Source: A Day at a Glance
According to the National Institute of Mental Health, Post-traumatic stress disorder, PTSD, is a disorder that develops in some people who have experienced a shocking, scary, or dangerous event. It is natural to feel afraid during and after a traumatic situation. The VA adds that PTSD symptoms usually appear soon after trauma. For most people, these symptoms go away on their own within the first few weeks and months after the trauma. For some, the symptoms can last for many years, especially if they go untreated.
Within the field of PTSD research is a concept known as “memory inflation.” This occurs when memories of traumatic events become more intense over time. Memory inflation tends to amplify a person's feelings and behaviors based on past events. It appears that voters are suffering from inflation PTSD, based on exit polls. Despite the ridiculous amount of money and attention spent on voter polls, it seems that the vast majority of Americans cast their ballots based on two issues: the economy and immigration. I will once again address the topic of immigration in a future blog post. Today, we will focus our time on the economy and the main data point voters pointed to time and time again: inflation and higher prices. As you will see below, they are not necessarily one and the same thing.
Part of the problem in discussing this issue lies in the difference between how economists and politicians describe inflation and how consumers and voters feel about it. To help illustrate this point, we're going to focus on the graph below. The blue line shows the year-over-year change in new vehicle prices. According to this chart, new vehicle prices have decreased by .6% over the last year. This means that politicians and economists are correct when stating that a new vehicle's cost is dropping.
However, the orange line in the graph above shows that new vehicle prices have increased dramatically since 2021. The average cost of a new car is approximately $55,000 today, compared to roughly $35,000 just a few years ago. Therein lies the disconnect and the frustration voters expressed at the polls in November. You can tell consumers that the price of cars is dropping and be technically correct, but no one who has purchased a vehicle in the last couple of years will believe you when they see the sticker price or their monthly payments.
This is not just a problem in the United States. Based on election results from around the globe, citizens have been telling politicians how unhappy they are with the state of seemingly permanent higher prices. Our second chart below shows how food prices rose in the United States, the UK, and the Eurozone. As you can see, there was a dramatic increase between 2022 and 2023. The pace of this increase has leveled off recently, indicating that the rate of inflation has decreased. But the permanently higher prices are what families are struggling with every time they go to the grocery store.
Two things can be true at the same time. Economists and politicians may have been correct that the pace of inflation was slowing. However, everyday people who are trying to make ends meet and pay their bills saw this as disingenuous and out of touch, and they voted as such.
“It's the economy, stupid!” is a famous mantra coined by James Carville, the political strategist who helped Bill Clinton defeat incumbent president George H.W. Bush in 1992. It now at least partially explains the election results in 2024. The election results have led many of our friends on the left side of the aisle to their sudden sense of frustration and despair. This is not unusual. As you can see in our final chart below, consumer sentiment tends to flip dramatically with each change of the political party in the White House.
You will notice that Republicans were much more optimistic about the economy until the 2020 election results changed their tenor. The last four years have led to Democrats being more optimistic about the economy. This is flip-flopping once again. One thing that the markets and the economy did respond positively to was the decisive outcome that was quickly known and accepted by the electorate on both sides of the aisle.
Markets hate uncertainty, and at least we don't have to deal with weeks of lawsuits and hanging chads this time. This should at least help us avoid another bout of election PTSD.
The other thing to remember is that on the morning of Wednesday, November 6th, pharmaceutical companies were still making blood pressure and diabetes drugs, technology companies were still making smartphones and working on the next iteration of generative AI, and consumer brand companies were still making your favorite cereals and toilet paper.
This ultimately drives economic activity, corporate profits, and stock prices far more than who resides at 1600 Pennsylvania Ave. We thought this was an interesting way to debrief part of what drove our recent elections and how to help understand how people can look at similar data points through different lenses. Understanding these differences is essential as we continue “Moving Life Forward.”
© 2024 Jesse Hurst
Senior Wealth Manager
The views stated are not necessarily the opinion of Cetera and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
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