Transcription:

Episode 37 – Stay Calm and Invest On: Insights to Thriving During Election Season

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Announcer 00:00:01 This is Blue Money, a finance podcast made for cops by cops. With us. You know your money safe. Retired Lieutenant Jim Donnelly of the Bensalem Police Department and co-host Kevin McGarry of Valley Financial Group come together to help protect and serve your financial needs. This is Blue Money on a.

Jim Donnelly 00:00:20 Welcome everyone back to the Blue Money podcast this year. Host Jim Donnelly. What’s up Jimmy? Nothing much. I’m here with my co-host Kevin McGarry. Hey, Kev, for this episode of Blue Money, I thought we would just look back at the third quarter and then, you know, look for the outlook where we’re going in future. We have the election coming soon. When you look back in the third quarter, the SP 500 rose 5.5% in the third quarter, putting it nearly up 21% for the year, which is a really good year. July and August, stocks were all over the map. some of the best days, some of the worst days. But September came and stocks kind of took off.

Jim Donnelly 00:00:53 The Federal Reserve, you know, they cut the 50 basis points that really helped the stock came out. So what do you got for us, Kev?

Kevin McGarry 00:01:00 I mean, think about it. It’s been a good run here. And, you know, last week was the first week we had a down week in a while. But people seem nervous still. They seem uncertain. So all the election we’re we’re on there two weeks away from the election and people get nervous. And you know, the big thing here is relax.

Jim Donnelly 00:01:19 I mean, Kev, look how many people called us about the election months and months ago saying, oh, man, I just want to go to cash. I don’t know how it’s going to play Democrat or Republican. It doesn’t matter. But nobody wanted to do anything with the market. And then like, look at the numbers. We just ran it. The third quarter rose by 5.5%. If you’re sitting on the sidelines, you’re not going to get that, you know, 21% for the year.

Jim Donnelly 00:01:36 It’s been a great year. It’s been positive. Imagine all year you waited on the sidelines to see what happened.

Kevin McGarry 00:01:41 And there’s a ton of money on the sidelines right now. Tons of it. And you think we ask these people or investors out there or any law enforcement or anyone, any profession, are we in a bull market right now? What do you think they would say?

Jim Donnelly 00:01:53 If they do know.

Jim Donnelly 00:01:54 They would say yes, but they’re still very hesitant.

Jim Donnelly 00:01:56 Right?

Kevin McGarry 00:01:56 And right now we’re probably in this probably getting close to the birthday slightly, you know, at the birthday of a two year bull market. And Jim, when you hit two years. Right. The average bull market since 1949 has lasted five and a half years. So just on the average were three years away. The average return on a five and a half year total return is 191.6%. So there could be a lot of like, juice behind this bull market right now.

Jim Donnelly 00:02:25 Yeah. I mean, like I said, when we look at the candidates right now, both are on record with their positions on tariffs and corporate tax.

Jim Donnelly 00:02:33 So if elected, I’m sure it’s going to change a little bit with the business cycle. However, a lot of this is already priced in with it. And or should we see some you know maybe a little pullback or the stocks might run right after the election year. But it’s going to be short term. Long term. It’s not going to really affect the market that much. And when we look back at like what these rate cuts were just talking about, I know one thing that the conventional wisdom says the small cap stocks should benefit more from the interest rate cuts. And what I say that is because they have a lot more floating debt than large cap. And for anyone out there, I don’t I don’t want to confuse anyone. Small cap, large cap, a small cap company as anyone has from 250 million to 2 billion in a large cap is anything over 10 billion or more. When you look at large caps, think of any company in the SB 500. You know, if you follow that index, all those companies are large cap.

Jim Donnelly 00:03:20 So just to know the difference between small cap and large cap. But here Rock Blackrock analyst found that the large caps actually outperform the small caps since going back from 1984. So a lot of people are getting you know, you see some analysts talking about the small caps, but really they came out with these things that the large caps are just as strong or better. Right.

