What’s Up on Wall Street: Fall 2019

The U.S. stock market dipped notably in early August and exhibited considerable volatility throughout the month. The market drop and subsequent instability, which stretched into September, were related to concerns about growth prospects for the U.S. and global economies. These concerns were validated by the Fed’s decision to cut interest rates in late July—the first rate cut since the Great Recession. Interest rate cuts are a tool used by the Fed to spur the U.S. economy as signs of slowing emerge. In late September, the Fed cut rates for the second time this year, citing a slowing global economy as the principle reason. U.S. large-company stocks rose 1.7% in the third quarter, small-company stocks declined 2.4%, and foreign stocks declined 1.1%. Bonds rose a notable 2.3% in response to the interest rate cut.

In August, the Business Roundtable (an association of chief executive officers of large and influential U.S. companies) officially changed its statement regarding “the purpose of a corporation.” The group said that companies should no longer make decisions based solely on the goal of enhancing corporate profitability. Instead, participants at the roundtable agreed that corporate leaders should take into account “all stakeholders,” including employees, customers, and society overall. This is a major philosophical shift for the group, which includes some of the largest multinational corporations in the country. According to the Wall Street Journal, “A company’s position on the question of corporate purpose can influence issues as diverse as worker pay and environmental impact. It plays a central role in discussions about stock buybacks, corporate spending and how companies respond to activist investors.” That said, it will be up to the socially responsible investment movement to monitor the group for follow-up action on the statement.

In climate news, renewable energy supplied more power to America’s grid than coal in April, according to Bloomberg. The milestone is the clearest sign yet that solar and wind can now go head to head with fossil fuels. The report further states that in two-thirds of the world, renewables are now the cheapest sources of power—welcome news, since electricity has been the planet’s greatest source of greenhouse gas emissions. Solar stocks have soared this year in a big reversal from widespread losses in these stocks in 2018. The solar industry has experienced wide swings in demand from year to year for new panels and equipment for large-scale solar projects. Some analysts are optimistic about the future prospects and stability of these companies, especially in light of the projected growth in demand for electric vehicles.

Led by the Bank of England, major global financial players are finally beginning to move on climate issues. According to Bloomberg, most major central banks, with the exception of the Fed, are joining forces to promote sustainable growth in recognition of the threats posed by climate change to economic output—threats that could lead to a financial crisis or even deeper economic disruption. In an innovative approach, the Bank of England (the British equivalent of the U.S. Federal Reserve) plans to test the resilience of financial intuitions to climate-related risks. It is working to integrate global warming scenarios with financial system models, which may sound like an abstract exercise by financial policy wonks—but it’s actually a significant project to formally recognize the severe economic risks of climate change and contribute to a blueprint for transitioning national economies to carbon-neutral models. This new paradigm undermines climate deniers, who often cite the protection of national economies as a reason to limit or avoid climate action.

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Scott Secrest

Scott Secrest

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