Power Up Wealth podcast – Investing Through Elections – Episode 77 transcript:
Sharla Jessop 0:00
Investing during election years can feel stressful. I’m Sharla Jessop, President of Smedley Financial, and today, my guest and colleague, James Derrick, will shed some light on election years.
Welcome to the SFS Power Up Wealth podcast, where we provide impactful insight and expert opinions on timeless financial principles and timely investment topics, preparing you to make smarter decisions with your money.
James, thanks for joining me today.
James Derrick 0:46
Yeah, happy to be here.
Sharla Jessop 0:47
It’s an interesting day, if nothing else.
James Derrick 0:49
Sure we are recording this podcast one day after the presidential election.
Sharla Jessop 0:55
A lot to think about. James Derrick is our Chief Investment Strategist at Smedley Financial, and he holds a CFA designation. Focusing on the markets is what he does most of the time, and I think enjoys most of the time.
James Derrick 1:05
There’s always something interesting going on, that’s for sure.
Sharla Jessop 1:08
So we’re now day one. Last night, the polls closed, and today, it’s official that Donald Trump will be the 47th President of the United States. What do you see ahead for the economy and the market?
James Derrick 1:19
Well, it’s been an unusual year. We’ve had a lot of reasons to feel stressed, as you mentioned, whether it’s a geopolitics war in Ukraine with Russia still, Iran and Israel and Lebanon, the Houthi pirates, just to name a few things going on, and the stock market has been unusually good. It has, for the most part overlooked all of those risks and also the uncertainty over the US election. The market overlooked that as well, and just kind of saw right past it. And September, which is usually a negative month, was fine. The summer, which is usually a little choppier, it was a positive still. October was good. It’s been a remarkable year.
Sharla Jessop 2:00
And it seems like those who’ve stayed with the path, who stayed invested, have benefited through the election, even through some of the volatility this year. It’s paid off to stay invested.
James Derrick 2:10
Yeah, I mean, it’s a little bit cliche, but it’s true. You have to stay invested if you want to make money in the market. It’s the best way to to ensure that you’re going to make money. There are a lot of smart and powerful people out there working hard to make sure that their companies and the country as a whole are doing well.
Sharla Jessop 2:27
You know, in election years, it’s hard for us to say we try to be very unbiased one way or the other, and remind people long-term goals and to think long-term and stay invested. But now that the election is over and we’re past all of that. What do you see happening in corporate America and in the economy and with investors?
James Derrick 2:46
Well, some things have changed now that we have the outcome of the election, and some things have not changed. And I think that’s a good way to look at it. What has changed is some of the uncertainty is gone. We have an idea who the next President is going to be, who will be running the Senate, who will have majority in the House? We will find out soon. And so there’s a lot of uncertainty gone. With Republicans having control, we’re very likely to see tax cuts extended and some deregulation, especially in industries like energy and finance and industrials. So some of these sectors, investors are excited about them, and it’s just day one, but I suspect that some of these will continue, you know, for some time. So those are things that have changed. Things that have not changed. I mean, if you if you have 10s of 1000s of dollars in credit card debt, you woke up this morning with 10s of 1000s of dollars of credit card debt still. So there are those in this country that are really struggling, and nothing has really changed for them. So that becomes important. And I say that not as a political commentary, but just as from an economic point of view, those things are important as well. You know, the equity people have in their homes, the fact that homes are very expensive. After the presidential election, interest rates rose, you know, which means mortgages are going to cost even more money than they did 24 hours ago. Now we don’t know at the time that you’re listening to this, whether they’ll be even higher or lower, but I think that the fact that mortgage rates are high, that home prices are high, these are things that have not changed, and they have a significant impact on individuals, families and the whole economy.
Sharla Jessop 4:20
We’ve talked about inflation. It’s been the headline for the past four years, because it’s so impactful to everybody in all stages of life inflation is. Whether you’re a young couple trying to get into a home or just trying to survive, you’ve raising a family, or you’re retired, inflation has been an impact. What do you see happening with inflation in maybe the next year?
James Derrick 4:40
Well, inflation continues to be a problem. It is not a headline problem anymore. A lot of people are looking past it, but I think consumers are still struggling with higher prices, and while the Federal Reserve does not seem focused on it anymore, there are a lot of smart people out there who think that they should be that we’re not quite out of the woods, yet.
Sharla Jessop 5:01
It feels almost like we’ve avoided some type of a recession that everybody anticipated for the last two years we were going to have, but never came to fruition.
