2024 Q2 Investor Psychology Commentary with Joey Khoury | Mission Wealth

this video is part of a series that applies psychology to financial planning so we can all make wealthier decisions as a multi-billion dollar investment and planning firm Mission wealth is able to give you Collective wisdom and real life examples from thousands of multi-millionaires I’m Joey a practicing wealth adviser and Professor that’s studied behavioral Finance with Cornell and Harvard each quarter we publish one to three psychological topics that are relevant to what’s going on in the world around us this quarter we’re going to talk about how markets behave in a presidential election year but before we dig in I’d like to start with a review of how people generally feel about the economy relative to their favorite political party by the end of this update we’ll be able to see if how people feel matches with reality so PE research data shows that Americans generally rank economic conditions Better or Worse depending on whether or not their favorite political party is in office take a look at this chart pay special attention to which colored line sits on top the lines correspond with political parties red for republicans and blue for Democrats whichever line is on top tells you which voters feel better about the economy from 2000 in 2009 when Republican George W Bush was in office Republican citizens rated the National Economic conditions better than Democratic citizens did the red line sits above the blue when Bush is in office this immediately reverses when Democrat Barack Obama was in office from 2009 to 2017 suddenly Democrats are ranking the National Economic conditions as good while Republican citizens lose confidence in economic conditions the blue line is above the red line the trend reverses again when Republican Donald Trump takes office in 2017 to 2021 the Red Line is now above the blue line and comically flips once more when Democrat Joe Biden enters office in 2021 blue line now sitting above the red it is clear that the perception of how healthy the economy is doing largely depends on whether or not your favored political party is in office but is there any data to back this up there’s one more curiosity in this chart before we unveil the answer did you happen to notice how often both the blue and the red lines are below 50% this would indicate that a minority of Voters from both parties felt that economic conditions were good said differently it would indicate a majority felt that economic conditions were not good when the line is below 50% meanwhile over the same time period from 200 to 2023 the S&P 500 grew by 250% and GDP grew by 285 per. how is it possible that a majority of people for majority of the time ranked economic conditions as poor while we’ve had one of the greatest economic expansions in history a deeper look into how the stock market represented by the S&P 500 and how the economy represented by GDP growth have fared under each party there are three key conclusions Democrats win the GDP race a Unified Government under Democrats has historically produced better GDP growth compared with Republicans 4.0% average annual year-over-year real GDP growth under United Democrats versus 2.8 under Republicans but Republicans win the S&P 500 race United Republican party has historically produced better S&P 500 growth compared to Democrats 12.9% % average S&P returns under Republicans versus 99.9% under Democrats but here’s the real catch nobody wins when the government’s divided a divided government has historically produced inferior results for both GDP growth and the S&P 500 2.7% GDP growth 7.9% S&P a United government under either political party has historically performed better on average in both the S&P 500 and the GDP now I know what some of you might be thinking this makes sense over the long term but what about how the market behaves in an actual election year here’s the reality markets generally don’t care about elections but recent elections make us feel differently because they were associated with non-political Market shocks the visual that we’ve got pulling up shows you the volatility in the market in the 100 days before and after elections it’s important to realize that we have had three Global events in recent presidential election years which are totally unrelated to the elections themselves 2020 was met with Co in ‘ 08 we had the great financial crisis and in 200000 we were met with aom bubble these can falsely lead people to conclude that markets are risky during election years but if we strip these out uh you can actually see what the volatility looked like in other election years like 84 88 92 9604 2012 and 2016 these are the bluish green lines in the visual and you can see that the market normally ignores elections in fact markets on average are less volatile during presidential election years 14% ciation compared to the average of 15% this data goes back nearly 100 years and it points to the same conclusion presidential elections do not negatively impact markets themselves counterintuitively markets tend to be higher on average during presidential election years averaging 11.6% in the S&P 500 versus the long-term average of 10.3 this creates a huge uge missed opportunity for investors that are mostly politically driven if you chose to only stay invested when your preferred political party was in office you’d miss out on approximately 45% of all growth in the prior 10 years and in the prior 70 years you would have missed out on approximately 97% of the growth in the S&P 500 the bottom line is Clear Politics isn’t profitable companies will always seek to earn profits and innovate regardless of which political party is in office investors generally tend to have perceptions of economic conditions that are too closely associated with which political par is in office and choosing your Investments based on your political preference is a great way to lose out on most potential earnings over the long term historically the market has averaged higher returns with less volatility during presidential election years human Ingenuity Innovation and progress will not stop because of whichever president warms the seat in the Oval Office we hope you found these topics helpful as we enter the spring season and for more detailed Market commentary I welcome you to watch or read our chief investment officers Market updates from our inspired uh insights blog to submit requests for future topics please don’t hesitate to email me directly at J corym Mission wealth.com wishing you a wonderful spring season ahead thanks so much for spending some time with us [Music]