Is It Different This Time?

Well, hello, everybody. Thank you for joining us today for our webcast titled "Is It Different This Time?" I'm Mark Gochnour, Head of Global Client Services, and I'm joined in the studio today by Jake DeKinder, Head of Client Communications. Jake, it's been a while since we've come in here and done a webcast. It has been a while. I don't think we've been on one of these broadcasts since Q1 of this year. So we got a lot to talk about. A lot of talk about. Yep. All of you should be able to see on your right side of the screen there the topics we're gonna get into here today. We are gonna dive into interest rates and the Fed. We're gonna talk a little bit about national debt. We're gonna get into market volatility. We're gonna talk a little bit about elections or maybe a lot about elections. And we wanna touch on AI. So a lot of different topics we're gonna go through at a pretty good pace today. And all these topics are a function of all the questions you submitted in advance. So thank you for that. I'll be following along if you ask some questions as we go through here today, try to bring them into the conversation. So Jake, you love doing these things. You're wound up today. You ready to get started? Let's dive right in. Okay. So let's start with Fed. Is it different this time? Now, to set it up, we've been hearing about this a lot for months, probably about what is the Fed going to do with interest rates? We just heard on Friday Jerome Powell was in Jackson Hole talking about probably the time is right to start thinking about a cut. We'll find out in mid-September at the policy meeting exactly how much that cut is. So it's been front and center, and I wanna open the session up with a question that we received in advance on Fed interest rates. It says, "Where do you think interest rates will end up in a year or so, specifically around the Fed funds rate and the 10-year treasury note? I mean. So coming in hot with the forecast. The prediction right there. If I could do it, Goch, I don't know if I'd be here with you. I love you man, but I'd probably be somewhere else if I could predict rates. All right, we're gonna come back to the forecast part in a minute, but let's walk through though the comments around the Fed funds rate and the 10-year treasury. So let's start with the Fed funds rate. Now, that's what the Fed's talking about when they're talking about impacting interest rates. So let's just take a look at what that's looked like over the last 25 years or so. Here's where we are with the Fed funds rate. One thing I wanna remind you of when we look at this chart is it is one rate. We think so much about all the hundreds of other interest rates out there. Somehow when we talk about lowering rates, it impacts everything. We'll take a look at that in a minute. But one thing that we go back to, the title of this, Jake, is the difference this time. I look at where we are today. We're a little bit over 5% on the Fed funds rate. It's not that unusual. We hit that in the mid 2000s, a similar level. We're actually higher than that, starting out the century in the early 2000s. So it doesn't look like it's too much different from a Fed funds perspective. But let's tie into, then, the 10-year treasury and I think you have some information on that one as well. Yeah, let's overlay 10-year right on top of it. And it is really interesting to look at. You know, you do see movement in the Fed funds rate, but you see a whole lot more movement in that 10-year yield of what we're looking at. I think that's a good example of what you said there, that the Fed funds rate is just one rate. There are hundreds of other rates that are out there and lot of those other rates, if not all of 'em, are driven by market forces. And that's what you're seeing in the 10-year where you may or may not get a movement in the Fed funds rate, and yet you see quite a bit of movement in that 10-year. The other thing to note there is you've got a couple of periods here where we've seen inverted curves before. When you see this yellow line crossover that blue line as we see in a couple of these cases and certainly more recently, that's when we get that inverted curve. And I think that's what a lot of people are talking, too, about rates is that, hey is it different now with this inverted curve? Just looking over the last century, no, not necessarily. We've seen inverted curves before. Now, is this a little bit longer than we've seen historically? Yeah it is. So maybe that's a little bit different, but there's nothing really going on between that relation with the Fed funds rate and the 10-year rate that we've seen that I isn't kind of similar to what we've seen in the past. Well, when you talk about the inverted curve, oftentimes that's associated with recessions. We haven't seen that yet here. And we make the joke, I think it's out there in the industry. The economists have predicted like 10 outta the last five. The inverted curve has predicted 10 of the last five recessions. We joke about that. Look, is the recession gonna come? Be like maybe at some point. I mean if you predict it long enough, certainly a recession will come, but we don't know whether it's gonna be six months from now or six years from now. So this idea that it's a reliable signal, I you gotta take that one with a grain of salt. Well, let's look at a more recent time period. Let's look at the last 12 months or so and just compare that 10-year again to the Fed funds rate. We can see where the Fed funds rate stayed that same over that time period. You mentioned that one. But then also if we look at the 10-year treasury note there, it's ebbed and flow. It's gone up, it's gone down over that time period. I think great example of how markets are always assessing new information, anticipating what's out there, what the Fed's thinking, what all market participants are thinking. I think today that 10-years down to about 3.8% or so. Yeah, let's zoom in on the end of this chart here, and let's go forward one slide and take a look over the last 12 months. And, again, you see that constant Fed funds rate, and yet we've got everything basically between 4% up to 5% and back down. And as you mentioned down here, I think we're down around 3.8 or so on that 10-year. So look, the Fed funds rate, does it have some relation to what we're seeing with the 10-year? Certainly. Is it the only factor that's driving it? No, it's not the only factor that's driving it at all. And then I think people start to sort of say, "Well, what does it mean when I get an adjustment in the 10 or in the Fed funds rate?" 