James Derrick 5:09
No, it hasn’t, and it’s been quite unusual. But I think part of the reason why is because we have the federal government spending a lot of money. The deficit is been similar to what you would see during a recession, but we have not been in recession. And I think that is what has kept us out of recession has been a lot of government spending and so, you know, in some ways that’s really bad. I think in the long run, you know, at some point we’re going to have to address this issue, but in the short run, you know, it’s been very beneficial. I think it’s also by avoiding a recession, it has also meant that inflation has just been a little stickier and a little bit higher. We don’t expect prices to come down. That would not be typical, but what we would hope is, is that they start growing at a very slow rate. And a lot of people get this confused. They think that if inflation comes down, that means prices come down, and that’s not the case. We’re just looking for prices to maybe be growing at 2% a year, instead of, you know, the current 3% a year and so it’s a risk, and we’ve got the government spending, and it didn’t really matter which candidate won for president, both were planning on continuing to spend, and the deficit was going to continue to grow, and the interest that the government pays would continue to grow. And so now that the election is behind us, what we see is that this will happen, and it will continue to put pressure on inflation and on prices.
Sharla Jessop 6:33
And it seems like the long-term effect of that will be higher taxes at some point in time.
James Derrick 6:38
Most experts think that taxes will be higher at some point in time, because we have to eventually slow down this deficit because the interest, it’s not so much the level of debt, which is really close to about $36 trillion right now. But the level of debt isn’t nearly as concerning as just the interest that we have to pay. And that’s the interest payments are suffocating right now, and they will probably get worse, and we’ve got to do something someday. You know, I I’d be surprised if we can make it to 2030 without doing something, and taxes are definitely one way to address it. I hope we can find some more creative ways to address the deficit, but you know, that remains to be seen.
Sharla Jessop 7:20
The economic growth, in my opinion, has been pretty resilient over the past several years. We haven’t had a significant slowdown since 2020, 2021, it’s continued to grow at a steady rate. What do you see happening? Do you see this to continue economic growth at the same rate, or do you think that’s going to slow as we deal with some of these issues, tax changes and inflation.
James Derrick 7:42
Yeah I mean the economy cycles. And, you know, it seemed like we, in some ways, we dodged a bullet by not getting a recession in the last couple years. But I’m not sure that’s the right way to think about it, because for a lot of people, it has felt like a recession. I have a friend of mine that works in real estate, and he says, I’ve been in a recession for two years. And so, you know, it’s cycles, and I think we will have more cycles in the future. We will, no doubt, you know, if we don’t get a recession in 2025 it could be in 2026 or 2027 I mean, it’s just normal that these things would happen. And I don’t think we want to live in fear of it. I think we just want to embrace the cyclicality and do what we can to be prepared. But you know, when we talk about the cyclicality of inflation, one of the best things you can do is just stay invested in the stock market. I mean, if inflation goes up, when inflation went up 9% guess who was raising their prices by 9%? Coca Cola and Pepsi and McDonald’s. And.
Sharla Jessop 8:38
There’s some things we can’t do without.
James Derrick 8:39
That’s right, and they’re not the only ones. You know, Netflix, we could just keep on going, but the prices go up across the board, and these companies actually were making more money because of inflation, not less money, which came to a surprise to some people. And you know, it’s not that we want to see that, but as investors, that’s good for us.
Sharla Jessop 8:59
Sometimes it’s hard to separate what you see happening to individual people living day to day and their circumstances, and separate that from what’s going on in the market and growth of companies.
James Derrick 9:10
Oh sure, you see what’s going on in society, and we all have our opinions and but the stock market doesn’t worry so much about what’s right and wrong. The stock market is just mostly focused on the profits and the amount of money flowing in or flowing out at any given time.
Sharla Jessop 9:25
Something that, as you were speaking, comes to mind, and we’ve talked about it a lot, but it’s easy to get caught up in what’s happening right at the time. Our vision becomes very short-sighted, and our perspective goes out maybe three, six months at the most, and we forget long-term investing. But talk about the cycles, the economic cycle, which is not necessarily a specific period of time, but a trend of events.
