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Scott Secrest

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What’s Up On Wall Street – Fall 2018

Stock markets were generally higher over the waning months of summer, with stocks of large US companies for the quarter up by 7.7%, small U.S. companies up 3.6%, and foreign stocks up 1.4%. Bonds, broadly measured, were flat for the quarter, though down 1.6% so far this year.

Trade tensions have remained front and center in economic news as the administration has continued to press for additional tariffs, as announced during the quarter. However, vigorous growth of the U.S. economy,

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What’s Up on Wall Street – Summer 2018

The stock market headed into summer on an up note, with large company stocks rising 3.4% for the quarter and small company stocks up 7.8%, though foreign stocks were down 1.2%. More interest rate hikes continued to weigh on bonds, which were off 0.2% over the three months.

The bond market is historically far less risky (volatile) than the stock market, though the market still does fluctuate. One of the key drivers of bond market fluctuations is movement in interest rates. The Fed, which sets short-term rates, has increased the rate twice so far in 2018 and has stated its intention to raise it twice more.

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What’s Up on Wall Street: Q2 2018

In an exceptionally volatile quarter for investors, markets ended lower, with US large company stocks down 0.8%, US small company stocks lower by 0.1%, foreign stocks down 1.7%, and domestic bonds lower by 1.5%.

The stock market swooned in February as traders showed alarm about rising US interest rates. The market sell-off was related to the long-anticipated rise—and possible accelerating future rises—in US interest rates (considered a negative for stocks and bonds) as well as concerns that inflation may be brewing. It may not be just coincidence that this reaction happened in the wake of the recent federal tax cuts, which analysts say will stimulate—unnecessarily say some—the US economy, leading to things such as higher interest rates and inflation.

Tax cuts, along with stepped-up government spending (in March Congress passed a $1.3 trillion budget), may serve to overheat the US economy in coming months, though it is an open question as to whether the tax cuts will actually spur economic growth. Following the passage of the tax bill, there was a series of well-publicized employee bonus and capital investment announcements. (Keep in mind bonuses are one-time and not the same as wage increases.) These were meant to show  that big businesses were sharing the bounty of the tax cuts with workers. Since then, however, studies and polls have shown that business investment has not increased as a result of the tax cut—and neither have wages.

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What’s Up on Wall Street: Q1 2018


Added profits are likely to benefit executives more than workers.

The fourth quarter was positive for stocks, topping off another year of growth for the markets.  Large company stocks in the US rose 6.6% for the quarter and 21.8% for the year.  Small US company stocks were up 3.3% for the quarter and 14.6% for the year, while foreign stocks rose 4.2% for the quarter and 25% on the year. Bonds were up 0.4% for the quarter and 3.5% for the year.

The drivers that have moved markets all year continued during the fourth quarter: optimism among traders about anticipated tax cuts and deregulation, which they believe will stimulate the economy, at least in the short-term. Positive US and global economic data have also further supported market gains.

Massive tax-cut legislation was passed in the waning days of 2017. The lion’s share of the benefits will accrue to corporations and high-income Americans in the form of lower tax rates. This comes at a time when corporations already have robust profitability; the disparity in US incomes has never favored top earners so much. The story being sold in Washington is that the tax cuts will spur dramatic economic growth, which will benefit the middle and lower economic classes as prosperity spreads, raising the financial boats for all, as it were.

However, there are reasons to doubt that the benefits will find their way into the middle or lower classes. Despite the growth, corporations generally will keep wages flat in favor of rising profits. Economics tells us that wages rise when unemployment falls because employers must compete for workers by paying them more. But in the absence of such tight labor conditions, corporations will generally use added profits for executive bonuses, reducing debt, share buy-backs, shareholder dividends or capital projects, which may include investing in automation as a way to keep their labor costs down.

Worker wages have remained stubbornly low throughout the economic recovery that began in 2008, even though unemployment has declined and is now lower than it was prior to the recession. Research shows that primary reasons for lack of meaningful wage growth include ever-growing automation, applications of technology, and foreign outsourcing—not immigrant labor, as many anti-immigrant leaders proclaim. Corporations did not raise wages meaningfully in 2017 because they were not compelled to do so, although minimum wage increases in 18 states have just gone into effect as of January 1.

Economic growth has been running at around 2% since the 2008 recession, below the rate for some prior recovery periods and below the long-term average of about 3.2%.  (It is important to note that the long-term rate was accompanied by jarring boom-and-bust cycles that included growth rates as high as 16% and as low as -10% between 1947 and 2017.)  

