Articles & Commentary

By Jane Swan, Partner and Senior Advisor

Positive returns across investment markets seem to have largely removed the decline and worry from the end of 2018 from our memories. U.S. equity markets added slightly to first quarter growth with large cap stocks up 4.3% in the quarter and 18.5% year-to-date (YTD). Small cap stocks are up 2.1% in the quarter and 17% YTD. International developed markets were up 4.2% in the quarter and 14.5% YTD. Emerging market stocks were up 0.7% for the quarter and 10.8% YTD. Fixed income markets were also positive on speculation of a reduction in Federal Funds rates playing a part in pushing returns higher. The 10-year treasury was up 4.2% for the quarter and 7.4% YTD. Corporates were up 2.6% in the quarter and 5% YTD, and municipal bonds were up 1.7% for the quarter and 3.8% YTD. High yield bonds were up 2.5% in the quarter and 9.9% YTD. They recovered considerably from the end of 2018, when there appeared to be more concern in low credit markets about future economic weakness. Real estate was also positive, with the REIT index up 1.8% in the quarter and 19.3% YTD.

Read More

By Alison Pyott, Partner and Senior Wealth Manager, and Rebecca Orlowitz

Many of us are struggling with the current global refugee crisis and seeking some small way to make a difference. Ban Ki-Moon wrote an op-ed for The New York Times titled, “The refugee crisis is a test of our collective conscience.” The crisis affects all corners of the world. Refugees face a host of common issues as they seek peace and security, ranging from the trauma of the refugee journey itself, experiencing or witnessing violence, challenging humanitarian conditions in refugee camps, prejudice from host communities, a lack of self-reliance and livelihood, and even problems
arising from resettling or returning home. Should refugees successfully overcome these obstacles, they must still cope with the trauma for generations to come.

At the end of 2017, a record 68.5 million people around the world had been forced from their homes, including 25.4 million refugees, according to the United Nations refugee agency. Only 102,800, less than 1% of the total number of displaced, were admitted for resettlement in 2017. The terms refugee and refugee camp imply a temporary situation. But this is not a new crisis, and for many refugees their situations are far from temporary. Some refugees have lived their entire lives in camps. Palestine refugee camps have existed since 1948, Mae La refugee camp since 1968 and Dadaab Kenya since 1991, to name a few.

What To Do?
The situation is overwhelming and absolutely a test of our collective conscience. As global citizens, we can use our awareness, energy and philanthropy to help. The impact investor has additional options. We can question how public companies are involved in the refugee and immigration crises. Are they or their supply chains involved in forced or child labor, unfair working conditions, human rights violations, or exploitation of undocumented workers? Companies with higher governance scores are often less likely to engage in these practices.

Divesting from private prisons is another option. There are two publicly traded private prison operators, GEO and CoreCivic Inc. According to the Migration Policy Institution, as of August 2016, nearly three-quarters of the average daily US immigration detainee population was held in facilities operated by private prison companies. That’s a sharp contrast from a decade ago when the majority were held in ICE-contracted bed spaces in local jails and state prisons. The industry’s bottom line depends on incarceration for investor profit.

Investing in solutions is another option for the impact investor. Community development finance institutions (CDFIs) work in many US communities. They deliver responsible affordable lending to help low-income, low-wealth, and other disadvantaged people and communities join the economic mainstream. Investing in a CDFI certificates-of-deposit or promissory note may help refugees and immigrants build credit with low limit cards, financial literacy seminars and loans. In 2014, Grantmakers Concerned with Immigrants and Refugees published a guide of CDFIs referencing Dreamer, immigrant and refugee programs.

Other developing options are supporting public companies who make significant contributions to refugee welfare, including hiring, funding, and in-kind services. New and further developing are pay for success bonds and private investments in refugee entrepreneurs directly or through funds.

Despite the scale of the refugee challenge, we need to think of it first and foremost as a crisis of solidarity. Whether the world can come together to effectively support these vulnerable groups will be a true test of our collective conscience.

By Jane Swan, Partner and Senior Wealth Manager

Stock markets finished 2018 with the worst quarter in more than seven years and the first year of negative returns in 10 years. All major global risk asset classes had negative returns. This includes stocks, REITs, and high yield bonds. Fixed income returns were positive, but very low with the multiple rate hikes in the year. Sectors of the S&P 500 were overwhelmingly negative with only small positive returns from Health Care, Utilities and Consumer Discretionary. Despite strong returns in the first half of the year, Energy was again the worst performing sector of both the quarter and the year.

Against this tenuous investment picture, we enter the season of annual investment forecasts. This ritual continues, despite limitations to the accuracy of these forecasts. While market predictions can be relatively reliable during periods of relative stability, their limited reliability in advance of economic inflection points can lead to failure during times when forecasts are actually most important. Investment and economic forecasting rely on a number of data points that are interpreted to develop scenarios of possible futures.