'Cause as we're looking out on this chart, we've seen it constant for a while. So what we did is we went back and said, "Well, let's take a look at when we get Fed fund rate decreases, we get the cut, which many are anticipating coming up here in September, let's take a look at other months where maybe we get an increase, and then let's look at what happens to the 10-year in those months." So right off the bat, when we get a decrease, about 64% of the time you also get a drop in the 10-year yield. So a negative or a move down in the 10-year yield. 65% of the time, when you get an increase, you get an increase in the 10-year yield. So maybe the relation that people would expect, but that means 34% of the time we actually see a drop in funds. But over the course of that month you see the 10-year increase. Now, those numbers don't actually total up to 100 because in some of those months you get no adjustment at all in what happens with the 10-year, and then 35% of the time when you get an increase, you actually get a decrease in the 10-year yield. So this idea that somehow these rates are interchangeable and that they're directly related, no. I mean do things kind of move in the same direction? Certainly, but just because we get a drop doesn't mean that we should expect, in that month especially, to see a big drop in the 10-year. It's an incredible number. I think for most investors that 34, 35% is much higher than they would've anticipated. Meaning rates actually go up when the Fed funds rate is cut. Interesting dynamic there. But I also suspect for investors they're thinking, okay that's fine in the relationship of interest rates, but does that tell me something about the value of my stocks? Meaning if there's a rate cut, is that good for stocks if rates go up? Is that bad for stocks? So I got some data here for you around that. Okay. Let's address that question. So what we're gonna look at here is the average monthly return in time periods when the Fed funds rate went down, when it was cut. Alright, we'll look at the decrease, the cut first. So that decrease, the average monthly return was 1.3% when the Fed funds rate went down. And that's market returns. Stock returns. That's market returns. Okay, beautiful, yep. When they increased, it's 0.9% average monthly return. And then when there's no change in the Fed funds rate, which is most of the time, it's literally white, 10.0%. Sorry, sorry, 1.0%. 1.0. So one even on that. Yeah, I mean they're really interesting numbers. You know, if you go out and you look at sort of the average monthly return over all of the months, and we've looked at this many ways, it comes out to about one or maybe a little bit above. So you know whether I've got a decrease, whether I've got an increase, whether I've got no change at all, the returns look pretty similar to a lot of the other months that we look at. And regardless in any of these cases, you'd want that type of return in your portfolio. That comes out to about 10, a little bit over, annualized return per year. Those are good long-term returns in the market. You want to capture those returns. It does seem to be that's the case in any market environment. Those are strong returns. Market environment meaning interest rate moves. Let's go back to the question though of can you forecast? Tell me what the rates will be a year from now? We kinda made a joke about that, that man, if we could we wouldn't be here. But in all seriousness, it is a real question for most investors. The hard part of that is I can't tell you what the next 12 months are going to be. You know, and that's what economists do. They say, "Based on all the information we have today, here's our best guess a year from now." But that's 12 months where life can change. So I just don't know how to answer that question of what will rates look like 12 months from now? Go back to the beginning of 2024, and what were we hearing about? Well, there's gonna be three or four cuts on the horizon during 2024. We move through the spring. we get new economic data that maybe comes in. Now, people are like, "Well, maybe there's no cut. Maybe it's one or two cuts." We're standing here in August. We're anticipating what's gonna happen there in September. Maybe we get the cut. Maybe we get another cut later in the year, but it's constantly updated. So what it's gonna be 12 months from now, I have absolutely no clue. Alright, so no real information. It's different this time that we've seen thus far on that. Let's connect interest rates to debt. How about that? Our national debt here. We are now I think right around $35 trillion. That is about 2 trillion higher than it was a year ago. So our velocity of increase, we have no problem here in the US. It's spending money. Funny, not funny. Yeah. One of the questions we got around that was, "Just generally speaking, what are your thoughts around the debt level, and how do you think about that?" Yeah, I think that people are asking that. I mean, obviously it's rising quickly, and I think when people see these numbers, they then want to kind of connect it up of what's that gonna mean for my money? So we went out and we took a look at it. Let's orient ourselves to what we're looking at on this screen right here. So on the left hand side, on that vertical axis there, you've got stock market returns. And then on the horizontal access at the bottom you've got government debt. And to compare government debt across countries, you need to scale it by something. So a very common way to do it is as a percentage of GDP. Now, I think for most people they would say that as debt goes this way and increases, stock returns are gonna go this way. Basically, this is the relation that I would expect to see. And at some point I hit this crossover number where too much debt in a country means bad for the country, bad for the economy, bad for the companies that operate there, and therefore I'm gonna see negative stock market returns. Okay, that seems like a plausible argument. What does the data actually say? Well, you look at sort of the data of relation of debt to stock market returns for all of these countries here. And I'll ask you Mark. Do