Veris Economic and Market Update Q3 2023

By Jane Swan, CFA and Roraj Pradhananga, CPA

The first quarter of 2023 was characterized by major events such as the failure of Silicon Valley Bank, escalating concern of a pending recession. Sentiment made an about face in the second quarter, buoyed by limitless enthusiasm for artificial intelligence. At the end of the third quarter, we seemed to have settled into an uncomfortable normalcy: uncertainty.

The labor market remains tight despite slowing job growth in 2023. The unemployment rate remains low at 3.8% despite increasing 0.2% in Q3.¹ Employees are losing confidence in their job prospects, as shown by recent declines in the Conference Board survey and stalling of the quits rate. 

Quits: Total NonfarmThe quits rate, measuring the number of quits as a percentage of the employment, peaked in April of 2022 at 3%. In the third quarter it fell to 2.3%, equivalent to the rate in February of 2020. The fall in quits suggests workers are less certain they will easily find replacement jobs if leaving their current job. 

Unemployment Rate by RaceThe unemployment rate for Black Americans dropped slightly to 5.7% from 6% in June, it remains elevated compared to white and Asian Americans. 

The US economy remains tepid but resilient, supported by strong labor and housing markets. While growth remains positive, up 2.4% in the second quarter and preliminary estimates suggesting annualized growth accelerated to 4.9% in the third quarter, there are signs of slowing economic momentum.³

GDP ChartConsumer balance sheets remained strong, but the bottom 80% of households have depleted most of their excess savings and are taking on more debt.⁴ Default rates on auto loans are higher now than at any point in recorded history. Borrowers with high credit scores may feel current new car loan rates around 5% are high, but that pales in comparison to rates over 14% which are paid by people with low credit scores. We believe the mounting debt strain on consumers, along with higher interest rates and energy prices, the uncertainty of potential government shutdown in November, and the forthcoming resumption of student loan payments, will weigh on consumer spending and economic growth. This is discussed further in our Quarterly Impact Focus report. 

A sustained inflation downtrend has been in place since June 2022, when it peaked at 9.1%, falling to 3.7% in September. 

While core CPI remains abovYear over year growthe the Fed’s 2% target, there are reversals in major categories that drove inflation higher in the last two years such as easing vehicle prices, reflective of improving supply chains. Shelter remains the main driver of increases in core CPI, but leading indicators are predicting lower shelter prices ahead.

Index ReturnsAfter strong gains in the first half of 2023, global equities posted a negative return in Q3. 

Most of the “Magnificent Seven” (Apple, Microsoft, Alphabet, Nvidia, Amazon, Meta, Tesla) declined in August and September, retreating from the perhaps over enthusiasm in Q2. Fed officials continued to convey higher rates would be needed for longer to contain higher than expected inflation. In response, US equities trended lower. Bond markets also mostly declined in Q3 as yields increased meaningfully. 

The yield increase was more pronounced on the longer end of the yield curve due to concerns over US debt levels and large Treasury issuance to fund the deficit. This prompted investors to demand higher yields for taking on longer duration risk.

CPY yoy change

Energy and Communications Services were the two sectors with a positive return during the third quarter, returning 12.2% and 3.1%, respectively. 

S&P Sector ReturnsAfter leading performance in the first half of 2023, Information Technology declined 5.6%, with the reversal led by Apple, Microsoft, and Nvidia, followed by Tesla and Meta. The Energy sector continues to benefit amid oil production cuts from Saudi Arabia and Russia and the Israel-Hamas war.

Despite the headline grabbing 12.2% QTD and 51.2% 3-year returns, the Energy sector has trailed the other sectors on a risk-adjusted basis over 10 years. 

The height of each point on this graph represents the average return of the sector over the last 10 years. The distance from left to right measures the volatility of each sector, with less volatile sectors to the left and more volatile sectors to the right. The graph shows that over this period, energy had both the lowest returns and the highest volatility, by a significant margin, of all sectors in the S&P 500. While the ongoing war in Ukraine and related reductions in oil and gas supply from Saudi Arabia and Russia add to short-term tailwinds in the sector, we believe significant long-term headwinds for the sector include declining costs of renewable energy, transmission and storage solutions.

The stock market ended the quarter 11% lower than the highs reached towards the end of 2021, which is 16% higher than lows we saw one year ago.¹¹ As of the time of this report, the uncertainty around the Israel-Hamas war and the potential government shutdown could lead to further volatility and downside risks to markets. Fragility in the stock market recovery, along with significant uncertainty from geopolitical events and our wildly volatile political paths ahead serve as a reminder to evaluate expected spending needs and to check cash reserves, in consultation with your Veris advisors. 

Related reading: Impact Focus Q3 2023: Inflation, Interest Rates, and Corporate Profits


Jane Swan is a Partner & Senior Advisor at Veris Wealth Partners and a Chartered Financial Analyst (CFA®). 

Roraj Pradhananga is a Partner & Managing Director of Research at Veris Wealth Partners and a Certified Public Accountant (CPA).



The information contained herein is provided for informational purposes only and should not be construed as the provision of personalized investment advice, or an offer to sell or the solicitation of any offer to buy any securities. Rather, the contents including, without limitation, any forecasts and projections, simply reflect the opinions and views of the authors.

All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change without notice. There is no guarantee that the views and opinions expressed herein will come to pass. Additionally, this document contains information derived from third party sources. Although we believe these third-party sources to be reliable, we make no representations as to the accuracy or completeness of any information derived from such third party sources and take no responsibility therefore. Information related to the performance of certain benchmark indices is provided for illustrative purposes only as investors cannot invest directly in an index. Past performance is not indicative of or a guarantee of future results. Investing involves risk, including the potential loss of all amounts invested.