Kevin McGarry 00:03:38 Well, even simplify it even more, Jim like Tom Lee fidelity to have some, some great information out there. But Tom Lee and FSA insights, they did a little study where we had rate cuts. And you were not in recession. No landing. Right. No soft landing, no landing. Seven out of seven times. That has occurred when a three month period, six month period and a one year period, the index was positive over a one year period, and that return was. The index was up over 15%. Fidelity looks at asset class performance following the initial rate cut. The first rate cut, right. when there’s no recession, F is up right.

Kevin McGarry 00:04:18 F is up on those periods almost 30%. The Russell 1000 is almost 15%. Russell 1000. Growth Russell 1000. value index up over 10%. Russell 2000, up over 10%. The S&P 500 over 15%. Bloomberg. Right. the commodity index is up like close to five and treasuries up 2 to 4. So when there’s no recession and rate cut has historically been positive for the markets over a 12 month period.

Jim Donnelly 00:04:48 I mean, the other thing that’s really positive looking going forward is consumer confidence and spending. We look at, you know, I just read an article about spending on Halloween this year in the country. They’re going to spend close to $12 billion this year just for fall Halloween. We got more holidays coming. Obviously everyone travels on Thanksgiving. We got Christmas, you know, in December. So it’s very positive. We still think the consumer is going to spend that drives our economy big time. Now I think some of the interest rates are still kind of high. So that’s curbing the spending on some big ticket items.

Jim Donnelly 00:05:17 Like you don’t see cars or houses selling like hotcakes anymore, but you know they will when the rates start coming down. But the economy is still driving. People are still spending. I mean, you look at the cruise, cruise ships booked, you look at the cruise stocks. I mean, they’re taking off. Their earnings are higher than ever. So it’s just like you said earnings are all this week the Mag seven reports this week alphas actually alphabet actually reports today. So that’s going to start it off. so we’ll see.

Jim Donnelly 00:05:42 I mean I mean I.

Kevin McGarry 00:05:43 Mean just with the earnings projections, I mean, this year, they’re already, you know, almost 70% of the companies that post that beat their earnings expectations, you know, 2025 and 2026 looks like you’re going to get some strong year over year growth projections out there. So corporations, consumers, you know, their their balance sheets are healthy. I mean, listen, the consumer savings are down and credit card use is up, but they still are employed.

Kevin McGarry 00:06:10 People are working, which is very positive for the markets. I think the big thing here is like, just remember right now you’re going to get some probably over the next two weeks, a lot of headline risk with the news in the election. So try to, you know, remove your emotion from that. You know, don’t be like a Yankees fan and start panicking. You’re down three zero. You’re going to try. You don’t even want to play. I mean, these Yankee fans don’t even want to play game for it or they’re done.

Jim Donnelly 00:06:37 Silence. For a while now, I know that’s like the two things.

Jim Donnelly 00:06:40 That people look at negatively that could impact. Third, first, we have the geopolitical risk. What how do you see that playing out? You think anything’s going to change or.

Kevin McGarry 00:06:48 I mean, we it’s something we can’t control. I mean, you just got to be diversify. You got a plan and you got to be aware. But I mean, you know, we got war in the Middle East.

Kevin McGarry 00:06:56 We got more war in Ukraine and Russia that’s been there. The market’s still going up despite all that. We don’t like wars. We don’t want wars. The market likes consistency and stability. but I think the things, you know, the market could look at and say what could be headwinds for the market is, you know, if interest rates don’t cut, how does the fed play interest rates? Right. and inflation stays around and stays sticky and goes back up and, you know, so there are two things we’re watching and we think could impact the market. But right now inflation numbers are coming down.

Jim Donnelly 00:07:29 What about what do you call Kev? I mean obviously the first vacation like you said just hit upon that. That’s will help even with my question now. But the AI boom, you know, all these people are reporting earnings and earnings and they just keep ballooning balloon. And how do you see that playing out? I mean obviously the money is going in there is it’s ridiculous. But it’s just everyone’s running and that is getting the game.

Jim Donnelly 00:07:47 Everyone’s getting the game of the AI now. So how do you see this playing out in the fourth quarter or early next year in 2025? Do you think it’s going to balloon? Do you think it’s going to come down a little bit or stabilized?