you see a relation when we look at this chart? I think one that jumps out to me is just the clustering, certainly. And most of that clustering is above the line, meaning positive returns for given levels of debt. I think that's spot on. And what do we know? We know that markets go up more than they go down. So this is actually the relation that I would expect to see. Does it mean that debt's not incorporated into market prices? No, but somehow that it gives me a signal on what I'm supposed to do? Not sure about that. You know another thing that jumps out to me. Look at that right part of the chart. So let's call it about the 150% onwards. There's still quite a few dots out there and this really high level of debt is a percentage of GDP. And even there you still see quite a few of those dots are above the line, meeting positive returns on the market, even in periods of high debt. Now, here we are looking at developed countries, and, again, I go back to our audience. They're probably saying yeah that's fine, but what about this 35 trillion in the US with where we are here today? So let's just take a look at US numbers, and we're seeing the same relationship here for given levels of debt as a percentage of GDP. We see a lot of dots. Upward positive returns there. Now, with that said, we do see a couple ones down low. Let's look at the one on kinda that bottom right hand side and just circle that one right there Jake. Okay, and I'm gonna poll the audience here and just ask them what year do you think that dot represents? So negative returns, pretty levels of debt. What year do you think that is? I'm just gonna go here and see if folks want to submit a couple guesses in here. Jake, we'll have to tell a joke or something to see if some of the answers come in. I don't know too many jokes about 35 trillion in debt, but I maybe someone's got a good one on that one. Alright, I see a couple inputs here. I think a couple around the 1940s, which would make sense. World War II. And then I see the answer here coming in spot on, which is 2022. Absolutely right. We see a couple around the GFC, some other time periods, but 2022 it is. That was a year where the S&P was down about 18% negative. Debt to GDP was around 122ish percent. Yep. One might make the relationship, then high levels of debt, that means some challenging things for the stock market. Now, let's look at 2023. Now, this chart only goes through 2022. We are still waiting on updated data from the IMF That's right. To update it through where we're today. But let's just draw in a 2023 where that dot would probably show up. So I think it with similar levels of debt in 2023 is a percentage of GDP around that 123 mark yet the market was up 26% that year. So yeah, right around in there on that chart is 2023. So, again, now we have high levels of debt with actually a very good year in the market. And then where are we in 2024? Boy, we had that big $2 trillion increase. We're now somewhere around 136%, and I think year to date we're at about a 19%. Yeah, 15 to 20% market during a good year. So again, it's hard to say that relationship of it's different this time. Now, part of it is, I mean we're entering unprecedented territory, and that word is overused I think-- Yeah. In the industry. But we're getting unprecedented, in terms of our levels of debt. Is it concerning for citizens? For me it absolutely is. I mean this year we are on pace for a 7% deficit as a percentage of our GDP, the highest year we've ever had by far without some sort of an economic crisis or a war. So it's very concerning, and I think it's very disappointing for me to think about our government is not tackling this in some way. They just seem unwilling to go there, whether it's Democrats or Republicans. I just don't know how you quite use that though to make decisions about your investments. I think that's really well said, and I think that's one of the tough things. If you have something that's really important, you're reading a lot about it, but then you make the jump to connect it up on what happens in the market, that's when you get yourself in trouble. Alright, so there we are on debt. Let's keep going here to a little volatility. Now, I wanna start this one with a question as well. Now, this question I think is interesting to me. It starts out with, What is the best way to take advantage of volatility?" Now, I say it's interesting because we're actually been in a time period the last year or two, a pretty low volatility, yet we received quite a few questions about it. Yeah, that's right. I mean it is an interesting year, and that markets haven't been overly choppy as we examine what's taken place year to date, and let's go in and let's take a look at volatility here. So let's orient ourselves again what we're looking at here. I think most people are probably familiar with this, but this is the VIX index, and sometimes it's indicators, the fear index in the market. And we don't need to get overly tech technical here, but it's the implied volatility on options on the S&P 500. But the bottom line is that this is sort of market sentiment around what's going on out there. Maybe what concerns are out there in the marketplace, and what do we see as we scan from 2003 to today? That you hit some periods where markets seem to be relatively calm, and then you get some big spikes up because new information enters the market. And that's kind of been common through time where you have periods where it's calm, you have periods where it's choppy. Just do note that when it does get choppy sometimes it remains choppy for, you know, the short to intermediate period of time. But Mark, as we were talking here, you start to look at a chart like this, and it really kind of looks almost like waves on the ocean. And what do we know about the ocean, right? There's times when it's calm waters. There's times when it's choppy waters. But as we were talking about, especially, like if you're standing on the beach, and you encounter a rip current, and you get caught up in a rip current 'cause you go out there, in a rip current, how do you get yourself in trouble? I think for a lot of us you start panicking, and just fighting the current, and trying to swim into shore against the current. I think that's exactly right, and what you're really supposed to do is sort of just float with it, get to the side, and then calmly swim back