Impact Focus Q3 2023: Inflation, Interest Rates, and Corporate Profits

By Jane Swan, CFA

In the hours approaching the end of the third quarter of 2023, Congress passed a bipartisan 45-day funding bill, temporarily preventing a government shutdown. At the time, President Biden prematurely expressed optimism for continuing engagement with Speaker McCarthy in a bipartisan process to approve a budget, including ongoing aid to Ukraine.1 Within two days, Representative Gaetz of Florida began the process of removing McCarthy as Speaker. That effort succeeded on October 3rd.  The need to organize new leadership and pass a budget was eclipsed by the humanitarian crisis in Israel and Gaza. 

Three weeks and three failed speaker candidates later, the Republican House majority elected far-right Republican Mike Johnson. Mike Johnson supported and played a key role in former President Trump’s effort to undermine the results of the 2020 election. The new Speaker could drive further uncertainty in policymaking as bipartisanship will be further out of reach. 

The need for leadership and the importance of passing a budget is crucial for maintaining a stable economy and providing financial, humanitarian, and diplomatic support to Ukraine and now also in the Middle East. Additionally, inflation continues to infuse the economy, markets, and consumers with increasing uncertainty. 

In this impact-focused review of Q3 2023, we will pay close attention to the relationships between income inequality, inflation, and corporate profits. You can read our overview of economic and market activity in Q3 here

For several reasons, inflation has a greater impact on low-income, low-wealth families than those with higher incomes or high wealth. Non-discretionary items like food, housing, and fuel tend to make up a higher percentage of their household spending.2 Families with more financial privileges can cope with inflation through prudent choices, such as buying generic rather than luxury brands, reducing travel and restaurant consumption, as well as limiting retail choices.3 Over the last 20 months, the Federal Reserve (The Fed) has aggressively raised interest rates, making 11 hikes for a total increase of 5%. In doing so, Fed officials have often cited the disproportionate impact inflation has on low-income families.4

However, when we look at how inflation hurts low-income families, interest rate hikes frame a scenario where the cure is potentially worse than the disease. When interest rate hikes discourage spending, the result can be an increase in unemployment. This harms workers who lose jobs, as well as the ability for employed people to demand higher wages.5 Historically, women and Black workers have faced the greatest obstacles to employment in periods of high unemployment.6  

The negative impact for low-income families goes beyond potential employment risks.

The bottom 80% of households have depleted most of their excess savings and are taking on more debt.7 Default rates on auto loans are higher now than at any point in recorded history.8 Borrowers with high credit scores may feel current new car loan rates around 5% are high, but that pales in comparison to rates over 14% which are paid by people with low credit scores through subprime loans, which were one of the reasons for the housing market crash in 2007 and 2008.9 The ongoing high interest rates impact low-income households through obvious consequences like interest charges on credit card debt. Additionally, higher interest rates make home ownership even more unattainable to low-income borrowers with less available for down payments, requiring them to finance a higher percentage of home purchases.10 The link between the wealth gap and homeownership is examined in our DEIB Investing report, published this fall. 

Looking at income by decile (5 groups, each representing 20% of income groups) we see that while income has been relatively flat for the bottom 60% of income earners, it has grown steadily for those between 61 and 80%, and sharply for the top 20% of income earners.11 

Suppressed wage growth for lower earners over recent decades makes these populations simultaneously vulnerable to inflation and high interest rates. While wage growth on average has been higher through the COVID recovery and high inflation period, it is estimated that it will take another year for those wage hikes to make up for the negative income effect of inflation. 

As The Fed works to combat inflation, we believe it is important to examine how prices are set, and some potential causes of inflation. A producer of goods and services usually sets a price based on the costs of production (including labor) and marks up the price to add a profit. If they include too much profit in the price, consumers may look for substitute goods. If consumers choose substitute goods, the producer may decide to reduce the profit from each unit sold to attract more consumers. This is the supply/demand relationship. When wage increases lead to increases in prices and higher inflation, workers are likely to demand even higher wages. This is known as the wage-price spiral.

At the first signs of inflation in 2021, The Fed and many analysts expected that the inflation was “transitory” or temporary.12 Supply chain and a tight labor market were seen as temporary problems that would resolve with remedies to supply-chain constraints and stabilization of the tight labor market.13 As high inflation has persisted beyond the period of significant supply chain constraints and as wages have grown less than inflation, analysis in 2023 has increasingly included examination of increasing corporate profits as a significant contributor to inflation. In February of 2023, The Fed was pointing to signs that the wage growth was moderating and began to shift some focus to what they called “The wage-price spiral.”14

graph depicting markup, post tax

The “Mark Up” in prices, which increased during and after COVID has protected corporate earnings while contributing to inflation.15 

From 2020 to 2022, non-labor cost changes as a component of increasing prices stayed about the same as they were from 2007-2019, changing from 28.6% pre-COVID to 32.3% during and after COVID. Comparing these same time periods, unit labor costs as a component of increasing prices actually went down from 58.4% to 32.8% during and after COVID.

The biggest change in contributions to iBar graph depicting contributions to increasing pricesncreasing prices came from profits, which were 13.1% of contributions to increasing prices before the pandemic but have been 34.4% of contributions to profits in the years that followed.

Unless corporations reduce prices to reflect improving supply chains and lower prices of inputs, low-income families will not benefit from real wage growth as the rate of inflation subsides. Otherwise, the only beneficiaries are owners and shareholders of these companies. 