Kevin McGarry 00:07:56 You never know what what it’s actually going to do. You could just look at the numbers and you know, the companies, the Mag seven, they’re spent a lot of money that their CapEx moving forward is going to be a lot higher multiple times than it was three or 4 or 5 years ago. You know, I saw a stat in fidelity, just I mean, Netflix, you know, when they got their first 100 million user, it took them ten years. You know, ChatGPT took two months. So there’s something behind the AI people are using. Companies are investing in it. Can it stimulate growth? Yeah absolutely could. But I think the other thing is to realize, you know, as you mentioned, small caps mid-caps large catch bonds International, we you have to own everything.

Kevin McGarry 00:08:43 We believe in diversification, shopping down every aisle. So when something does hit, diversification historically is done well compared to be invested in all in one sector.

Jim Donnelly 00:08:53 Yeah. Like you say.

Jim Donnelly 00:08:53 That’s key man. Especially here. Value financial. We’re always trying to preach to everyone or even our listeners is diversification one and stay in the game. You can’t be time in the market. We say it all the time. I constantly want to repeat it to let everyone know out there you can’t. You can’t time the market. You know it’s to go show year after year. We always try to preach this to everyone, but it looks like if you just sat on the sidelines because like we say, can we get that question all the time with the election coming, maybe I’m just going to go to cash for five months, six months, see how this plays out. We just missed a great run this year. If you did that it’s not you know, is there interest rates are getting caught. The money market is not going to be paying the 5.5%, 5% on the return anymore.

Jim Donnelly 00:09:31 Pretty soon they’re going to be getting two and a half three. It’s going to be dropping down. That’s when you see a lot of this money moving in the market. It’s a great time if you have money on the sidelines to invest. Have you always saying how much money is on the sidelines now? 7 trillion.

Jim Donnelly 00:09:41 Something so crazy a.

Kevin McGarry 00:09:42 Little under that. But I think that the big thing is, is listen the cash isn’t a bad investments good part of the portfolio. And we’ve been getting really good cash yields. but at the end of the day, if if the Fed’s going to drive rates down over the next, you know, 12 to 24 months, your money markets in your cash, you know return will be impacted. So always rebalance and always speak about rebalancing your portfolio.

Jim Donnelly 00:10:07 So I’m going to.

Jim Donnelly 00:10:08 Wrap this one up Kevin. what do you want the listeners to walk away from today. Give me three.

Jim Donnelly 00:10:12 Things.

Kevin McGarry 00:10:12 Stay calm over the next few weeks with the election. Number one.

Kevin McGarry 00:10:15 Number two, remember, there’s there’s a lot of positive news out there for the economy in the markets. And be prepared if there’s not, you know, you know have a plan and be diversified.

Jim Donnelly 00:10:25 You know I think you know, what I want to wrap up is, like you said right there be be prepared for have a plan. When there’s market corrections out there, they’re not uncommon corrections usually for 10% or more. That happened in the last 20 of the last 35 years, you know. So with the average being down about 14%, yet the S&P 500 still returned 11% over those years. So stay in the game, guys. We keep telling you, stay positive. Stay in the game. If you have any questions, feel free to reach out to Kevin and I. That’s going to wrap up our podcast for today. Be safe out there guys.

Jim Donnelly 00:10:56 Be safe.

Announcer 00:10:57 Thanks for listening to Blue Money. To learn more about Jim and Kevin, or for a free financial assessment, visit Valley financial.com or click on the link in the podcast description or shownotes.

Announcer 00:11:10 Until next time safe investing. This material is intended to be educational in nature and not as a recommendation for any particular strategy, approach, product, or concept for any particular advisor or client. These materials are not intended for any form of substitute or individualized investment advice. This discussion is general in nature and therefore not intended to recommend or endorse any asset, class, security or technical aspect of any security for the purpose of allowing a reader to use the approach on their own before participating in any investment program or making any investment. Clients, as well as all other readers, are encouraged to consult with their own professional advisors, including investment advisors and tax advisors. Valley financial can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.