Market analysts and investors review data, assess the speed and severity of changes in trends, evaluate the moving parts in concert, and put them in context of the economic cycle and known and predictable global events. Balancing the many inputs is a mix of art and science, as the collection of inputs and their placement in history is always unique. Current readings of indicators may be similar to points in a previous cycle, but are never an exact repeat of any prior events. We try to assess what has happened in the past when some things were similar, and how the subtle differences may lead to different outcomes.

Recent headlines have included, “Why The S&P 500 Will Fall Another 20% In 2019” from Seeking Alpha, “S&P 500 will climb 15% in 2019 – here’s what to buy now” from MarketWatch, and from Bloomberg, “Save the Date: June 10 Is When Charts Say the Stock Turmoil Will End.” The absurdity of specificity in these forecasts highlights a dilemma for investors. And while we can watch economic indicators for signals of vulnerability, there always exists an additional supply of uncertainties. Shifts in consumer sentiment, changes to the yield curve, and other indicators can give us signals of market strengths or weaknesses. Natural disasters and human interventions are less predictable, but can have a significant impact.

In our current situation, we have troves of data to evaluate numerous trends, while finding bigger questions seemingly impossible to answer. We have low unemployment, signaling a strong workforce. If the market downturn of the fourth quarter quickly recovers, we will still be in the longest market expansion in history. The yield curve is nearly flat, suggesting concern about future growth. Corporate earnings are expected to grow, but at a slower rate than last year. And yet all this data still paints an opaque picture of future markets.

Crosscurrents In the Markets
Weighing on the market is a growing list of uncertainties that constrain the ability of businesses to plan. Uncertainty around Brexit makes it difficult for businesses in Europe to plan for growth, evaluate the positioning of their workforce, and determine where their HQ should be located. It is the time of year when U.S. farmers are planning their 2019 crops, but they don’t know if tariffs will continue to reduce their markets. Further the government shutdown has limited data they use to finalize crop planting plans. The effects of tariffs and the partial government shutdown continue to trickle into ancillary businesses the longer they continue, airlines for instance. The resolutions of Brexit, tariffs with China, the government shutdown, and the eventual conclusion of the Mueller investigation may cause bursts of market volatility. However, greater certainty, and resolution, around these matters may lead to a market boost as businesses simply can plan better.

The current accumulation of uncertainties is unusual. In Barron’s annual Roundtable of Experts, most expect the pressures of these uncertainties to resolve in the first half of the year but believe they will constrain economic growth as we await the resolution. These experts expect GDP growth somewhere between 0.5 and 2.4 percent in the first half of the year and a return to growth higher than 3 percent in the second half of the year after these uncertainties are presumably sorted. We can at least partially attribute the market decline from last quarter of 2018 to these escalating dilemmas. So long as they mostly resolve in the first quarter and no major new matters are added, we very well could return to a strong position in the economy and the stock market. That said, a year ago, these current market stressors of a possible hard Brexit or re-vote on the referendum, a trade war, and government shutdown lasting over a month, were at best distant on the horizon. Markets were celebrating the success of tax reform that hoped to raise stocks while increasing wages and consumer spending. All with little concern over increases to deficits.

The Big Picture
As we look to the year ahead, we work to keep all of this in perspective. In addition, as impact investors we consider long term implications of all opportunities. We take note that while the federal government opens and shuts down, on many levels, cities and states march forward in combating climate change. They are innovating in green and sustainable cities and housing and technologies. We are seeing solutions-based leadership. There are nearly 50 new models of electric vehicles and batteries coming on the market. Total oil used for cars and trucks hit peak and is actually dropping in the U.S. Some states are making bold experiments in new ways to deliver community healthcare. And more of us are awakening to the crisis of inequality in our democracy. Spotlighted by 1 million federal workers on shutdown struggling to pay basic bills, while eight billionaires are highlighted this week having equal wealth to 50% of the people of our world.

Considering these matters, Veris’ determined focus on climate change factors, gender lens characteristics, community wealth building and social equality, sustainable agriculture and forestry, as well as mindfulness gives us practice at looking beyond the old-fashioned forecasts. Our broader approach positions us to work with our clients to better understand risks and opportunities beyond those reflected in the standard list of economic indicators.

1 Seeking Alpha, January 7, 2019 “Why The S&P 500 Will Fall Another 20% in 2019” by https://seekingalpha.com/article/4231851-s-and-p-500-will-fall-another-20-percent-2019
2 MarketWatch, January 7, 2019, “Opinion: S&P 500 will climb 15% in 2019 – here’s what to buy now” by Michael Brush https://www.marketwatch.com/story/sp-500-will-climb-15-in-2019-heres-what-to-buy-now-2019-01-07
3 Bloomberg Markets, January 23, 2019 “Save the Date: June 10 Is When Charts Say the Stock Turmoil Will End” by Elena Popina https://www.bloomberg.com/news/articles/2019-01-23/save-the-date-june-10-is-when-charts-say-stock-turmoil-will-end