All investors, including impact investors, benefit from and are protected by increasing prices. Some impact investors attempt to distinguish ourselves by examining these relationships and exploring and including alternate investments which aim to remedy some of the externalities in our financial systems. Notes in Community Development Financial Institutions (CDFIs) and CDs with Credit Unions can reduce the negative impact of high interest rates on low-income communities by offering subsidized or low-interest loans to borrowers often excluded from traditional bank loans. Some impact investors make investments in companies that seek to remedy inequities in how credit scores ratings are set, taking action towards leveling the playing field. 

For more information on impact solutions to the problems of inflation and high interest rates, please see our DEIB Investing Report or speak to your advisor.  


Jane Swan is a Partner & Senior Advisor at Veris Wealth Partners and a Chartered Financial Analyst (CFA®). 


  4. ,
  11. FRED: Income Before Taxes: Wages and Salaries by Quintiles of Income Before Taxes: By Decile, U.S. Dollars, Annual, Not Seasonally Adjusted
  16. Ibid


The information contained herein is provided for informational purposes only and should not be construed as the provision of personalized investment advice, or an offer to sell or the solicitation of any offer to buy any securities. Rather, the contents including, without limitation, any forecasts and projections, simply reflect the opinions and views of the authors.

All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change without notice. There is no guarantee that the views and opinions expressed herein will come to pass. Additionally, this document contains information derived from third party sources. Although we believe these third-party sources to be reliable, we make no representations as to the accuracy or completeness of any information derived from such third party sources and take no responsibility therefore. Information related to the performance of certain benchmark indices is provided for illustrative purposes only as investors cannot invest directly in an index. Past performance is not indicative of or a guarantee of future results. Investing involves risk, including the potential loss of all amounts invested.

The Money Talk: Talking to Your Children About Money

By Alison Pyott

There is no single best way to talk to your children about money, but many experts agree that a series of age-appropriate conversations are better than THE one big money talk. This includes weaving money conversations and lessons into everyday life to help your children build perspective, skills, and confidence.

Children are naturally curious and perceptive. They likely are creating assumptions and making judgments about their family’s financial situation vs. their peers. Starting a series of age-appropriate money talks early in life can help them understand what they need to know in the present while preparing them for the future.

Consider making your conversations about more than money. Helping children understand needs vs. wants, values, local and global issues, how money is earned & the value of a dollar, vocations and what gives them joy can help build meaning and purpose. Family wealth can then be a foundation and fuel for helping your children pursue their passions and reason for being.

How To Prepare

Before initiating money talks with children, it is a good idea to reflect on your own values and emotions related to money, especially as it relates to what you want to pass on and instill in your children. Do you have any fears that need to be addressed? What are you most excited about? What are your greatest hopes for the future?

After some personal self-reflection, It is a good idea for parenting teams to share their reflections with each other and plan for larger discussions. Are you on the same page? Are there any areas of disagreement? Are there any boundaries you want to set? What are the most important facts your child needs to know at this stage of their lives? Setting intentions and defining ideal outcomes can help you enter conversations with a positive and purposeful approach.

The Conversations

Similar to other discussions to help your children prepare for adulthood, the best approaches are layered – multiple conversations big, medium and small. Answer their questions and listen to their thoughts and ideas. Provide them with age-appropriate resources to explore on their own and ask them questions that will prompt them to think more deeply about money, wealth and its purpose.

You may also want to consider sharing your family history with your children. Where did the family wealth come from? What lessons were learned along the way? What are the money values within your family that you wish to pass down to the next generation? Involving your children in philanthropy and simple spending decisions can provide wonderful opportunities for these conversations. As your children grow into teenagers or young adults, continue to deepen the conversations you have with them about family values and money.

You may also consider giving children the opportunity to talk to a money mentor – a trusted family member, financial advisor, or other professional who can provide information and answer their questions. Supporting your family’s needs is part of our work at Veris Wealth Partners. Our clients are welcome to contact their wealth manager to discuss ways we can support your money talks.

Veris 2017 Impact Report

2017: Another Breakthrough Year for Impact Investing

Veris is proud to announce the release of our 3rd annual Impact Report, highlighting the collective achievements of its clients, the Veris team, and the investment managers we work with.

Veris 2017 Impact ReportAmong the milestones of the past year: Veris celebrated its 10th anniversary, reached $1 billion in client assets under management, and was named as a B Corporation Best for the World company for the sixth consecutive year.

The 24-page report describes the environmental and social impact resulting from our clients’ collective investments in our five thematic areas: Climate Change & the Environment, Community Wealth Building & Social Equality, Sustainable Agriculture & Food Systems, Gender Lens Investing, and Mindfulness & Sustainability.

The report also focuses on how Veris measures impact, both quantitatively and qualitatively. As part of our ongoing due diligence, we look at the role public companies, shareholder advocacy, private social enterprises, and community development solutions play in creating a more inclusive and sustainable economy.

Making Progress
We’re pleased to note that we have seen great progress each year in terms of understanding and communicating the impact of portfolio companies.

In 2017, impact reporting took a leap forward with the development of systems-level frameworks, such as the U.N. Sustainable Development Goals. To encourage more common language in impact reporting, Veris also reports metrics established by the Global Impact Investing Network’s (GIIN) Impact Reporting and Investment Standards (IRIS). IRIS facilitates comparison and best practices, transparency, and accountability in impact measurement.

What is also interesting about this year’s report is what it says about the positive direction of impact investing. We’re seeing increased momentum across the field – such as major commitments from conventional investors and growth of the Green Bond market and assets invested with a Gender Lens. If you haven’t seen our 2018 analysis of Gender Lens Investing, please feel free to download it here.