in. And I think about markets the same way, and that I find that when volatility spikes up and people get a little bit concerned, you know, fighting against those markets and fighting against volatility is where you get yourself in trouble as an investor. So this is a great charge to just think about again is the difference this time in terms of some of the levels we're seeing here. I like to look at another chart you came up with because my mind sort of orients around a calendar year time periods. We do a lot of that in terms of the way we think about returns. Let's do the same approach as we think about volatility with that as well. So what we're looking at on this chart is the average, or I should say the VIX levels throughout the year. So it just averages all the different days in that particular calendar year. And then we go back to the question of is it different this time? This periods of lower level of volatility we've seen recently, is it different? And we look at the average over that time period. The average has been a measurement of about 19, and we can see where the last two years we've been lower than that, but there's a lot of years where we've been much lower than that, a lot of years where we've been much higher than that as well. So does the level of volatility tell us something about future returns, either being good or bad? Meaning if we're in periods of high volatility, does that mean we're gonna have lower returns in the future? And we've done a tremendous amount of work here at Dimensional around that, and the answer is no. It just doesn't tell you about future returns, good or bad. But what we do see is it appears of high volatility that does persist into the short run. Yeah it does. It kind of continues, a little bit high volatility as well. Well, completely, man. And I think the other thing that jumps out to me, again, I was saying that we've been reading some articles about, you know, it's unusual how calm it is it what we've seen so far in the markets this year, and really to me sort of demonstrates the short term memory that the financial press have. 'Cause you just scan the charts here, and we're looking at you know, 14 and change, and where we're at in 2024. But look, you go back to 2017, 2014, 2013, back to '04, '03, we've had these periods where we've had similar volatility. So for what we're seeing in the markets this year, is it different from what we've seen? No, not necessarily. Now, let's highlight a couple periods here real quickly just to say how has the market done in periods where we have had high or low periods of volatility as defined by the VIX? So let's look at some recent periods here. Let's look at 2020, one of the highest returns. Obviously, we know, or excuse me, levels of volatility. We know COVID was going on there, and let's also look at then 2022. So pretty similar levels of volatility, but let's look at the returns in those time periods. So in 2020, even with everything going on around the world, we still had positive returns, 18%. Interestingly enough in 2022, similar volatility, -18%. So almost the opposite. So no real indication there that high levels of volatility tells you the direction. We see it also in 2008, 2009 in the global financial crisis. Very similar levels. 2008, I think everybody remembers that year, -37%. 2009, again was the opposite in 26%. And then I think there's time periods too where you have very low levels of volatility relative to the average. You can have very different return experiences as well. So let me highlight, Jake, 2005, what we were about 15 or so on the VIX. That average that year markets were up about 5% that year. A similar year was 2019, we're about 15 yet markets were up 32% that year too. So just a couple examples here of, again, there's nothing that necessarily tells us the volatility high or low about what future returns will be. Well, it's also a good reminder too as you start to dig into some of the individual days, you know, you hit a great point there, that sometimes when it gets a little bit choppy, it can stay choppy for a period of time. I like to look at a chart like this and just take a look at daily returns. So what we're looking at here is we're looking at a distribution of daily returns in the S&P 500. You've got on the left hand side in the teal, you've got negative returns. And then on the right hand side in the yellow, you've got those positive returns. And I just start to look, you know, out in the tails a little bit out here, and, listen, while the idea of, you know, 2% down or 2% up may not be totally the norm, we've seen it quite a bit in terms of how often it happens. And I think some of the numbers that you have around how often do we see it on average during the course of a year is a great reminder for investors. It's a great reminder. And we looked, again, what you have here, what, I think 93% of the time our daily returns are between that -2 and positive 2%. So that's what's highlighted there. But your question there about what do we see out on the tails, on the far edges? So on the left hand side returns below -2% or worse than -2%. On average, it's about 90 days a year. We get one of those days that's gonna be very negative. On the positive side, it's about eight days a year average that we see returns being above 2%. So I like how you're talking about that. Is it unusual to see it? No, but it doesn't happen every day. It doesn't happen every day. I mean you really think about some of those numbers, and you're like, so about one in every 20 days in the market I'm up or down more than 2%. Great reminder. And just because you've been in a calm period doesn't mean you can't get a volatile day. In fact, let's go back to our VIX chart, and let's talk about this little spike that we saw right here. Three weeks ago on August 5th we saw what I believe was the largest intraday change we've seen in the VIX. So was that something that was different? Yeah, it was a little bit different but you know, let's imagine this that you're back there on August 5th, markets are starting to get choppy. I think that day it was down right around two and a half, 3%. So it's in one of those, you know, one of the tails that we're talking about. You know let's imagine that you get a little concern and you do get out of markets on that day. If you look from close on August 5th of this month through last Friday, US