It is the little things in life that matter, right? We are all likely familiar with such a statement, yet it often goes overlooked in our personal and professional lives. The busy nature of life makes it easy to focus on things that remain largely out of our control, yet we are fascinated with the possibility of controlling many revolving items throughout our day. In fact, I have written in the past that the entire field of behavioral economics exists due to this very fact. It is the desire to control uncontrollable things that leads us to make poor decisions. When we focus on the things we perceive as important, the long-term outcome is one that likely impacts us negatively. I have a recent example of this. A friend of mine recently purchased his first sports car and everything about it seemed perfect. The research that went into purchasing this vehicle was immense. Not only were all the engine performance analytics heavily scrutinized, but the relative comparison to other cars took into account things like quality of the leather seats, color of internal seat stitching, sound system, and even the little chiming noise the car makes when you haven’t put your seatbelt on. It was rather intense research, to say the least. Fast forward three months after the initial purchase and I find out that he is not entirely happy with the car due to the lack of practicality. This should not come as a shock because it is after all a sports car. The shock factor, however, becomes more apparent when his main concern with practicality is that the car has no placeholder for his sunglasses, nor do the cupholders fit his oversized reusable water bottles. Those two things, which he uses every single day, multiple times per day, provide such tremendous loathing for him that he is considering selling his car. Those two simple things carry more influence for his daily happiness than any other benefit the car provides. In retrospect, it appears he focused on the wrong things as the deciding factors for making a sports car his daily driver.
The point of this story is to reaffirm the previously stated fact that when we focus on the things we perceive as important; the long-term outcome is one that likely impacts us negatively. With that in mind, I want to change the frame of reference in this story away from purchasing a car and into purchasing, or maintaining, global stock market participation. The current political backdrop in the U.S. is undoubtedly polarized. The closer we near the November 3rd election, the worse the polarization seems to get. It is easy for us to assume that this election cycle is different than all the previous cycles, but that is simply not true. As I stated in an early September commentary, the fact that the social unrest of the current election cycle does not resemble previous elections does not mean that previous elections were free of similar occurrences. We simply forget about them. We also have an unfortunate situation where we need to account for COVID-19 amidst the current short-term uncertainty. As we think through the current environment, let us step back and focus on what really matters over the long-term and how we can best focus on avoiding irrational decisions. The reality is that the likelihood of the economic backdrop being better off over the next three years remains highly in our favor. This is the case irrespective of who sits in the White House. Fiscal stimulus will be coming under either President Trump (or candidate Biden) and we already know that the Federal Reserve will keep interest rates at current levels for a long time. We also know that the fiscal health of most Americans remains highly upbeat. Savings rates are high, unemployment remains concentrated to few industries, and the American banking system remains highly capitalized. The current short-term media driven noise has supplied plenty of fear from both sides of the political aisle. It has become easy to want to exit equity market participation for reasons that may be presented as rational but are rather highly irrational when thinking in a long-term cycle. We challenge you to think beyond a presidential cycle. The health of the global economy surges dominantly in the years following a recession. This becomes amplified following event-driven recessionary periods, such as the recent COVID-19 downturn. Embrace the near-term uncertainty – your future may depend on it.
Edison Byzyka, CFA – Chief Investment Officer – Credent Wealth Management
Investment advice offered through CX Institutional, a registered investment advisor.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. The economic forecasts set forth in the presentation may not develop as predicted.
All return data sourced from Bloomberg.
All other data soured from Bloomberg, through the release of monthly figures from the Department of Labor, Bureau of Economic/Labor Statistics, U.S. Census Bureau, or from the Federal Reserve and any of its affiliated regional locations.
Small Business Optimism sourced through NFIB. Small business hiring plans sourced through NFIB. Consumer sentiment sourced through the University of Michigan.
Earnings data sourced through Bloomberg Intelligence and through Bloomberg’ earnings analysis composites. Interest rate cut/rise probabilities are sourced from Bloomberg’s tracking of futures contracts tied to the Federal Funds interest rate.
Manufacturing data – Markit PMI – Bloomberg