James Derrick 9:47
In a typical cycle, you have the let’s say that we’re starting at the bottom of the business cycle. The Federal Reserve will be lowering interest rates. The Federal Government usually does a lot of deficit spending to try to increase demand in the economy, and so that means, usually, what we see in the investment markets at that time is the bond markets doing well because interest rates are falling, but then eventually the stock market starts going up in anticipation that corporations are going to start doing better. Stock market tends to lead the economy by, let’s say, six to 12 months. Then corporate profits start to go better. Inflation picks up. The Federal Reserve sees that, and they start raising interest rates. And then as rates go up, demand for borrowing and spending slows, and the economy eventually slows down. And again, the stock market tends to lead that by six to 12 months. So you know, there are a lot of different triggers that could make a change. You know, right now, we don’t know exactly where we are, but we know we’re not at the bottom. We’re probably closer to the top than we are at the bottom, but we don’t know how close we are to the top. We don’t know. The government continues to be very supportive, and people want perpetual growth, even though there are cycles. People don’t want to live in a cycle because they don’t want to have the hard times.
Sharla Jessop 11:02
Nobody thinks about that. We get conditioned to the periods of expansion in the economy and the growth that we experience as individuals.
James Derrick 11:11
Yeah. And one of the things is, is that a lot of people talk about triggers, like you might need to have a trigger, some something that kind of blows up, that takes all the problems and then makes them a reality. And what I mean by that, like, let’s say we know credit card debt is high for Americans. We know car loans are an issue. People are strapped with a lot of debt. We know that banks have a lot of holdings in Treasury bonds that are underwater. I mean, there’s, like, a lot of issues out there. I mentioned geopolitics earlier today. There’s a lot of issues out there, but there’s somehow we’re able to keep all of those from falling apart, because there hasn’t been a major trigger event that has made those things a reality. I mean, if you look back at like 2008 we had Bear Stearns, we had Lehman Brothers, we had AIG. I mean, we had a lot of things happening that took the problems that we already were aware of and made them worse. And so far, we’ve been able to avoid that, which has been wonderful.
Sharla Jessop 12:13
Thank goodness!
James Derrick 12:14
Yeah. And the other thing is, is that as long as we don’t have that trigger event, then corporations and individuals are able to be very innovative, and then we reap the benefits of that. I just got back from a business trip. I took my wife and daughter along, and, you know, I mean, it’s just amazing what you can do on your cell phone, you know, listening to audio books, watching movies, calling a taxi. It’s unbelievable, you know. And, and now you can get, you know, these Ubers and taxis that are self driving, you know, in some some cities around the country, which is amazing. I mean, there’s, there’s a lot of innovation out there, and they really benefit from these prolonged cycles, because it gives them the the money and the time to innovate.
Sharla Jessop 13:00
And that benefits all of us, especially investors, because progress is typically good for the market. And so as you look over the next year, where do you see maybe some opportunities?
James Derrick 13:10
Well, you know, one of the things I like to do is look for things that are underappreciated. You know, one of those right at this very moment is, you know, the energy sector, I find it fascinating place that’s been ignored for for quite a while. I still think, even though they might be over owned, you know, the the largest corporations in this country are still making a lot of money, and so I certainly would be watching those, and if I see any dips along the way, like I would be more excited to add money to my account than take money out. I just think there’s a lot of reason to be optimistic. And so I’ll be looking for opportunities like that to actually add.
Sharla Jessop 13:54
Before we go, any one word of advice you would give to investors?
James Derrick 13:59
Keep calm and invest on. I mean, there’s nothing like time to make things work. You know, when I look back at what’s happened over the last year, you could have added money anytime in the last year to the stock market, and you could have, you could have bought on the worst day in July or the worst day in March, and you’d still be okay. And so there’s no question, you know, if you fast forward 10 years from now, like you should be okay. You should be okay, and staying ahead of inflation should be goal number one for every investor and hanging in there you know when times are good and when times are bad? Don’t get too nervous. Just keep calm and invest on.
Sharla Jessop 14:44
I love that advice. James, thank you so much for that information.
James Derrick 14:47
Thanks.
Shane Thomas 14:53
Thank you for joining the Power Up Wealth podcast. Smedley Financial is located at 102 S 200 E Ste 100 in Salt Lake City, UT 84111. Call us today at 800-748-4788. You can also find us on the web at Smedleyfinancial.com, Facebook, Instagram, Twitter, and LinkedIn. The views expressed are Smedley Financials and should not be construed directly or indirectly as an offer to buy or sell any securities or services mentioned herein. Investing is subject to risks, including loss of principal invested. Past performance is not a guarantee of future results. No strategy can assure a profit nor protect against loss. Please note that individual situations can vary. Therefore, the information should only be relied upon when coordinated with individual professional advice. Securities offered through Osaic Wealth, Inc., member FINRA/SIPC. Investment advisory services offered through Smedley Financial Services, Inc.® Osaic Wealth is separately owned, and other entities and/or marketing names, products, or services referenced here are independent of Osaic Wealth.