We believe these trends validate what Veris clients and our team have recognized for a decade: that investors can align their wealth with their values. The 2017 Veris Impact Report demonstrates our commitment to delivering the most impactful investment opportunities and supporting the overall growth of sustainable and impact investing.

We hope you will read our report, and we look forward to your feedback.

Click here to download the full report.

Signatory Letters for Impact

By Danya Liu, Associate & Pat Addeo, Senior Associate

The power of a united voice cannot be overstated. This has been particularly evident over the past few months, during which we have witnessed a wave of political, social, and environmental activism. Some voices we agree with, some we don’t. But what we can all recognize is that standing up for your values is important. In that spirit, we would like to share how Veris is exercising its voice on behalf of clients through what is known in the investment world as a “signatory letter.”

Signatory letters are a way for shareholders, stakeholders, and any other concerned parties to voice their opinion about a particular issue. Signatory letters can express support or opposition for a given government policy or corporate rules/regulations/actions that impact our environment and society. Veris collaborates with people across the country to deliver clear, strong messages targeting the values and causes shared by our clients and the firm.

These letters can originate from nearly anyone, including investors, religious groups, academics. It’s important to note that the general public is an extremely important stakeholder in any company or policy decision. Often, a lead investor will author an opinion letter on a certain issue, and interested parties will join as signatory to amplify the message.

Earlier this year, we were signatory to a letter urging the Securities and Exchange Commission to reconsider the suspension of the Dodd-Frank Conflict Minerals Rule. This rule, which requires U.S. companies to address conflict mineral risk in their supply chains, has already positively impacted the mining sector in the Democratic Republic of the Congo and reduced the flow of money to militia groups in that region. Conflict minerals disclosure is integral to risk assessment and needs to be enforced not only for the good of the investor, but for the good of the communities affected. Eliminating the Conflict Minerals Rule will energize our community to push back further.

Child miners as young as 11 in eastern Congo – Kaji *

We also participated in a letter to the Trump administration to express continued support for key benefits of the Affordable Care Act, namely the expanded coverage for millions of previously uninsured Americans. Access to reliable, affordable health care is essential for vibrant, productive communities, and we urged the administration to expand quality care coverage to all Americans.

Paris marches for climate justice as COP21 concludes **

And finally, in August of 2016, we were signatory to a letter urging the G20 leaders to commit to climate action. Veris was one of 130 businesses and investors to re-affirm its deep commitment to addressing climate change through the implementation of the historic Paris Climate Change Agreement. We asserted that governments have a responsibility to work with the private sector to ensure the expedient transition to a low-carbon, clean-energy economy.

As we come across other social or environmental issues, we will continue to raise our voices and advocate for our values.


Photo Credits:

*Lezhnev/ENOUGH Project. CC BY-NC-ND 2.0

**Takver. CC BY-SA 2.0

Uncommon Conversations: Rich and Timely

By Patricia Farrar-Rivas, CEO

A while ago, I had a provocative conversation with two good friends: Rha Goddess, founder of Move the Crowd, an organization that supports entrepreneurial training for next generation movers and shakers, and Jessica Norwood, founder of Runway Project, aiming to solve the “friends and family” seed funding gap for African American entrepreneurs.

We talked about how many of the issues we face in our country today stem from inequality, lack of inclusion, and biased narratives around people of color. By the end of the conversation, we all recognized these types of reflective conversations are vital in moving us toward inclusivity.

We also felt compelled to create opportunities where this kind of dialogue could happen more frequently.

So Rha, Jessica and I began hosting Uncommon Conversations, a series of intimate gatherings over dinner to discuss how to reshape the prevailing cultural narratives and determine what active part impact investing can play.

Uncommon Conversations tries to bring in a range of diverse voices, including artists, investors, entrepreneurs, and community leaders. Together, over a shared meal, we explore new ideas and discuss the importance of resilient, inclusive cultures.


Tackling Big Issues

Our series began in Baltimore, during the 2015 Social Venture Network Gathering. We convened an amazing group of change-makers and influencers to answers questions like:

  • What is the potential of transforming culture through impact investing?
  • How do we begin to see culture as part of our strategy for impact?
  • What does a society that embraces cultural differences look like?
  • What does it mean to shift real power to the voices and experiences that shape our culture?

The words of the phenomenal author and social activist the late Grace Lee Boggs centered our conversation and provided true inspiration for the group. Grace led a life infused with critical conversations and demonstrated that they are an important thread of movement building. Guided by her extraordinary legacy, we used our time to enjoy the process of new ideas and new meanings being formed.

Next, we moved to New York and Los Angeles, where we asked guests to reflect on our responsibility to shape and mold the country’s culture. We viewed a beautiful video of Nina Simone, who talked about the role we can all play in making progress to inclusiveness. We also reviewed the work of the renowned artist, Frida Kahlo. Her story of strength in creativity is still relevant today, and it provided inspiration for the evening. Frida managed a life of complexity, while embracing the duality of self. These two cultural icons anchored our conversations as we shared ideas and reflected on these questions:

  • How will we be responsive to culture in a way that reflects the imperatives of our times?
  • Are we supporting meaningful financial and entrepreneurial lanes that open up space for the molders and shapers or are we requiring assimilation?