markets were up about 10%. So if you had a million bucks, and you stayed invested, you could have turned it into 1.1. If you decided to let volatility get the better of you, you left a hundred grand on the table. And we've seen instances like this over time. I love this chart right here 'cause it really highlights that discipline can pay off when it comes to investing. If you look over this period, here's about 26, 27 years. If you stay invested the whole time, you get about 10% return in the markets as we joke all the time. It's funny how it kinda always comes back to 10%, but let's imagine you get outta the market for the best week and this is consecutive. So this would be outta the market for five trading days. Here's what happens to your return. But let's make it real, and put some numbers to it. You had 10 and a half, and now you got eight and a half 'cause you missed five trading days in the market. You know, you run this out to best month, best three months, six months, and you look out here, and you had 10 and a half. And you could have turned it into seven and a half just by missing a strong stretch. And then look at the time period, you know? This is a very recent, and I think it sits in people's memory there. You get out in March of 2020, you don't get back until June. You took 10 and a half. You turned into seven and a half. That's real wealth there. That's real wealth. And I like how you talk about this does not take into account the compounding into future next 10, 20, 30 years as well. One of the things I love about these days too, if you just sort of highlight the three on the right there from the month, three months, six months, that was all in a time period where markets were strong, strong, positive, going up. But highlight the best week, November, 2008. That was an incredibly challenging month in the heart of the financial crisis. October is very challenging, yet that week was the best week that we had. I think those five days, trading days, were up 18% in five days. So you just never know when these incredible returns are gonna hit around that time period. Alright, with that, you ready for the next one? Let me just make a couple comments. A few questions coming in here. Got a couple questions on what's with the timer? So we got a clock measuring our time here trying to keep us focused. That's 'cause Mark and I like to talk. So shout out to the show, Pardon the Interruption. They do that, I think. Do it very well. I'm not sure if we're getting any bells and whistles on your end from that. We went over a little bit on the last one. So that's what's up with the clock. Other question that we got is, "Are we recording this session?" And we absolutely are. We're gonna try to get that posted here in the next two or three days, once we get it up there. So yep, we'll get it on our public side. Alright, now you ready for the good stuff? I mean, we joke. We're gonna talk about elections. Then, after that we're gonna talk about religion. This is gonna be a great broadcast. Yeah, yeah, yeah, great one, great one, yeah. Maybe we should put our timer really short. Exactly. All right. I got a few questions to set this up. I love these questions. First one. "I fear for our country if the Democrats are elected. What precautions should I take if that happens?" I have another question. "What is the worst case scenario if Trump is reelected?" Alright, we're in election season. Emotions are high. People are fired up. Passions high. They are fired up. Yep. It's very polarizing. Let's go have a conversation on elections as it applies to our investments. Yeah, we won't get into politics, but let's take a look a little bit of the data around presidential elections. You know, the reality is that people do get very fired up on this topic, and I think that that's probably a good thing, especially when you get the opportunity to vote for the person that's important to you, and lines with your values. But as we start to think about what does that mean for our money, let's take a look at that. So what we did is we went out there and we looked at all the presidential election years. You can take us data back to 1926. Over that time period you got 24 elections that took place. Here's positive versus negative. I think that's a good place to start. And what do we see? We see more positive election years than we see negative election years, and just like we showed on the debt, shouldn't be surprising about that. Markets tend to go up more than they go down. Average return in election years, 11 and change. Pretty strong returns. Here's where your highest year in '28, and your lowest year in 2008. Now, let's overlay political affiliation right on top of it, and you know, what do we see right there? I think that that's pretty tough to make any type of argument. Mark, you see a pattern in that data? One might argue, well, no I don't, but look at the negative years. Maybe you're starting to read into something there. Three out of four-- I mean, that's a lot of observations over almost a hundred years, three or four years there. I think you might wanna be careful on that one. I went and looked at all other years. Average returns looks pretty similar. And here you go Mark. There's your Democrat versus Republican argument right there. But you know, I mean that's just, it's really hard to draw a conclusion between this person is getting elected in this year and what's gonna happen in the stock market return. Well, we love data, we love looking into that stuff to see if there are any patterns out there. And of course if there were, we'd be highlighting that one. In this particular case you are looking at, is there a pattern of when somebody is actually elected to the returns of the market that calendar year? Yep. But one might say, well, you should really look a year later. Meaning, okay they're elected in November but once they get in the office, now they have an impact. What's the next year returns? And you've looked at that as well. Yeah, let's look at years after presidential election. So again, we're gonna have 24 of those over the course of our analysis here. And let's first look at positive versus negative. What do we see there? Well, actually you see more negative years in that time period after the US election, 10 versus 14. You know again, if you look over the course of all years, about 25% of the time you see negative, 75% of