The state of the economy after midterms

Good morning and welcome to Matt on the Money, the expanded Sunday edition. It is so good to have you with us. This is where we get an in-depth look at the finance and consumer stories affecting your everyday life. And we're going to begin with voters this week sending a message about the economy. It's great to have you here. Let's get to the video. I'm still working on learning all the gears and switches and things that I can control here. But we know that frustration over the cost of living helped Democrats win control of both chambers of and Congress, excuse me, in Tuesday's midterm elections. But just three days later, a new jobs report showed, and my video is frozen, of course. Let's see if we can get it rolling. Here we go. It showed an economy that's still growing. Employers added 165,000 jobs in October. That is far more than expected. Unemployment falling to 4.1%. Yet Americans, millions of them, are still not feeling that strength in their own finances. Inflation continuing to squeeze household budgets. Borrowing costs remain elevated, wage growth still not necessarily keeping up with rising prices. So how can the economy look strong on paper while so many Americans feel like they're falling behind? So we're gonna bring in Dan Bennett, financial planner, certified financial planner and founder of Sarasota-based Lakewater Advisory. Dan, it's great to have you back in this kind of new expanded way. This is interesting. I think we'll have a lot of fun. I think we will, too. I think we get more time, which I'm really excited about. And there's nobody cutting us off. Well, if we go beyond 30 minutes, then somebody will be cutting us off. But voters, Dan, just delivered a major political shakeup in the economy. And then Friday, we get this surprisingly strong jobs report. How do you kind of reconcile those two things? I think that. The American voter was pretty loud and clear. I mean, they're basically saying, look, you can tell me that this economy is doing great all you want on paper, but have you seen my grocery bill lately? And I think that was really the story of the election. The economic numbers looked good on paper, but a lot of families at the end of the day just aren't feeling it right now in their wallet. What does the election tell us about those frustrations and kind of why aren't strong economic indicators translating into financial confidence, do you think? A lot of it has to do with inflation. Inflation is still very high. And I think right now, if you look at the consumer sentiment, you know, that increased from 48 to 51. So it's about a 6 percent improvement. And that was straight from the University of Michigan index. But we're still a long way to go with most Americans feeling good about this economy. You know, 51 still is pretty low. You know, that's like if you were, you know, if you're a baseball player and your batting average is, you know, 125 and you said, well, look, I had an improvement. Now I hit, you know, I'm hitting 150. So I think at the end of the day, people are still feeling a little bit strapped. I think 57, 58 percent of consumers say high prices are hurting their standard of living. At least that's what was shown, you know, in the exit polling. Yeah, we were looking at consumer confidence, the September consumer confidence reading, Dan. It's at its lowest since 2014. It's lowest since 2014. What can that kind of tell us? Again, housing costs, grocery costs, insurance, borrowing costs are really right now are influencing how people feel about the economy. I think right now you're going to see... If we look at inflation, I guess, from the beginning of the year, we were right around 2.5% to 2.7%. Then we had the war in Iran, and voters were saying, listen, we don't agree with this. And then inflation spiked. And now it's staying higher, I think, for a little bit longer. And the Fed is watching that closely. And I think that's going to drive a lot of policy decisions moving forward. Going to Friday's jobs report, Dan, you've got the strong hiring, squeezed paychecks, right? These two things kind of... up against each other. You see 165,000 jobs added. It still feels like the hiring market is tough. I know a lot of people who are looking right now and they feel like they're getting passed over or that the sort of AI filtration of it all is making it really hard to get employed. But we're looking at jobs getting added. That's a great thing. What does that tell us? I think you're seeing two different things. You're seeing So folks who are looking for a job, finding it very, very difficult to find a job. But then you're also finding people that have jobs are like, listen, I'm going to hang on to this one for a little bit. I mean, we saw that with the unemployment went down from 4.2 to 4.1. 