The Fed is projecting a growth rate for 2018 of 2.5%, reflecting the economic momentum coming out of 2017 and possibly some incremental rise from  tax cuts  Interestingly however, the Fed’s long-term growth rate estimate remained unchanged at 1.8%, suggesting a belief that potential growth from the tax cut will be temporary in nature. The widely forecasted ballooning federal debt generated by the tax cuts will likely be longer lasting.

As we look forward into 2018, leading economic indicators are generally viewed as relatively strong and forecasts support the expectation of continued growth for the year.  Among the risks we are considering is the possibility that growth spurred by tax cuts and deregulation will create an overheated economy, a situation which is likely to end in an abrupt and possibly harsh recession, and may well be accompanied by a decline in the stock market. On the other hand, it is also certainly possible that the tax cuts fail to produce the economic growth promised by the legislation’s sponsors.  

Finally, we acknowledge the conclusion of Janet Yellen’s four-year term in February as the first woman Fed Chief.  During her tenure, she oversaw the first interest rate hike in seven years as the Fed sought to normalize its rate policy following the tumultuous 2008 recession. She has led the Fed with dignity and poise, and history will likely judge her work at the Fed favorably.


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Uncertain Economic Issues

The stock market continued its upward march during the third quarter. Large company stocks ended up 4.5%, while small companies rose 5.7%, and foreign stocks were up 5.4%. Bond returns for the quarter broadly measured— were also positive, up 0.8%.

These results arrived amid a backdrop of generally positive global economic news. IMF economists believe the pickup in global economic growth will remain on track and have expressed particular optimism for developed European economies. Though difficult to predict reliably, there is some analyst consensus that foreign stock markets may present better opportunities in 2018 than U.S. markets.

This is in part because the U.S. is now in an (unhurried) interest rate increase cycle. Rising interest rates are known to have a cooling effect on an economy. You might think of low rates as oiling-up the economic machine, while higher rates can slow the machine, to a degree. A recent Wall Street Journal poll of economists showed that the majority expects the Fed to raise rates once more this year, in December.

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States, Businesses Filling the Leadership Void on Climate

Both stock and bond markets finished the quarter with solid gains. Large company stocks in the U.S. were up 3.1%, while smaller companies gained 2.5%. Foreign stocks were in the black as well, up 6.1%. Bonds advanced 1.4%, even as the Fed raised interest rates.

Federal Reserve officials forged ahead with another interest rate hike in June, the third in six months, and maintained their outlook for one more hike this year. The Fed announcement struck a careful balance between showing resolve to continue increasing interest rates toward more historically normal levels, and acknowledging concern over unexpectedly low inflation this year. While we may think of inflation as a bad thing, the Fed sees benefits in it—in the right measure.

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Solid Market Fundamentals Trump Unstable President

What’s Up On Wall Street, 1st Quarter 2017
(written April 2017)

As the first quarter drew to a close, most stock markets had moved higher while bonds overall recovered from a poor prior quarter and nished up as well. Over the quarter the stocks of large U.S. companies rose by 6.1%, U.S. small companies nished This is a continuation of higher by 2.5%, foreign stocks were up 7.2% what was already happening and bonds, broadly measured, rose by 0.7%.

Both the financial and general press were dominated by news out of Washington D.C. as the new President’s term got underway. While action in the capitol does affect the broader economy, the economic and business earnings outlook will normally have more impact on stock market results. Presidents have long received too much credit—or blame for economic conditions on their watch. Still, it is understandable why the markets and media are xated on Washington. The news never seems to stop and it’s increasingly wacky. It feels like rubbernecking on the highway as we pass an accident; it’s hard to look away.

However, the long-term movement of stock prices tends to be more in uenced by interest rates and business earnings. As the stock market has continued to rise since the election, some economists now believe that the rally is more about positive economic data that supports the picture of a normalizing U.S. economy. This is a continuation of what was already happening during the second term of the Obama administration.

Speaking of interest rates,

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The next wave of socially responsible investors is here

For years people have saved and invested for important life goals such as education, retirement or simply to growth their financial wealth. At the same time, many have been in a position to make charitable donations to organizations with which they share particular goals and values. Maybe it’s the environment, social justice or women’s issues – good causes abound.

We have always known that we can do good with our money by providing funding to important causes – and thereby we can direct our money to positive uses. But we’ve long been spoon-fed the idea by the financial services industry that we cannot successfully invest our money in ways that are positive as well. Is it really a necessity to sink investment dollars into companies which pollute our environment, stoke global warming, and avoid diversity in their boardrooms and women in executive positions?