the time you see positive. So election years, four negative. Post-election years, 10 negative. I don't know if I'd read really too much into that. Average return, again, pretty darn strong returns. Here's your highest return, and here is your lowest return. And then we'll go ahead and we'll overlay the political affiliation over the top of it. And again, I mean, you know, you made the joke about the Democrats. Here, we can make the other piece and be like, well, actually the Republicans in this case have seven of the 10 negative years, and it's when they were in control of the White House. So maybe it's the Democrats that are good for markets, but all of it, it's really just noise. But then I think the question becomes, is can you do a deeper analysis? Can you go a little bit deeper when we look at economic data? And that's what we did here on the next slide is we said, well, what if we played a little bit of a game here to say let's give you more information about what happened with some strong economic indicators. And then we'll ask two questions. One, what did the market do? And then two, who's the president? So let's look at unemployment, annual inflation, budget deficit, and GDP growth. Again, I think some big economic indicators that people would say, oh yeah, that gives me valuable information on what the market's going to do. Here's the first numbers. Unemployment, 7.8%. Annual inflation, 2.3. Budget deficit, and by the way, that's cumulative over this administration, 15%. And then GDP growth of 2.2. We can compare that where you've got higher unemployment at 10%. Annual inflation comes in a little bit lower. Much, much larger budget deficit. And then weaker GDP growth. Now, Mark, in which case do you think most people would say, yeah the market's probably gonna do better. I have to go with the left side. When you look at some of those metrics relative to the right side, that just, to me, gives a stronger economy, stronger growth, probably stronger earnings, and thus, probably stronger returns in the market. I think that's completely logical. But here's what we see with stock market return. On the left hand side, you've actually got -4% annualized over this administration. And on the right hand side, you've got 16% annualized over the administration. So even if I gave you the economic data, it's really hard to say what markets are gonna do. Now, the question is who's the president? I think we wanna poll the audience on this. So let's poll the audience. Again, for those of you that are listening in here, who do you guess is the president? I'm gonna say on the right hand side here. So let's go to the right hand side. The left to me gives you too many clues. Let's go to the right hand side. Who do you think is the president of that particular economic data set? So Jake as we're getting some guesses coming in here. Somebody made a comment about the way I say volatility. Mark says I say it funny but he is from Ireland I have to say. So I'm not sure where that's coming from. Okay, John has given the correct answers. We got quite a few correct ones coming in here. A lot of references to Obama. And John mentioned Bush and Obama. So spot on. Well, done John. We got an educated audience. Yeah, well done. An educated audience. But, you know, let's take this and maybe dive into a little bit more of the details. 'cause Mark, there's other things that are going on besides just them being in the White House. Yeah, so let's look at some of the other presidents here and just take a broader look at the return experience of various presidents in their time period. But I'm gonna go to Bush real quick here. And you just showed that one. Circle the dates there. So just to highlight that time period, negative returns under GW, but that's the lost decade. A lot of people talk about that last decade, those 10-years where we had this negative return. But just ask the question, do you really think Bush was responsible for the tech bust and that recession that he kind of took on in the first part of his administration? Was he responsible for the financial crisis in 2008 that were part of those returns? I think that's a hard stretch to say this results in this. Same thing for Obama. Was he responsible for the fantastic market rebound we had in March of '09? I don't know. It's hard to say that. I look back prior time, let's go back to earlier days. The Ford time period, you got that circle there. So Ford had the best return experience of any of the presidents on this particular page, which I think the irony is interesting in that I think he's the only one that wasn't even elected to the presidency or vice presidency, yet he had the best returns. So maybe us voters, we're the ones. It's the voter's fault is what it is, Gochnour. Voter's fault. Well, some of this, we should get better at who we're electing for market returns. But again, I go back to the patterns here. Is there anything that tells us, depending on who is running the governments, tells us something about future returns and better returns going forward? And what if you did play that game? You know what we did is we took a look at that to say, hey, you're making this strong argument that this party or this person is gonna be good for the markets or I feel so strongly, here's what I wanna do with our money. So let's imagine this, is that you feel very strongly about the Republican party and a Republican being in control of the White House. If they are, you're invested in the market. Now, Democrats in the White House, you're outta the market. You do not like that. How would you have done over this time period? Well, if you had a dollar back in '69, it would've grown to $19 over this time period. Now, let's flip the coin around. You do not like the Republicans. You feel very passionately the Democrats are best for the economy and ultimately best for the stock market. How would you have done? Well, you would've had $127. So substantially, substantially better. But then of course if you stay invested the whole time, your dollar would've grown to over $200. And to me this chart right here really drives home the point that we've seen a lot of different presidents, we've seen a lot of different tax levels, we've seen high inflation, we've seen low inflation, we've seen wars, we've seen technological advances, and through this whole time, as I like to say, markets tend to go up