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Public perception has a strange way of shaping the world we live in.
One of my favorite examples of this is how most Americans view the stock market.
For instance, any investor worth their salt knows the S&P 500 tends to rise over the long-term. Whether it’s the Great Depression, World War II, 9/11, or the COVID-19 pandemic, the S&P 500 index has always bounced back to make new all-time highs.
And the answer why is simple; the population swells, companies grow their earnings, GDP expands, and that leads to higher stock prices on a broad basis.
In fact, over the last 90 years, the S&P 500 finished in positive territory 73% of the time.
If you need more proof of the long-term upward movement for the S&P500, just look at this chart below:
Of course there are bear markets (like we had in 2022) and crashes (like we had in 2008) along the way. But the overall trajectory of markets has historically been “up.”
This is a key reason why famous short sellers like Jim Chanos say they’ve made far more money going long stocks as opposed to shorting them. There is simply a gravitational pull that lifts stocks over the long-term.
But if you walked down the street and asked the average American what they thought stocks would do over the next year, the answer would be quite different.
Misconception #1: Stocks Fall Most Years
Everyone reading this now knows the S&P 500 tends to rise over the long-term.
But if you asked the average Joe on the street, they would likely disagree. For instance, polling shows less than half of polled Americans expected stocks to be higher a year later:
Other than during the brief retail investing boom in 2020, this figure has remained consistent at around 60%.
Mind you, this data is from one of the most prolific bull markets in US history where the S&P 500 and Nasdaq returned +138% and +228%, respectively.
There is simply a misconception about the risks associated with investing in financial markets that isn’t rooted in logic or reason. Anyone who’s seen the long-term chart of the S&P 500 would be hard-pressed to draw a conclusion other than the index rises over the long-term.
But it’s not the only public perception that is incorrect.
Misconception #2: A Recession is Around the Corner
Everyone expected a recession going into 2023.
Whether you were billionaire investor Ray Dalio or JP Morgan Chase CEO Jamie Dimon, everyone and their mother expected an economic contraction this year.
But the experts were wrong. In fact, the opposite has happened.
The U.S. economy expanded 4.9% last quarter. The unemployment rate is near a 40-year low. Consumer spending continues to surprise to the upside.
Yet, the same crowd is calling for another recession going into 2024:
There are certainly signs that a recession could happen next year. But until we see an uptick in unemployment, consumers spending fall, or GDP contracting, these calls are little more than hot air.
Misconception #3: US Consumers are in Bad Shape
I know this will ruffle some feathers.
But the US consumer is in its best position in years.
The wealth of the typical American household is up significantly since the pandemic.
For instance, the median family net worth surged +35% on an inflation-adjusted basis between 2019 and 2022:
The median American actually has around $8,000 in liquid cash, in addition to other assets they may hold…
…meaning when you see articles like this, they are lying to you for clicks:
And gains in household income are across all racial, education, and age gaps…
…which has helped close to wealth gap in the US (although there is still more work to do on that front).
Lastly, while inflation has taken a bite out of consumers in the US, wages have most kept up…
…which has helped lower the burden of higher prices for many Americans.
Things Will Never Be Perfect
Now I’m not saying everything is perfect in the US economy.
But what I am saying is it’s a lot better than what the news is letting on. And that’s by design, as stories about a coming stock market crash, a looming recession, or Americans living paycheck-to-paycheck gets people to click and allows news companies to sell more ads.
While it’s easy to fall into these traps, it’s important to take a step back and look at real data to see how most people are doing.
Because while you may not be financially where you want to be, you’re doing better than most.
And as long as you keep improving and don’t fall into financial traps, you will reach your investing goals.
Stay safe out there,
Robert
Real Wages Rise Again as Wage Growth Outpaces Inflation
REAL WAGES
by
Felix Richter,
Oct 13, 2023
Wages and salaries in the United States
After 25 consecutive months of declining real wages in the United States, nominal wage growth finally caught up with inflation in May 2023, ending two years of effective pay cuts suffered by American workers. When inflation began to flare up in April 2021, the year-over-year increase in consumer prices started outpacing nominal wage growth for private nonfarm employees in the U.S., meaning that, accounting for the rising cost of living, Americans were earning less than they were a year earlier.
Wages have kept up with inflation? Really? Based opon numbers from where?