The Word from Main Street

Market Update for the Week of May 18th, 2026

At Main Street Wealth Advisors, we are big proponents of rules-based investing. Most people consider themselves to be rational but there is a lot of evidence to suggest that investors routinely make irrational decisions. Our inclination towards systematic investing isn’t born out of a general love for rules. It stems from the fact that in investing, emotions can be a major hindrance even to seasoned professionals.

As Richard Thaler, one of the founding fathers of behavioral finance and 2017 winner of the Nobel Prize for Economics put it, “Conventional economics assumes that people are highly rational – super-rational – and unemotional. They can calculate like a computer and have no self-control problems.”

Source: Nasdaq Dorsey Wright

But, because of cognitive and emotional biases, people quite often behave irrationally. At a macro level, this irrationality can impact things like global inflation. On a micro level, it affects our individual investment decisions.

One of the most important facets of the Advisor’s role is to help clients maintain perspective and stick to the plan we have developed together. As a result, the effects cognitive and emotional biases have on individual investor behavior have important implications for the Advisor-Client relationship. Understanding these pitfalls and their effects can help us understand our clients’ impulses and help us keep them on course.

Over the years, we’ve encountered clients exhibiting cognitive or emotional biases. A few of the emotional and cognitive biases are outlined below.

Emotional Biases:

Loss-Aversion Bias ~ Put simply, loss-aversion bias is a preference for avoiding losses over making gains. Loss-aversion can cause clients to hold on to losers for too long and to sell winners too quickly.

Regret-Aversion Bias ~ Clients exhibiting regret-aversion bias are apt to avoid making decisions out of fear that their decisions will turn out badly. Regret-aversion can lead to herding behavior – clients may gravitate to investments that are popular because they feel safer among the crowd. If everyone is wrong about a stock, they will feel less personally responsible for making a bad decision.

Endowment Bias ~ A phenomenon Richard Thaler has studied extensively; endowment bias occurs when a client places a higher value on assets they own (i.e. the price they require to sell a stock they own is higher than the price they would be willing to pay for the same stock). Endowment bias may make clients reluctant to sell certain assets and also result in suboptimal asset allocation.

Source: Nasdaq Dorsey Wright

Cognitive Biases:

Mental Accounting Bias ~ Another bias studied by Thaler. A client exhibits mental accounting bias by mentally assigning money to different categories or “buckets” and treating it differently based upon that assignment. Mental accounting bias can also result in a suboptimal asset allocation.

Confirmation Bias ~ This bias occurs when clients seek out and give credence to information that confirms their existing beliefs. Confirmation bias may cause clients to consider only the positive information about an investment and ignore new information that would contradict their investment thesis. Confirmation bias can result in clients not considering all available, relevant information about their investments.

Hindsight Bias ~ A client showing hindsight bias will often see past events as having been predictable. Hindsight bias may lead clients to overestimate the extent to which they predicted investment results causing them to become overconfident.

Education is an important aspect of overcoming biases. For example, we might overcome a client’s mental accounting bias by discussing the fungibility of money and showing them how mentally dividing their assets into separate accounts or “buckets” is preventing them from achieving an optimal asset allocation. Education is typically more successful in overcoming cognitive biases than emotional biases.

Source: Nasdaq Dorsey Wright

Removing emotion from the equation is one of the major strengths of rules-based investment strategies and is another tool that we find effective in keeping our clients on the right path. We believe there are few emotional or cognitive biases that couldn’t be mitigated or remedied by adopting (and adhering to) a rules-based process.

The current reading for the PR4050 is: U.S. Equity Core = 98.59% & Money Market = 4.23%. For the PR4050 indicator to trigger and alert us when we should consider moving to cash, U.S. Equity Core must be 40% or below and Money Market must be 50% or above.

Source: Nasdaq Dorsey Wright

Below is the most recent D.A.L.I. (Dynamic Asset Level Investing) Indicator showing International Equities and Domestic Equities in the top two spots, while both maintain a commanding lead over Cash and Fixed Income.

Source: Nasdaq Dorsey Wright

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Main Street Wealth Advisors
33801 1st Way South, Suite 271
Federal Way, WA 98003
Office: (253) 944-1047
Fax: (253) 944-1075
www.mainstreetwa.com

ART-1110244

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC.

These views are those of the author, not of the broker-dealer or its affiliates. This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. All investments involve risk, including loss of principal. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. All indices are unmanaged and may not be invested into directly.

Technical analysis is based on the study of historical price movements and past trend patterns. There is no assurance that these movements or trends can or will be duplicated in the future. Nasdaq Dorsey Wright developed the indicators described above. They have been prepared without regard to any particular investor's investment objectives, financial situation, and needs. Accordingly, investors should not act on any recommendation (express or implied) or information in this report without obtaining specific advice from their financial advisors and should not rely on information herein as the primary basis for their investment decisions.

Nasdaq Dorsey Wright’s “DALI" employs relative strength-based analysis to rank macro asset classes based on developing leadership trends within the global capital markets. The objective guidance within DALI provides the tools necessary to properly allocate portfolios across all major asset classes in an effort to emphasize strength wherever it exists. Domestic Equities, International Equities, Commodities, Currencies, Fixed Income and Cash are evaluated daily to identify dynamic developments across investment genres, as well as within them. This tool provides the tactical precision that allows investors to adapt as the market leadership changes.

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.

The S&P 500® Index: A free-float capitalization-weighted index published since 1957 of the prices of 500 large-cap common stocks actively traded in the United States. The stocks included in the S&P 500® are those of large publicly held companies that trade on either of the two largest American stock market exchanges: the New York Stock Exchange and the NASDAQ.

MSCI World Index: A broad global equity index that represents large and mid-cap equity performance across 23 developed markets countries.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.