and to the right. And you know, you really think about that. So if Kamala Harris comes into the White House in November, is GM gonna stop making cars? They are not, right? If Trump's elected, is Amazon gonna stop delivering boxes to my house? They are not. As I like to joke, my second career of breaking down cardboard boxes on a Saturday is completely safe, no matter who goes into the White House. And it's just a good reminder that you're not investing in that person, but you're investing in companies within an economy. They'll figure out how to make money, regardless of who's running the country. And it highlights to me it's time in the market, right? And your voting. Don't vote with your investment savings. Now, you were highlighting that with presidents. That's right. Let's take a quick look at Congress as well. Is there anything at the level of the House or the Senate that tells us something about market returns? So we're looking at here, here's our calendar year returns for the S&P 500. Let's put some color around this, in terms of who was in charge of Congress during this time period. So when you see blue, Democrats had control of the House and the Senate. When you see red, Republicans had it. Then it was mixed, it's white. So I look at this and look for patterns. What this tells me is there's a lot of really good years in the market, whether the Democrats have controlled it, Republicans, or it's been mixed. I guess the only pattern would jump out to me is on the negative side I see a lot of blue and a lot of red, not much white. So again, maybe as a voter, we want a mixed-- Maybe we do. Maybe we wanna mixed Congress there. I don't know. Maybe that's better. In terms of avoiding some of those negative returns. I just don't see patterns to change my investment decisions. Now, the one thing that does bother me a little bit about presidents is I do hear the comment even with investing that it doesn't matter, and I don't actually think that that's the right comment, you know, or that it doesn't have an impact on stock prices. And I think that's the wrong way to look at it. You know who the president is, does it have some impact on stock prices? I gotta believe it does. If you believe in the efficient market hypothesis, all relevant information is incorporated into prices, I gotta believe who the president of the United States is has an impact. It's relevant information, but does it give me a signal on what I'm supposed to do? I also really want to hit on this point of, it's not that it's not important as well, right? Citizen of the country, we want people in power that align with our values and support our views. It is important. It just doesn't gimme an indication what to do. Go back to the stuff we talked about around the Fed. Is the Fed funds rate important? You bet it is. It has a major impact on the economy. Helps determine interest rates for auto loans, for home loans, all of that. It just doesn't give reliable information on what to do with my money. The debt, is it important as a citizen? I got three kids, you care about this stuff as well, but do I wanna make investing decisions on it? That's when you start to get yourself into trouble. Yeah, excellent. Well said. Well said on that one. Alright, let's go into our last topic here. Artificial intelligence, AI. Jake, that's something we read about almost all the time. It's on the front page. We've seen incredible returns from some different stocks around this as well. We got a few questions on it, but let's just touch briefly a couple different ways to think about the concept of AI right now Everybody is out there talking about AI. I mean, as I joke, my 7-year-old is literally asking questions and making comments about AI. I mean it's almost impossible to go out there. You actually were getting your hair cut over the weekend, and you started to get questions about AI. Yeah, I'm coming in tight today with my haircut, but you're right, the guy cutting my hair, he said, "You know what, we've got a big week coming." I go, "What's that?" He goes, "NVIDIA's gonna announce their earnings so when he gets to that level or your 7-year-old daughter, it's everywhere. It's everywhere. And so, you know, I went out there and just started to kind of google some headlines. I like to look at this stuff, but, you know, we're hearing about artificial intelligence, our final invention. Of course, the machines are gonna take over, and you know, maybe there's instances where we'd be better off if the machines took over. Breakthroughs have finally unleashed AI on the world. It's entering our everyday lives. And then people obviously start making comments and questions and wondering, like the gentleman cutting your hair, how do I play this? How do I get out there and make money when it comes to AI? So it's sort of front and center for us constantly. The interesting thing about this is that this one was from 2013, this was from '14, this was from '16, and this one was from '16. So this idea somehow that it's different this time or things have changed, we've been talking about AI for a really, really long period of time. It's been out there, but it's particularly like your dates you put there and your bottom one here are the best stock plays for artificial intelligent bulls. So let me ask you, who are the names that they're highlighting in 2016? Was Nvidia part of that list of what you need to buy for AI? It was not in that article. Not really. Probably on too many people's radar and certainly not a lot of articles written about it. Now, the interesting thing is if you go back, and you do read some of those articles over the last decade, you will read about some of the big names that did do well over the next five to 10-years, right? But at the time, did we know that was gonna be the case? We did not. Standing here today, do we know what are gonna be the winners going forward? We do not. But the comforting thing for me as an investor is that any of those articles I go back and read or any articles that I read today, if I'm a diversified investor, and I have a broadly diversified portfolio, I'm gonna capture those returns. It's in my portfolio. If I go to the cocktail party, and people are chatting up this stock, if I'm diversified, there's a good probability that I own it in my portfolio. I think that's an important point here. You own it. You can take a lot of comfort in it. But to your point earlier too about this isn't something recent, the idea of artificial intelligence. It's been around for long, long periods of time. I mean, you know, this one to me really captures it. This idea that we've reached the golden years with AI, and you see there, these celebrate the 50th anniversary of artificial intelligence. It's been here. It's been around for a long time. It's not necessarily something new. Now, the funny thing about this article is this one's actually from 2006. So back in 2006 we had hit the 50. We're at 70 years now where we've been discussing AI, technological advancements, and through that whole time period people have been wondering how do I sort of play these technological advancements? And unless you can pick the winners ahead of time, which is incredibly hard to do, diversified portfolio, sticking to your plan, probably your best bet. It's such a good point. 