Food Is Love

Nothing illuminates culture quite like food, which was our focus for Uncommon Conversations San Francisco. Our venue for the evening was 18 Reasons, a community cooking school supporting individuals and families discovery good, healthy, affordable food. The food we eat tells the story of where we come from and where we’re going. It determines our health and how we survive. As the demand for more local, organic food increases, we can’t ignore that the people who bring us our food from factories, kitchens, and fields often can’t afford to eat the food themselves. We challenged ourselves to consider:

  • What is our responsibility to making the country’s food system equitable for workers in the industry?
  • How do we provide broad ownership and advancement opportunities in food systems?

More recently, we convened Uncommon Conversations at the Confluence Philanthropy annual gathering in New Orleans, cohosted with Dillard University’s Ray Charles program in African American Material Culture. Our conversations centered on supporting women and girls through the arts, and touched on themes including some of the controversy around artistic expression and how to keep stories alive with art. Big Chief Delcour from the Mardi Gras Indians shared his experiences as a cultural leader with us. Another artist, B Mike, stunned us with his larger than life artworks capturing African American heroes and New Orleans locals (see title image).

We feel, and have felt for a while, there has been an accelerating cultural shift cultural shift towards inclusiveness with regard to gender equality, equity, and agency for people of color. Lately, we’ve all witnessed a very quick and rapid change in the predominant narrative around this hard-fought progress. It is our belief that the underlying cultural shift towards inclusivity is still happening, and it is strong. The question we need to answer is this: “How do we shift the predominant narrative?”


Pressing Ahead

The richness of the Uncommon Conversations is a treat in and of itself. But our goal is for these conversations to inspire more individuals, especially impact investors. We want them to think about how they can support cultural entrepreneurs and movements. Ultimately, we want to build frameworks that integrate culture, inclusiveness, freedom, and agency into economic analyses.

We are in an unprecedented moment of change. As we explore the intersection of impact investing and culture, we deepen our collective understanding of what impact really means. We can identify new ways to disrupt our cultural norms and invest in equitable and culture shifts that are equitable and inclusive.

Economic Update Q1 2017

By Jane Swan, CFA, Senior Wealth Manager

Equity market returns in the first quarter were very strong. Investors were seemingly unfazed as political commentators vacillated between exuberance and doubt over the potential for the Trump presidency to advance tax cuts and other pro-business policies. The S&P 500 (U.S. large cap) was up 6.1 percent. The Russell 2000 (small cap) was positive at 2.5 percent. The MSCI EAFE (developed international equities) rebounded and were up 7.4 percent. Strongest of the major equity benchmarks was the MSCI Emerging Markets index, up 11.5 percent in the quarter.

2017 Q1 Asset Class Returns

Within equity markets, the strongest performance came from the technology sector, up 12.6 percent. After technology, the best-performing sectors were consumer discretionary, health care, and consumer staples up 8.45 percent, 8.37 percent, and 6.36 percent respectively. Only two of the ten sectors were negative. Telecom was down 4 percent and energy was down 6.7 percent. Positive earnings forecasts for the year are largely dependent on growth in earnings from the energy sector. The declining price of oil and weakness in the energy sector ordinarily casts a more negative pallor over the market.

2017 Q1 Sector Returns

Fixed-income markets were positive despite the interest rate hike at the March meeting. Tepid but consistent economic growth, low unemployment and a slight increase in inflation compelled the Federal Reserve to raise the Fed Funds rate by a quarter of a percent to the range of ¾ to 1 percent. The statement also foreshadows future rate hikes by year-end. The small rate hike did not impact longer maturities, as the yield curve flattened. This flattening reflects a disagreement between the bond market and stock market about the likelihood of a significant economic expansion. Fixed-income markets ended the quarter just barely positive after negative returns in the end of 2016. Treasuries were up 0.8 percent. The yield on the 10-year Treasury was almost unchanged at 2.39 percent from 2.45 percent at the end of 2016. Corporate bonds were up 0.8 percent. Intermediate munis were up 1.9 percent. High-yield bonds were up 2.7 percent in the quarter.

As we look at market behavior and reaction to political environment, there are a number of factors we carefully consider. Thus far, the majority of investors appear to react favorably to political statements and promises by the Trump administration that are business-friendly. At the same time, investor reaction has been muted to setbacks in the administration’s agenda. The market rallied in early March as debate began over a bill repealing and replacing the Affordable Care Act (ACA), but was flat the week the bill died without reaching a vote. Many business-friendly tax reforms are dependent on cost savings from the rollback of the ACA. However, the lack of reaction suggests that the market still believes significant tax reform can be achieved. Likewise, with a significant portion of earnings growth expected from the energy sector, declines in the price of oil and related earnings expectations for energy companies have not yet caused a drag on the market. Many of our clients have limited direct exposure to the energy markets, but a significant shock in this sector would have repercussions across the market.

With the initiation of many expected rate hikes, fixed-income investors are anxious about their portfolios. Interest rates have an inverse relationship with bond prices. This means that when interest rates go up, the prices of previously issued bonds declines. The decline in prices occurs because the increase in rates enables new bonds to pay higher rates than the previously issued bonds.  The sooner a bond matures (the shorter the bond’s duration) the less likely the bond will experience a price decline when interest rates rise. Conversely, the further away the maturity, (the longer the bond’s duration), the greater decline in the bond prices when interest rates rise. Bonds with a longer duration pay a higher current yield than bonds with low duration, but they also carry more risk and suffer more when interest rates rise.

Many investors look to the bond portion of their portfolios primarily for stability and preservation of capital. Declines in this asset class can be uniquely disconcerting. In the persistently low interest rate environment of the past decade, many investors have grown frustrated by low yields and have turned to longer durations or lower credit quality (high yield, also known as “junk” bonds) to increase income from bonds. Because these bonds have greater potential to fall in value as interest rates rise or credit quality declines, understanding this risk is important.

