Ever feel like your financial confidence takes a hit every election year? You're not alone, and that's exactly why we've dedicated this episode to discussing the current economic enviroment as well as looking at historical election year markets. We all know that political cycles can bring uncertainty, but today, we present compelling reasons backed by statistics for why you should stay invested for the long term, no matter which political party is in office. We share historical data on how markets have performed under both political parties and discuss what long-term investors should focus on when short term headlines have them rethinking their long term investing goals.
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Speaker 1:
Welcome to the Women's Money Wisdom Podcast. I'm Melissa Joy, a certified financial planner and founder of Pearl Planning. I'm Melissa Freidenberg, financial advisor. We dive deep into topics like work-life balance, financial planning, personal growth and the intricacies of the sandwich generation. Tune in for money conversations that every woman needs to have.
Speaker 1:
Hello and welcome to the Women's Money Wisdom Podcast. This is Melissa Freidenberg in the Gross Point office, and this week we are going to be talking about the current election year, election years in general, as well as just looking at some of the current economic data. People are nervous with this election year, as in all election years, and just really wanting to help people see the long-term perspective when it comes to investing, talk a little bit about investor behavior both in an election year and in any other year, as well as looking at current economic data and historical performance of markets under different political parties, to kind of help people again remain in that long-term investor perspective and not get caught up in the short term noise. So with that, we're going to start with some economic data. One of the biggest things when we look at the economy is the labor market and if we look at current US job openings, we have come off those highs from last year, but we are still historically quite high in job openings right now and quite healthy. If you look at the unemployment rate, just slightly above the all-time well, that's very healthy economic data to look at. If we look at labor force participation, just see that it has come up quite steadily since the pandemic lows. Overall there is a downward trend, but that has mostly to do with the aging demographic in our country, with baby boomers retiring. So again, that data looks good as well. If we're looking at real earnings for the average US hourly employee, year over year pretty good number up 4%. So if you look at real average hourly earnings, which factors in inflation, as we know, we've had high inflation but we are back positive year over year we're seeing a little tick up in again real average hourly earnings, so that is also a good sign for the economy.
Speaker 1:
The housing market that was a big headline last year. Is what's going to happen at the housing market with rates going up so quickly and specifically mortgage rates hitting high for recent years Last year? We see in the last two months both the 15-year and the 30-year mortgage have come down quite quickly from those highs we saw in 2023, with the 30-year being at 6.6 and the 15-year being at 5.9, and that was through January 22. So pretty recent good for people that are out there looking to buy a home and need to get a mortgage. Housing prices have come down slightly from those highs, but still very healthy, held up very well with those high mortgage rates that we saw last year.
Speaker 1:
So again, positive data and that's what we like to share. And in fact we see promising headlines to that effect around the world. In Europe unemployment is at a record low. We see mortgage rates coming down and also inflation slowing faster as well. Now another positive sign is net worth levels are up. So when we see all these positive headlines, we like to point those out.
Speaker 1:
You can certainly find the doom and gloom headlines if that's what you're looking for, but again we wanted to share that there is positive news on the economy, both here in the United States as well as around the world. There are some indications that growth may be slowing, but again the Fed raising rates. The purpose of that was to slow the economy to help tamp down inflation. So just to kind of point out some of the things that have shown there are, you know, as far as increasing unemployment claims a healthy number overall, but we are seeing a little tick up there. Service and travel spending is softening, hotel occupancy is at a seasonal three-year low and restaurant performance is slowing slightly near low levels in the last three years. These are just some data and I will point out as well. Melissa and I decided we are going to keep the R word to a minimum here in the spot. Recessions are not unheard of in a presidential election year. C is a little bit higher percentage of a recession.
Speaker 1:
Let's talk about the election. It's on everybody's mind Again, no matter which side of the political spectrum you fall. It's on your mind because it's a big election year. In fact, not just here in the United States, but more than 50 countries will hold elections in 2024, and 40 percent of the world's citizens will be eligible to vote in these elections. There's just an interesting statistic If you think about almost half the world's population voting this year and in fact, seven of the largest population countries have an election this year, including us, the United States and India. A lot of people go into the polls.