4.1. And I still think that the Friday jobs report, it was a pleasant surprise. I think we added a lot more jobs than economists expected, which is great news. But the catch is right now that. Having a job and actually getting ahead financially aren't necessarily the same thing. I mean, you can get a raise and still feel like you're running in the sand with bricks in your pockets. Everyone's situation is a little bit different. I think a lot of people, too, have felt like they're on this hamster wheel now, not just in the last two years, but for the last four, five, six years, really going back to COVID and all the supply chain issues that caused inflation five, six years ago. Yeah, yeah, yeah. And you see that, too, with the jobs that were added recently, August and September, those jobs numbers were actually increased about 84,000. So the labor market in general was a little bit stronger than previously reported. You see it really in professional services. You see it in business services, you see it in healthcare. So the good news is you're not seeing it all in one particular industry, but you're right. I mean, we're in a different economy right now, that's for sure. The one thing I will say, though, is that wages did increase by about 3.1% over the last year. Mm-hmm. While that's a good thing, it doesn't necessarily tell the whole story because PCE inflation was up 3.6. So you can have wages increase. You can also have PCE inflation increase just by a little bit more. And so when you see a lot of the headlines of, hey, people at the end of the day are making, you know, a little bit more than they were the year before, real wages have actually decreased. And I think that's what you're seeing in a lot of these cases. So take a look at the election on Tuesday. Interest rates, economic policy. What could divided government, I know this is not your first midterms, it's neither of our first midterms. What could divided government mean for economic policy between the president and Democrats now holding both chambers of Congress? Well, I think it's going to be harder and harder for any type of legislation to get passed. Um, You know, there's a number of bills, I think, that are at least proposed, but I think it's going to make things a lot more difficult. goal. So, and I think we just lost your mic. Let me see if I can bring it back up, Dan. Oh, I know what we got going on. Hang on. My mic is good. Your mic is good. I have to change a setting here. Bear with me, friends. Okay, I go to audio switcher here. Let's see. I think I just have to turn that off. Or maybe I move to this. Let's see. Okay. Okay, we'll be right back. Sorry about that. You were just saying a divided Congress. No, that was me. I'm messing with buttons and settings that I am still very much learning. You were just saying that a divided Congress will make things more difficult because you've got gridlock, which could make it more difficult for people to see relief. Would that be a fair thing to say? Exactly. That's what we're saying. So Friday's job report, you know, does it make another federal reserve rate increase more likely? I think that you could definitely see another rate hike increase. I mean, at this point, the job of the Fed is to make sure that we have stable prices and we have low unemployment. You know, but this job report could make the Fed, I guess, a little bit nervous, but we can't take one job report and extrapolate a lot of data out of it. The Fed, at the end of the day, wants a healthy job market. And also wants inflation under control. So good economic news doesn't always mean that there's good news for someone hoping to get a little bit of a cheaper mortgage or cheaper rent. So I think 165,000 jobs is fantastic. That gives the Fed less of a reason to rush in and stimulate the economy with lower interest rates. You know, but again, I think the prediction markets right now are assuming a red Fed rate hike, but we just obviously we never know. OK, I want to get your recap of this week in the markets after the election news. We've got to take a quick break. And on the other side, I'm going to ask you, Dan, to just like walk us back through this wild week on Wall Street. We'll be right back after this. The difference between... I guess speeches made during a campaign and things actually getting done. And I think things will get done. But I think, you know, with this moratorium right now in the state of Texas is big. I mean, we've got to think. A third of a lot of the data center build-out and AI build-out is right in the state of Texas. You know, Ohio's big too, obviously Georgia as well. And, you know, you could see that, you know, with the markets. When those flipped, that's when the markets responded. Okay, so if we brought it back to portfolios, household finances, what are some things that we can be doing to react to this, if anything? I think you've got to be careful reacting to it. At the end of the day, corporate profits and earnings are what matters. And nobody's portfolio should have some type of a political affiliation to it. And my advice always is not to make any type of knee-jerk reactions when these types of events occur, because usually what happens is when the market goes down very, very quickly, and of course, we don't know the bottom, but it comes back even quicker. Historically, obviously, there's no guarantee there. So we wanna make sure that we're careful with making any massive portfolio changes based on who's in office, who takes over Congress, who the president is. I'm not gonna say his name, but there is a very famous podcaster, a billionaire that came out recently, I think in the last couple of months, and he said, listen, as soon as President Trump was elected, I sold everything and I went into cash. And guess what? We've had