For investors using bond funds, there is a possibility that a decline in prices of existing bonds from interest rate hikes will cause panic selling among investors. Investors using laddered bond portfolios (a series of bonds over a spread of years that are held until the bonds mature) may have more control than bond fund owners. Fluctuations may not have a real impact on the investor. As we consider the options for bond investments for our clients, we look to find the best fit for their financial and impact objectives. Where individual bonds have the benefit of allowing the investor to limit realized losses by holding bonds to maturity, individual bond portfolios are almost always less diversified than bond funds. While bonds can theoretically be traded at any time, bond trading is significantly less efficient than stock trading. Transaction expenses for small bond denominations are expensive. Remembering that the primary purpose of a bond allocation is preservation of capital, the diversification through a bond fund should be balanced with the ability to control against losses from rising interest rates. For investors who do not have a large enough bond allocation to appropriately diversify their bond holdings, bond funds are often a better choice than owning an insufficiently diversified bond portfolio.

Your Veris team knows that uncertain times are unsettling to investors. While we continue to keep abreast of possible and unpredictable impacts from policy changes, we focus on our clients’ long-term goals. Our sustainability core-values help filter short-term noise in the financial markets without losing sight of the long-term risks and opportunities.

Economic Update Q4 2016

By Jane Swan, CFA, Senior Wealth Manager

As the market adjusts and tries to make sense of the results of the U.S. election, financial markets have been mixed. After an initial decline in futures markets on election night, the S&P 500 (U.S. large cap) rose 3.8 percent in the quarter, bringing total return for the year to 12.0 percent. The Russell 2000 index (U.S. small cap) had another strong quarter and was up 8.8 percent for the quarter, or 21.3 percent for the year. International markets were less enthusiastic. The MSCI EAFE (developed international markets) slid 0.7 percent for the quarter, bringing year-to-date to a positive 1.5 percent. Emerging markets, the best performing asset class of the prior quarter, were down 4.1 percent in the final quarter, but were up 11.6 percent for the year.

2016 Q4 Asset Class Returns

PMC Capital Markets Flash Report for periods ending Dec 31, 2016

Investment grade domestic fixed-income markets, which had rallied in the prior quarter, gave back much of their gains. U.S. Treasuries returned a negative 3.0 percent in the quarter, driving down year-to-date returns to a positive 2.7 percent. Corporate bonds fell 2.1 percent for the quarter, but up 2.1 percent year-to-date. Municipal bonds were down 3.7 percent for the quarter and 0.5 percent for the year-to-date. Excluding investment grade issues, high-yield bonds finished the year up 1.8 percent for the quarter and 17.1 percent for the year.

Within the large cap market, the sectors potentially benefitting from deregulation saw the largest gains.  The biggest winners:  Financials (up 21.1 percent for the quarter, 22.8 percent for the year), Energy (up 7.3 percent for the quarter, 27.4 percent for the year) and Industrials (7.2 percent for the quarter, 18.9 percent for the year). Not far behind were Telecom (4.8 percent for the quarter and 23.5 percent for the year) and Materials (4.7 percent for the quarter and 16.7 percent for the year). Each of these sectors have seen progress on environmental or consumer protection regulations in the last eight years. The market suggests that profits have the potential to be higher (at least in the short term) with less government regulation.

Weaker returns came from sectors mostly thought to have less potential benefit from deregulation. These include Consumer Discretionary (up 2.3 percent for the quarter, 6 percent for the year), Technology (up 1.2 percent for the quarter, 13.9 percent for the year) and Consumer Staples (down 2 percent for the quarter but up 5.4 percent for the year. Utilities had almost no change in the fourth quarter after three strong quarters in 2016. They were up just 0.1 percent in the quarter but 16.3 percent for the year. The worst performance came from Health Care sector, which was down 4 percent in the quarter and 2.7 percent for the year. The uncertainty over the fate of the Affordable Care Act triggered uncertainty about profits for the sector.

2016 Q4 Sector Returns

PMC Capital Markets Flash Report for periods ending Dec 31, 2016

Looking Ahead

With a new administration now in place, we look at each sector to understand how markets may be affected by both political and economic forces. The energy sector, heavily impacted by oil-related businesses, is an instructive place to start.

The significant rebound in energy stocks last year happened despite dramatic a year-over-year decline in the sector’s earnings (currently estimated at -66%). Because stock prices tend to express expectations of future earnings, the rise in stock prices is a reflection of the expected significant increase in earnings for companies in the energy sector. The chart below shows current earnings growth forecasts for each sector over the next two calendar years. The estimates for extraordinary forecasted growth in earnings within the energy sector stand out. They are expected to exceed 350 percent. In fact, the forecasted earnings growth has little to do with potential policy or regulation changes under the Trump presidency. The 2017 forecast has changed very little from its pre-election forecast from September 30, 2016.

The anticipated increase in oil stock earnings is instead tied to the expectation that oil will to rise to about $56 by the third quarter of 2017 from a low of $33.69 in the first quarter of 2016. This forecasted increase is expected to boost energy sector earnings from $4.3 billion in the third quarter of 2016 to $14.0 billion in the third quarter of 2017. The price of energy stocks today factor in these expectations. Changes to these expectations, either positive or negative surprises, could further impact the returns of energy stocks. It is important to note that while the current value of energy stocks appears very positive that: 1) globally the majority of new electric generating capacity is solar and 2) grid parity prices for solar and wind are now below fossil fuels throughout Developing world and will at parity in the U.S. over the next 5 years.  Finally Bloomberg’s analysis tags 2020 as the year oil consumption peaks globally.  These are amazing transformations that are not turning back.