Speaker 1:
One thing with election is it does sometimes bring uncertainty, which the market doesn't always love. It's something, again, that I understand if it is on your mind and if you hear it from clients. We're going to share again some historical data to talk about what we've seen in markets in election years. Election years have never been lower after a red midterm year by red. I'm not talking about Republican or Democrat. I'm talking about negative returns for the S&P in a midterm year Going back to the 1950s. We did have a negative 19.4 percent in the midterm year in this current election cycle. Historically, that would suggest that we have a good chance of having a positive year in an election year this year. In fact, if we look at re-election years meaning four years into a potential term so Biden is up for re-election the last 11 re-election years have all been positive for the market. Again, looking back at history, that is something that we look to to see what could we expect.
Speaker 1:
What we see, though, is more volatility in election years, with uncertainty. Again, one thing the market does not like is uncertainty. One thing we have with elections is the uncertainty of policy and which party would be in control. What I want to point out, though, is, compared to non-election years, the volatility typically happens during the primaries. Reason for that is you've got even people within the same party going up against each other and really pointing out what's wrong with the economy, with our country, with policy. It does tend to again cause some volatility in the market.
Speaker 1:
Historically, if we go back all the way to 1932, the average return for the S&P in the 12 months following the end of the midterm election so from May 31st of an election year, 12 months out is 11.2 percent Again, average annual, going back to 1932 in election years. So that's really positive. Again, with wanting to point out that whichever side you fall on Democrat or Republican, over time we've had both the market has gone up and really the outcome of an election really does not change the direction of the market over time and if you are an investor long-term, that no matter which party ends up winning the election, that over time we should still be able to see the market go higher. Interestingly enough, though, if we look at investor behavior so I just talked a little bit about what we see in the market election years and what we see as far as returns in an election year If we look at investor behavior, typically people are putting more money in an election year into money market versus equities, investor behavior, what feels right to investors and what their behavior is is the opposite of the actual what you should do, so I like to point that out. What I'm suggesting here is to stay fully invested Over time.
Speaker 1:
For long-term investors, it makes sense to keep your money invested, no matter which party is in office. And the last little bit of data here that I wanna share, for this episode is going all the way back to 1933. If you had invested $1,000 into the S&P 500 again 1933 when Franklin D Roosevelt took office, it would be worth over $19 million as of June 30th 2023. During this timeframe, there have been eight Democratic presidents and seven Republican presidents. So, keeping in mind that current economic and political challenges may seem unprecedented, and things in past election cycles show that controversy and uncertainty have surrounded every campaign and in each case, the market has continued to be resilient over time. Successful investors stay the course and rely on time in the market rather than trying to time the market.
Speaker 1:
I hope that you found today's episode helpful. Again, the point here is really to ease people's nerves if they're feeling a little bit hesitant this year to stay the course. The bottom line, the key message, is this political changes and election years are just one of the many variables that can impact financial markets. History has shown us that maintaining a long-term perspective, diversifying your investments, can really help you achieve your long-term financial goals. And as we wrap up today's episode, I want you to remember that your financial journey is unique. Your investment strategy should align with your long-term objectives and your risk tolerance, rather than short-term political events.
Speaker 1:
So if you have questions or would like some further guidance that's again specific to you and your risk tolerance on how to navigate the financial landscape during an election year, please consider consulting with a financial advisor, and if you don't have one, feel free to reach out to Pearl Planning. We would love to talk to you about your specific financial situation. Thank you, as always, for listening and hope that you're having a great day. ["the World's Greatest"]. Thank you for listening to the Women's Money Wisdom Podcast. If you found value in our conversations, please take a moment to like, follow and subscribe wherever you're tuning in from. It helps us continue to bring these valuable insights every week. Head over to women'smoneywisdomcom. There you'll find tools, tips and a supportive community to help you gain financial confidence.