70 years of this, and you expect that from companies. That's right. Constant innovation. We've seen it for hundreds of years. We'll continue to see it all the time. How fast it comes, it ebbs and flows, but knowing you're an investor, and you're capturing that as we go along. Key point. Okay, let's go to a summary here. Okay. All right? So I wanted to bring up what do we do now? Which is we've just went through a whole bunch of different concepts there. It's on top of people's minds, and it should be on top of people's minds. It's very important, your money, emotions, amount of money. They are very real. All these things that there's a natural tendency to say if this happens or if it's different this time, I should do something different in my portfolios. And so I wanna bring up the concept here with another question that came in. Now, I love this question. It says, "Is there any data that supports adjustments in portfolios where the market is at a high like it is today?" So again, how do we protect from that potential downside of the market? And again, I think there's a natural tendency, from an emotional perspective, to think about, I gotta make some changes around that. But how do you think about that question? I think it's tough for investors, quite frankly. I think we're bombarded with information 24 hours a day. You know, people do want to understand sort of what's going on in their world. And you're hearing about inflation, and geopolitical concerns, and GDP growth and COVID, and tax increases, and elections and all of these things are kind of getting jumbled up, and you wonder what to do. And sometimes it is the same. Sometimes we can go back in historical data, and we can look and say, yeah, we've seen something like this before. But sometimes it is different. Sometimes it is, to your word, unprecedented. It's the fastest, it's the biggest, it's whatever. But I do take some comfort in is that when you're reading about it, when you're talking about it, when you're maybe a little bit worried about it, all of this information that's floating out there, it's already been incorporated into the market and the market prices. And one of the things we know is that over time markets have rewarded investors that stay disciplined through election cycles, through high volatility, through different levels of debt, through different decisions by the Fed, and all of those other things that you're reading about, that discipline is really where the way you capture the long-term returns. I think that discipline too brings in the role of the advisor, which are so incredibly important for a couple reasons. One, helping define the plan and creating an appropriate asset allocation. How much in stocks, how much in bonds, depending on people's kinda risk tolerance, what they're looking to accomplish in the discipline to stick through all these different market environments. And I go back to the question, then, of should we make a change on some of these things we just talked about today? Whether it's different, yes, sometimes it is, sometimes it's not. But should we make a change? So a couple places where I think it might be warranted maybe to make a change, and, again, get with your advisor to understand what might need to be done. And one is of course if it's just any life changes, maybe the kids are outta the house, you get some inherited, some different stuff like that. The other one where I think you probably do see some changes, I'll say some trades being made, is just natural rebalancing. You know, if you are an investor that might have 50% in stocks, 50% in bonds, we had a really nice return on the market here the last couple years. That might get you a little more stock exposure. Yeah, you'd probably take that down a little bit to your target, sell that off, go reinvest it back in your bonds. That's just natural rebalancing. So maybe some trades there. And then I go back to the emotional factor where it might be appropriate to make some changes based on your level of stress. Where if you are truly that concerned about the markets and potentially what it means for my investments and the loss, you probably got too much in stocks if you're having trouble sleeping at night. So it's okay to sort of reassess that and maybe you wanna dial that down. Maybe I don't want 50% in stocks. Maybe it should be 40 or 30. So get with your advisor and work through what that right number is. But I will say if you do that, and then you get through the election and the markets look good, don't say, okay now I'm comfortable at 50 again. Not a short term change. It doesn't work that way. You can't do a short term change that really has to be a long term decision. Otherwise it's really more of a market timing decision. It's very well said, Mark. Alright, anything else? Nope. You wanna add to this? Great to be back in studio with you. Happy we dove into those topics. Hopefully, everybody found the the information beneficial. Yeah, so thanks to all of you for joining us here today. We appreciate that. Appreciate your time. Keep the questions coming in. They're so valuable for us as we think through the topics, and the content that we wanna bring in. And Jake, I'll just wrap it up. I gotta say there were a couple comments here that you definitely want a mixed congress, Wait, people feel strongly about politics. I'm shocked. So thanks again for all the comments. Thanks again for tuning in, and have a fantastic upcoming Labor Day. Take care everybody.