Earnings Growth Forecasts by Sector

FactSet Earnings Insight, January 13, 2017

The price of oil is a function of many factors. One key variable is the value of the dollar. (Oil is priced in US dollars.) When the dollar is strong, it weakens the price of oil. An unanticipated change in the strength of the dollar could have a meaningful impact on the current earnings forecasts. Changes to fiscal and monetary policy, as have been hinted at by the incoming administration, could also impact the strength of the dollar.

Oil Prices vs. Strength of Dollar

Board of Governors of the Federal Reserve System (US), Trade Weighted U.S. Dollar Index: Broad [TWEXB], retrieved from FRED, Federal Reserve Bank of St. Louis;, January 18, 2017.

Another key factor affecting oil prices is supply and demand. Some of price declines in recent years can be attributed to the high supply coinciding with decreases in demand for oil. Supply has been high because OPEC has maintained elevated production levels. Natural gas and energy from renewable resources have taken share of total demand away from both oil (petroleum) and coal. Expectations for oil prices to increase this year rest heavily on assumptions of a weakening dollar and a decrease in OPEC production.

Primary U.S. Energy Consumption by Source

U.S. Energy Information Administration

The impact of tax incentives proposed by the new administration and Congress are uncertain at best. This may not change the business case for renewable. As oil gets more expensive, the interest in sourcing energy from natural gas and renewable energy would be expected to rise. When oil is relatively cheap, as it has been, tax incentives have helped make the financial case for investment in renewable. Moreover, 365 U.S. companies made urged the president-elect to continue participation in the Paris climate deal, citing the business and job creation aspects of climate protection economies. While short-term returns may be volatile and unpredictable for the next few years, there remains a long-term business case for ongoing investments in renewables.

As we look to the broader economy, Veris’ areas of thematic impact focus, and at vulnerable communities, we see important roles for city and state governments, impact investing and philanthropy. Cities and states continue to lead in raising the bar in areas ranging from increasing the minimum wage to addressing climate change. Shareholder advocacy and active investing can replace some of what may be lost by decreased government regulation. Investment in sustainable businesses can address climate change and building healthy communities. With many non-profits relying on government grants for significant portions of their annual budgets, increased reliance on philanthropy is expected. Clearly in this transition in Washington we see the importance of redoubling the effectiveness of impact investing strategies. And we need to remember that for the last 20 years we have collectively been changing the face of business and finance for the better. Impact investing plays an ever bigger role.  We appreciate our opportunity to engage in this work with each of you.

Analyzing The Phenomenal Growth Of Impact Investing

By Michael Lent, Partner, CIO

US SIF: The Forum for Sustainable and Responsible Business released its 2016 Biennial Report on US Sustainable, Responsible and Impact Investing Trends, and there was much good news in it.

The report, issued on Nov. 14, found that over $8.72 trillion in assets – or one in five dollars invested under professional management in the US – are now invested using sustainable, responsible and impact investing criteria.  This total is up 69% from 2014.  There are now hundreds of investment options across all asset classes a trend that has been growing substantially over the past several decades.

This is truly remarkable, but it wasn’t so long ago that things were very different.

When I began my career, Impact investing was in its infancy.  I remember attending a Council on Foundation conference in 1995 with a dozen foundation representatives discussing what we called back then, “Socially Responsible Investing.”  Twenty-one years later, I spoke on a panel at the Mission Investors Exchange conference, presenting to several hundred foundations and close to five hundred attendees focused exclusively on impact investing.

In the intervening 20+ years, Impact Investing went mainstream. Institutional investors are incorporating ESG (Environmental, Social and Governance) factors into their investment process, and traditional investment management firms are increasingly offering ESG investment options.

At the same time, companies around the globe are rapidly integrating sustainability into their core business models to increase their competitiveness, innovation and lower risks. We are moving from a time of carrot and stick approach to corporate change.  Increasingly we have sustainable companies receiving investments from impact investors.  This is a virtuous cycle and it is important to put into perspective how far we have come. We’ve come a long way.

Underlying Trends

In my view, three key trends were made abundantly clear in this report.

First is the rapidly growing interest in climate investing. More than $2.15 trillion of institutional assets apply climate change criteria.  This is a manyfold increase, and it reflects a growing awareness among large institutions about climate change risk.  Institutional investors’ increasing focused on this issue could lead companies to track their carbon output, to identify ways to lower it, and to provide innovative, low-carbon products and services.  It is one reason to have optimism about the future of the planet, despite the recent election results.  As a strong supporter of climate change solutions, we help many clients divest from carbon intensive industries and invest in other solutions.

Second is the growth of the community investing field.  The assets invested in Community Development Financial Institutions have doubled from $60 billion to $120 billion in two years.  These are the credit unions, banks and community loan funds that provide financing for critical affordable housing, social services, and small businesses in low-income communities and communities of color.  Historically, CDFIs have received most of their funding and capital from public sources or from banks and insurance companies under the Community Reinvestment Act. On a very hopeful note, private investors significantly increased their assets in community investing. There are great social, environmental and economic challenges in low-income communities. Access to capital is essential to long-term change in these communities.

Third, while a significant number of managers and investors say they are implementing ESG, it is not clear exactly what that means.  As an industry, there is definite room for improvement and transparency. Today, many managers are not specific about how they integrate ESG factors into their investment process. This vague application of ESG criteria is due to the lack of deliberate investment process. Some funds and managers want to be seen as “doing ESG investing to respond to client demand,” but are unsure of what to do.  For investors, you cannot simply pick an “SRI” fund and be satisfied that it actually has social impact. You must also understand what the manager is really doing to create impact.

