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.
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.
In my role on the national policy committee of the socially responsible investment (SRI) industry’s trade association, USSIF: The Forum for Sustainable and Responsible Investment, we had a wonderful legislative priority document prepared in October for the new President. Like many others, we expected to have the opportunity to build on the many successes of our advocacy with the Obama Administration on a variety of issues to protect the public from systemic abuse by the financial industry, encourage wider adoption of SRI by fiduciaries, and facilitate investment in the green economy. For responsible investors, the Obama years were very encouraging indeed, and we at USSIF had an ambitious agenda ready to share with the Clinton Transition Team to expand on these victories for investors and the public.
Naturally with the election result, everything has changed, and we now find ourselves in a radically different political climate that demands a defensive stance to protect recent laws and regulations from being dissolved. When it comes to issues of importance to sustainable and responsible investors, the Republicans in Congress, long opponents of most regulations—especially relating to business and investing—now have an ally in a President who shares their belief in small and minimally intrusive government. That’s why within the first months of this Administration we’re already seeing efforts to unravel the reforms to the financial system that were established during the Obama Administration. They’ve already removed the Dodd-Frank provision that required companies to disclose payments (i.e., bribes) to foreign governments to extract fossil fuels and minerals from often-oppressive governments.
The Republicans have their pitchforks raised in outrage over a broad array of regulatory protections, and the fight is now on to:
Victory! After seven years of delicate but persistent advocacy to the U.S. Department of Labor, one of the key policy priorities for US SIF: The Forum for Sustainable and Responsible Investment has been accomplished.
In 2008, as President Bush was running for the hills, his Department of Labor issued guidance for pension plan fiduciaries that suggested that they should not consider non-financial factors in the investment selection and management process. The guidance had a chilling effect—mission-oriented fiduciaries managing assets for foundations, universities, and public pensions interpreted the guidance as a serious limitation on their discretion to consider the environmental, social, and governance analyses that are fundamental to an SRI approach.
Thankfully, Secretary of Labor Thomas E. Perez was amenable to our advocacy.
By Scott Secrest
A U.S. economy slowly putting itself back together set the tone for the markets over the past year. While short- term economic indicators continue to be mixed, we are in agreement with the camp of economists focusing on longer term economic fundamentals. There is a growing awareness in the financial world of the implications of an emerging sustainable economy, which supports this longer-term, more holistic thinking.
Heightened awareness is critical during periods of financial uncertainty. Economic risks today exist in at least two key areas: a vanishing middle class, and failing to embrace and benefit from the new economic opportunities in sustainability.
Income inequality in the U.S. has reached astounding levels: not since the Roaring 20’s has the disparity between the top and bottom income tiers in the U.S. been so great. While there is significant ethical hazard to this, it’s really evidence that the middle-class has largely vanished in the U.S. This troublesome situation has been developing for some time as production, and now many service industry jobs, have been relocated to foreign countries.
Perhaps our greatest long-term risk is that of failing to embrace the inevitable shift to an economy geared for low-carbon emissions, clean production-based industries, a viable middle class, and sustainability principles. I say ‘inevitable’ here because this shift will occur one way or the other.
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By Michael Kramer and Scott Secrest
This material first appeared in the Spring 2009 issue of the Natural Investments newsletter
There is a sea change in Washington, and it is interesting timing. The shift to a Democratic executive branch, along with a Democrat-controlled Congress for the first time in 15 years, is facilitating an ambitious set of policies and programs to both revitalize the economy and reprioritize the national agenda. Both the TARP and the American Recovery and Investment Act boosted ideas that have been championed by progressives for many years, and are now being taken seriously as critical aspects of the economic recovery plan. Click through to read about these new federal priorities, including new financing for community-based development institutions, green energy investments, and shareholder oversight of executive pay.
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