end, unless, unless Congress extends those. And so that’s, that’s going to be one of the first acts of Congress moving through the House and the Senate is trying to extend those. Who knows, we may see some further tax cuts. They’ve talked about the corporate tax rate moving a little bit lower, but that really is going to be a main priority of, of Congress next year.

Wes Moss [00:28:33]:
So we may see slightly better deficits and I say slightly. $300 billion lower deficit is not slight, it’s just that the deficits are so large. 300 billion doesn’t seem like it’s really moves the meter, but it’s at least potentially going in the right direction. We could also see more liquidity in the system over the course of the next year. The treasury general account, it’s full of cash right now and it’s going to go from the banks into the real economy. That could be helpful for just financial conditions and the economy in general. And if we get some more tax certainty, which who knows how quickly that could happen or maybe it gets pushed out into later in 2025, more certainty means a consumer that has more confidence to go out and spend. And in the end, consumer confidence is a huge part of what drives this economy.

Wes Moss [00:29:27]:
So we tried to cherry pick what we think are the biggest pieces of the equation, the stock market, inflation, interest rates, the deficit. So a lot of heavy topics here on a Sunday morning. And if you’d like to find us and talk more about this and how it may impact your planning, of course, we’re happy to do so. You can reach Connor Miller, you can reach me. It’s easy to do so through yourwealth.com that’s why o u r your wealth.com have a wonderful rest of your day.

Mallory Boggs [00:30:03]:
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Mallory Boggs [00:30:51]:
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