"Monday, Monday, can't trust that day
Monday, Monday, sometimes it just turns out that way
Oh Monday mornin' you gave me no warnin' of what was to be""Monday, Monday," Written by John Phillips, sung by The Mamas and the Papas, 1966
I don't trust the stock market.
I hope Democrats don't use it as evidence that Biden is doing a good job.
CNBC Headline for this photo: "BIDEN FLAUNTS STOCK MARKET RECORD HIGHS" |
The U.S. stock market is connected to the economy, but only loosely. If the stock market "made sense," based on earnings or the general business climate, then it would be predictable. In that case, investors would not collect a risk premium for investing in stocks. The market's wild unpredictability is a feature, not a bug.
The U.S. stock market has averaged growth of just under 10% a year for the past century, but there are three giant caveats.
1. That is the past. The future might be far different.
2. The stock market can disappoint at the most inconvenient times.
3. You don't get average.
Thirty years as an investment advisor taught me that it is dangerous for clients to read financial plans that predict compounded future returns. Those smooth lines of compounded average values presented in financial planning tools are hopes, not plans. The Boomer experience is unlikely to be repeated. The investment experience of people age 60 to 80 benefited from the industrial plant of the U.S. being left intact while those of other industrial powers -- Germany, Japan, U.K., France, and the Soviet Union -- were damaged or obliterated. That shaped the past, but is unlikely to shape the future.
You don't get "about average" returns. You get what you get. Even a good outcome over a four-or eight-year presidential administration, one, in fact, averaging 10% a year, is not a succession of returns of 8%, 12%, 9%, and then 11% -- returns that cluster around the average. Returns ping-pong up and down and are rarely very close to the 10% average. Average comes from a mix of happy surprises and great disappointments.
Here is a chart of actual returns:
There is a slight cluster around 10% but most yearly returns are well above or below that midpoint. Psychologically and politically, there is a lot of difference between zero and plus-20%. Year-to-year returns don't necessarily revert to the mean. Notice the years 2000, 2001, and 2003, when there were three negative years in a row. Lower prices compounded lower.
Sometimes the stock market can be up, even in the face of economic disaster. The U.S. economy was terrible in 2020 -- remember the Covid slump, with businesses shut and people unemployed? The stock market was up sharply for the year. A year that people remember as the "good times" of the pre-Covid Trump presidency, 2018 -- the era Trump brags about -- was a down year in the stock market.
This is a political blog, not a financial advice blog, so I will repeat my main point. Democrats can point to job growth, to low unemployment rates, to a growing GNP, and to the rebuilding of our domestic computer chip industry. Those are good things and there was a basis for talk of "Bidenomics," even if the public didn't feel it. There is ongoing progress on income inequality. Incomes for people in the bottom 20% of earners -- the working poor -- are outpacing inflation, welcome news for the people most hurt by the off-shoring of manufacturing. (But even that improvement has critics. Republican politicians and Fox News hosts complain about prices at McDonalds, and blame it on their workers getting $15/hour. Yesterday morning I watched Fox's Greg Gutfeld complain that $15/hour was far too high a wage to pay for easy, entry-level work like theirs.)
The stock market was at an all-time high on Monday. Monday was good. But Democrats should not set a potential trap and embarrassment for themselves. Assume nothing.
Can't trust the stock market or Monday, either one. It gives no warning. Sometimes it just turns out that way.
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Tomorrow: Guest post endorsement for district attorney in Jackson County, Oregon.