double-digit returns in the S&P since that election. And he came out admittedly and said he was wrong. So again, I think the same story here. You just want to be careful in making any major, major moves. Don't let your emotions drive your decisions is what I'm hearing. Yeah. Again, that doesn't mean to ignore everything. I think this might be a good opportunity to look at the portfolio and say, hey, how much of my portfolio is allocated to tech stocks? How much of my portfolio is allocated to these AI companies? If it's too much, Then, you know, you might want to make, you know, I guess some changes. But if you're in broadly diversified funds and ETFs, the S&P 500, I think you'd be surprised at just how small the portfolio concentration is with non-profitable AI companies. Uh-huh. So. Yeah, all good things. I wanted to get you to weigh in on Amendment 3. This has been such a big talker in Florida. Amendment 3, which drastically increases the homestead exemption for real estate going to $150,000 in 2027 to $250,000 in 2028. Have you been having conversations with clients about this stuff? What are people telling you? I think there's some confusion around it, though. You'd be surprised, though, Matt. There's a lot aren't 100% familiar with how these types of exemptions work. I have heard some folks think that this $250,000 by the year 2028, which is the exclusion, that that is an actual tax deduction, and that's not the case. I've heard some folks think that if they are Florida residents today, if they bought a house next year, they don't qualify. Obviously, that's not the case as long as they're a Florida resident now. It made sense that it passed. And Florida's a little bit unique. It's super majority over 60%. And I think it got, what, 62.5% of the vote? 62 or 63%. We can criticize it. But to me, it made sense because folks in the exit poll said, listen, affordability is a major issue. And Amendment 3 gives me a little bit of a relief next year, the year after, the year after that, and then inflation adjusted after that. So to me, it wasn't a surprise that it passed. I wasn't either. And I covered the story on Wednesday right after the election. And that was my takeaway, too, was that this is the same story as the blue wave that swept America. It's really it's just it's people feeling this in all different ways. Insurance, property taxes, groceries, gas, all of the things have gotten more expensive. And in Florida, it is unique, especially on the part of insurance. And property taxes. So it did not come as a surprise to me that this would pass because people are feeling so, so squeezed. We're going to take a quick break, Dan, and we're going to be back to continue our conversation about the economy, the latest jobs report, the election, what it all means for your wallet. We'll be right back after a very quick break. Kind of recapping the week after the election, talking inflation, the latest jobs report out Friday. And I don't think, Dan, that we are airing this out. There we go. We're back. There's a little bit of a delay sometimes between my one monitor and my other. We're back from break. Dan, I wanted to get you to share your screen because you and I were talking in the break about how the S&P has performed. The S&P 500, Standard and Poor, major stock index, top 500 companies. Under different administrations and under different political parties. So kind of tell us why you wanted to bring this to us and what's significant to you here. Well, I wanted to share this because we've been fielding a lot of questions from clients. You know, some optimistic and some concern of, hey, where's the market going? Of course, we don't have, you know, a crystal ball, but I think it is helpful for people to see. How markets have responded under different forms of government makeup. And so the graphic that we see here is the average annual rate of return of the S&P 500 under Republican presidents, and then the makeup of the Congress along the bottom here. And so it's difficult to see the actual performance. But under a Democratic Congress and Republican president, the market's up about 4.2% on average All right, if it's all red, Republican president, Republican Congress, just shy of 8%. And when there is a split Congress, which is what the market likes the most, and that's actually the case when there's a Republican president, when there's a Democratic president, the market in general likes a split Congress, all right? But we're here on the left-hand side. Now, this doesn't mean, of course, that we know exactly what the S&P is going to do over the next 12 months. A lot of this has to do with business cycles and corporate earnings, but interesting nonetheless. What do you take from that? What do you take from the fact that the market prefers a split Congress? Well, to me, it makes a lot of sense because no sweeping legislative changes are actually being made, and there has to be compromises within government. And I think at the end of the day, the market's not going to respond to all legislative changes, but a lot of it is priced in six months in advance, and it's based on perception. And if the perception in Washington is that there will hopefully be some compromises at the government level, then, you know, corporations and businesses can do what they do and continue