Where We Go From Here

Looking ahead, I think the US SIF Trends report brings up four things we should think about:

  • While we have made great strides in offering more investment options, we still need more investment solutions across different impact themes, such as Gender Lens Investing, sustainable real assets, and on broader ownership strategies.
  • We need greater transparency from ESG managers and funds, so we can understand if they are actually having any impact. It’s not enough to say we do SRI. Investors need to know what and how managers are creating impact.
  • Investors shouldn’t underestimate the importance of finding a wealth manager or advisor who understands the impact field. There is a fair amount of complexity and a need to sort out the managers and funds that best fit your specific financial and impact goals.

The good news is that we’re making real progress in changing the way people and institutions invest.  Together, we can keep it going and bring about even more positive change.

To read Veris white papers on climate change, gender lens investing and other topics, please visit the Research section of our website.


Photo Credit: Ronald Tagra

Economic Update Q3 2016

by Jane Swan, CFA, Senior Wealth Manager

In an election year with no shortage of drama and surprises, the market has been relatively calm and steady. Market volatility often increases during an election year as uncertainty looms over the potential market impact of a new administration. We saw this clearly most recently in 2008. The risk in an investment is considered higher when there is potential for something unpredictable to happen.

Election Year Stock Market Volatility Measured by the VIX

Chicago Board Options Exchange


The brief period of high volatility came not from changes in US election forecasts but from the somewhat surprising Brexit results. The lower volatility going into the U.S. election and the steady growth of equity markets in the first three quarters of the year may leave little room for the post election bounce often experienced.

There are no negative numbers to report across major asset classes for the quarter, either fixed income or equity. Low volatility and steady growth contributed to a 2.5 percent increase in the S&P 500 (U.S. large cap) bringing year-to-date growth to 7.8 percent. The Russell 2000 index (U.S. small cap) was up 9.1 percent for the quarter, 11.5 percent for the year. International markets continued to recover from the second quarter Brexit vote with the MSCI EAFE (developed international markets) up 6.5 percent for the quarter, bringing year-to-date to a positive 2.2 percent. Emerging markets were the best performing asset class, up 9.2 percent in the quarter and 16.4 percent for the year.

3rd Quarter  and YTD Growth in Key Asset Classes
PMC Capital Markets Flash Report for periods ending Sept 30, 2016

PMC Capital Markets Flash Report for periods ending Sept 30, 2016


Investment grade domestic fixed income markets were the beneficiary of greater market uncertainty earlier in the year. The low volatility of the third quarter was reflected in very quiet returns to fixed income. U.S. Treasuries returned 0.5 percent in the quarter, bringing year to date returns to 5.8 percent. Corporate bonds were up an even smaller 0.2 percent for the quarter, 4.2 percent year-to-date. Municipal bonds were up just 0.1 percent for the quarter, 3.3 percent for the year-to-date. Outside of investment grade, low volatility contributed to a continued surge from high yield with the index up 5.6 percent for the quarter, 15.1 percent year-to-date.

3rd Quarter and YTD Returns by Industry Sector
PMC Capital Markets Flash Report for periods ending Sept 30, 2016

PMC Capital Markets Flash Report for periods ending Sept 30, 2016


Sector returns for the quarter trimmed gains from earlier in the year, but left all sectors of the economy in positive territory for the year. Strongest growth in the quarter came from technology which completely recovered from what was a negative first half of the year. While the energy sector remained the strongest sector year-to-date (up 19 percent for the year), the price of oil hit a plateau during the quarter. The results were a 2 percent increase in energy stocks prices for the quarter. Utilities and telecom remain among the greatest contributors to growth for the year despite negative returns in the third quarter.

Price of Oil
Federal Reserve Bank of St. Louis

Federal Reserve Bank of St. Louis


At this time, pollsters have high conviction in the outcome of the presidential election with the greatest uncertainty residing in the outcome of congressional, as well as state and local elections. Less certain is the path towards reconciliation of a deeply divided population. As economists ponder the catalysts to our political divisions, they will point to a shrinking middle class and its stagnant income growth. This is well illustrated by a comparison of two different definitions of ‘average’ Income. The chart below shows historical growth rates of average (also known as “mean”) and median family incomes. The average family income considers all family incomes and takes the mathematical average per family. The median stacks all family incomes and for each time period, finds the number in the middle of the stack. The median measure is often considered a better measure of the typical family because it is less biased by extremely high incomes. The graph below demonstrates this difference. While average incomes have grown considerably since the economic downturn, the typical (median) family had no actual growth in incomes over the last 8 years.

Mean and Median Income
Federal Reserve Bank of St. Louis

Federal Reserve Bank of St. Louis


As they seek to repair our fraying social fabric, we invite the incoming administration and congress to apply the lessons we have learned from various approaches to impact investing. Gender lens investments, for example, demonstrate the improved decision making capabilities of diverse teams.  Men and women working together are more likely to incorporate a broader array of risks and opportunities in their problem solving. Enhanced innovation is more likely when we tap the collective wisdom of people of different races, nationalities, religions, sexual orientations, gender identities, abilities, sizes, and generations. Businesses developing technologies for mitigating climate change have the potential to drive future economic growth. Addressing access to capital in under-resourced communities has the potential to alleviate systemic economic inequality.

In short, impact investing is emerging as a ‘proof of concept’ that diverse and balanced teams are far more likely to deliver our ultimate goals:  inclusive and prosperous economies thriving in healthy and sustainable eco-systems.