To talk with most financial advisors, you would think so. 2014 may be the year in which investing fundamentally evolves. Women and Millennials are the disrupters. The opportunity to express one’s values – be they social, environmental or political – and to amplify one’s impact by expressing those values through investment dollars is becoming the vibrant new investment landscape.

Economists estimate that by 2030, women will control two-thirds of wealth in the United States. About half of affluent women report an interested in environmentally or socially responsible investments, as compared to just one-third of men.

At the same time Millennials are realizing their earning potential in many existing and emerging industries. Ninety percent of today’s MBAs are willing to exchange some financial benefits for a strong commitment to social good, according to And 79 percent of Millennials seek to work at a company that is socially responsible, according to CatchAFire.

Treading lightly on the earth and care for our fellow travelers are becoming meaningful, more widely-held views. Daily buying patterns have been favoring organics, fair-trade products, recycled materials and the like in recent years. People are logically extending their values into their economic behavior.

In the canyons of Wall Street, investing for impact has been eschewed as a niche market, not a pursuit for serious investors. But, there has been no conclusive or even suggestive research to show that investing in companies with positive practices can be expected to diminish returns. In fact, companies can avoid many potential risks by adhering to sound environmental practices and opening their doors to diversity in their ranks and boardrooms.

The next wave of investors is here.

This article was first published in the February 2014 edition of Information Press, San Luis Obispo, CA

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Consumers, Investors Poised for a Renewable Future

A recent Bloomberg national poll has shown that Americans are willing to bear the costs of combating climate change, and most are more likely to support a candidate seeking to address the issue.  By an almost two-to-one margin, 62% to 33%, Americans say they would pay more for energy if it would mean a reduction in pollution from carbon emissions. “It is a rare poll where people responding will stand up and say ‘tax me,’” said Ann Selzer, of Selzer & Co., which conducted the June poll.

Carbon markets are another innovation designed to combat climate change.  California began its Cap-and-Trade market in 2011.  The system is a market-based regulation which sets a limit or “cap” on overall greenhouse gas emissions and allows trading of permits or “credits” to release CO2.  The government requires industries to acquire credits sufficient to equal their emissions. Companies that need credits buy them, either from the government or on a commodity market, with the value set by supply and demand. Over time, the government reduces the cap and the number of credits, driving up their value.  The expense of securing credits creates incentives to reduce CO2 levels through investments in clean technologies and better practices.

Another tool in the effort to fight climate change is the growing fossil fuel divestment campaign championed by Bill McKibben’s  With echoes back to the South Africa apartheid divestment campaign, this approach is gaining traction as more and more individuals and institutions sell their investments in fossil fuel companies, for reinvestment in clean technologies or the broader market.  The goal is to bring pressure to bear on corporations, politicians, and investors to create greater urgency and action on the climate change issue.

Natural Investments began offering fossil fuel free portfolios in January of 2013.  The portfolios have performed competitively and illustrate the viability of our economy moving away from fossil fuels.  We’re now seeing increasing investment options of this kind becoming available, which is further expanding our diversification in these portfolios.

Legendary investor Warren Buffet, whose Berkshire Hathaway investment company owns significant holdings in alternative energy and related companies, recently stated that he would like to double his investment in the sector.  With attention like this, the alternative energy and clean technology sectors are indeed gathering momentum.  At Natural Investments we’ve been pleased with these developments and looking forward to expansion in these sectors.

This commentary first appeared as part of Scott’s quarterly market recap in the Summer 2014 edition of the Natural Investment News

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Climate change: take stock, sell stocks

By Scott Secrest and Michael Kramer

Author and thought leader Bill McKibben of, who has previously spoken to large audiences in San Luis Obispo, toured the nation recently trying to persuade young and old alike that we’re in a climate-change emergency and must immediately reduce carbon use or face threats to humanity and ecosystems not seen in millennia.

The city of San Luis Obispo has taken an enlightened approach to the issue by adopting a Climate Action Plan in 2012, which aims to return greenhouse gas emissions back to their 1990 levels over an eight-year period. At the time, Mayor Jan Marx said the city had a moral imperative on the issue, making inaction a poor choice. The Cal Poly Climate Action Team was an early collaborator in the design of the plan.

However, like Al Gore and others, McKibben faces the primary obstacle of apathy in America regarding humanity’s impact on climate change. After all, our lifestyles have not yet been negatively impacted by rising carbon in the atmosphere. Even in the face of Hurricane Sandy and more severe firestorms, the rapid loss of species, massive deforestation, and the melting glaciers and poles, most people still don’t take climate change seriously enough to believe that these emergent realities ought to change human behavior.

Read the rest of this commentary at New Times SLO: Climate change: take stock, sell stocks—why’s divestment campaign is on the money

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