Shocked. Terrified. Like many of you, we are still dazed. As we came together to discuss the implications of the election, we asked ourselves how Rian Fried, the founder of Clean Yield, would have reacted. He surely would have had some choice epithets to share with clients as they called. He also would have been horrified as someone who considered himself a strong feminist and spent the ‘60s and ‘70s fighting for the underprivileged. Yet he would have been the pillar of calm for our clients. His view and our view is that the markets, while likely choppy and uncertain in the near to midterm, will persevere in the long term. Because that is what they do. And that is what we do. We move forward; we stay sure-footed even when our path has become slippery. And we work hard – as portfolio managers and as a community of progressives and activists.
On a personal level, we echo Hillary Clinton’s words yesterday that “this is painful” and that it will take time to heal. Dorigen talked about feeling a loss of hope. She spoke of her two young daughters crawling into her bed yesterday morning as she tried to regain optimism in a brighter future. We must make sure that our children continue to grow up in a world where they can marry whomever they choose, where their friends look different from each other and speak a wide variety of languages, and where they have control over their health decisions. A world where women can safely occupy every profession, where bullies are called out, and people are engaged in their communities.
Our work as social investors has never been more important than it will be in the coming years. As the role of government in society is challenged, we must continue to hold corporations accountable for their behavior and push them to adopt more progressive policies. And we must continue to help build a more just and regenerative economy through our impact investing activities – channeling capital to the businesses that are leading the way. We look forward to working with our clients on both fronts.
There are short-term and long-term implications of the election for the financial markets. While yesterday’s stock market behavior (a strong up day) is confounding at first glance, we believe it reflects Wall Street’s short-term thinking outweighing its concerns about the long-term risks of a Trump administration. That is, in the short term, Wall Street anticipates and welcomes less regulation from Washington. The long-term risks associated with higher federal budget deficits and geopolitical instability appear too fuzzy and distant to counter Wall Street’s euphoria over the shackles of regulation being removed.
On a tactical level, we had already taken a cautious approach to the stock market going into the election and expect to maintain that outlook. The stock market has been quite expensive based on historical norms, and we’ve expected below-average returns in the months ahead as a result. Though valuations and economic fundamentals for the stock market are challenging, we have found pockets of attractive opportunities and can still do so. As bond markets struggle to make sense of current events, we are thankful to have staggered bond maturities with relatively short-term bonds that don’t fluctuate much in value.
With the Republicans now in control of the executive and legislative branches, there will be sweeping economic policy changes. We expect these to range from the repeal of Obamacare to a reduction or end of renewable energy incentives. In addition, we anticipate an overhaul of the tax code that may result in the repatriation of hundreds of billions of dollars that U.S. multinational companies have amassed overseas to avoid U.S. corporate taxes. This could provide some funds to help pay for a substantial increase in infrastructure spending. On the other side, the overhaul of the income tax code could spur economic growth (and likely inflation), but nowhere near as much as the candidate asserted. This combination of tax cuts and large increases in infrastructure and military spending will likely inflate the Federal deficit and the national debt. Already, this concern about deficits and inflation has caused falling long-term bond prices and higher long-term interest rates.
In sum, given all of the above, yesterday’s stock market gains were surprising. We are sticking with the cautious approach to markets that we had going into the election and remain very concerned about how the next president will affect both social and fiscal policy. While stunned at the election outcome, we advise no drastic changes in investment strategies at this time.
As always, if you have questions or concerns, we are in the office and available by phone and email. Please don’t hesitate to contact us.
Your Clean Yield team,
Dorigen, Elizabeth, Eric, Karin, Shelley, and Steve