to grow. Okay, I want to go back to inflation, Dan, if we can, because it's just the persistent thing that has kind of plagued, I think, Americans for the last several years. It was a driving factor in the 2024 presidential election and now in the 2026 midterms, because people still have felt that the prices are too high and life is unaffordable for a lot of people. So we know from the numbers that inflation is slowing down, but why does that not mean prices are coming down? Why doesn't slowing inflation mean prices are coming down? I think that's the biggest misunderstanding right now with a lot of people about inflation. So when you hear that inflation is coming down, expect prices to come down. But, you know, unfortunately, that's just not how it works. It's more like if your grocery bill is going up really fast and now it's just going up a little bit slower, right? You're still paying more. So lower inflation right now does not mean lower prices. So going from a 6% inflation to a 3% just means that prices are raising the previous rate. Do you see where wages realistically can catch up with the cost of living? It's going to be about wages right now. Now, I did. Unfortunately, prices just aren't going to go down, so wages have to keep up with it. Average PCE inflation, which is actually the Fed's major target, is at 3.6% in September. Core PCE was 3.1. And, you know, PCE makes the headlines, but core is if you remove food and energy. But you and I know that food and energy are two of the biggest spending increases, you know, right now for most people. So when you're seeing- And most volatile expenses as well. Exactly, exactly. Consumer spending in September, so this came out, you know, University of Michigan, consumer spending increased about 0.5% in September. But inflation-adjusted spending was essentially flat. So I've seen a lot of arguments lately of, hey, you know, look, the economy's doing great, unemployment's going down, people are spending, they're spending more. Two things. A lot of folks are spending on credit cards, and two, inflation-adjusted spending is essentially flat. So Americans spent more dollars without purchasing more goods and services. They're purchasing the same stuff. It's just more expensive. I know. I was at Walmart just the other day, and the same basic grocery list that I always stick to, which is like basic, basic stuff, it hasn't gone down ever at all in the last couple of years. What would meaningful economic relief actually look like, do you think? I think. For I think it's going to start first with the Fed. That will help. Now, it'll help a certain, you know, type of borrower out there. If you have a fixed mortgage, it's not going to benefit you much. But if the Fed does start to cut rates in the future, which I find. Is, is it, you know, it's going to be a tall task and hopefully borrowing costs will come down because when we see credit card rates right now at 28 or 29% and we see mortgage rate, we, we, we met, I was on met on the money two or three months ago and we talked about mortgage rates and they were at six and a half percent at the time. And I made that comment. I said, listen, I think we're going to be over 7% soon. And we were at seven and a half percent a couple of weeks ago. Um, you know, and you've seen that right now with housing start. If the Fed does raise rates, whatever they do, it is going to impact auto loans. It's going to impact interest on credit cards. It's going to impact the mortgage rates, which are more closely tied to the 10-year. We talked about the vibe session in 2024. The economy at the time then, going into that election, was strong. It was largely strong, but people didn't feel that way. People didn't see that in their day-to-day expenses. Then we talked about the K-shaped economy, how for some Americans, things are going really well. They're seeing their net worths go up. They're improving their situation, the top, top, top earners, but then everybody else is going down, down, down. And then here we are two years later, still feeling like, I think when you talk to a lot of people, Dan, there's a sense of kind of hopelessness and a question of, will I ever be able to get ahead? So we'll all be watching. We have just a couple minutes left together, but I'm looking at these key numbers here. You're, you know. Again, October, 165,000 jobs added. The Economist forecast was 65,000, so way overperforming. Unemployment rate 4.1%. What kind of jumps out to you the most from everything we've discussed, and what are you going to be watching most closely? I think the jobs number was really interesting. thing that was revised up to in the previous. The previous two months. So I'm going to be watching that and also real wages. That's important. Wages can go up, but real wages can go down. And we saw real wages go down about 0.3%. So for folks watching and listening, all real wages is is net of inflation. And so that'll be really interesting to see here over the next few months. And, you know, You know, the 165,000 jobs added, was that an outlier or is this going to be something that continues over the next few months as well? Because we saw over the last 12 months, the average job, I think it was around, what, 48 or 50,000. So 165,000 was quite a bit. All the more reason to watch the Fed.