Money Monday: May 18, 2020

By Sallie Krawcheck

A few thoughts on investing

There are a number of things that people in the investing industry have believed that they “know”:

  • That women don’t invest as much as men do, because we’re more “risk averse.” (Nope, not true. More risk aware, yes. But more risk averse, no. We just like to understand risk before we take it. Go figure.)

  • That men are simply more natural investors than women are. (If by that, people mean that men trade more than women do, OK. If they mean that men post better returns than women, then … nope. Not the case. A number of studies say that women outperform men.)

  • And that one has to give up returns when investing in companies working to make a positive impact — whether that impact is a positive environmental impact, good governance, or investing in companies with diverse leadership teams.

This last view has held on for a while. I can’t tell you how many times I’ve been asked how much return someone should be willing to give up in order to invest their values. The underlying unexamined assumption has always been that there must be some amount of return given up.

If we aren’t going to question conventional wisdom now, when will we?

But why should companies that harm the environment perform better than those that work to protect it? Why should companies with poor governance outperform those that place a premium on dotting those governance i’s and crossing those governance t’s? And why should companies with homogeneous leadership teams outperform those with more diverse leadership teams?

It has been my view — and our view at Ellevest — that this doesn’t have to be an ironclad rule. And this Wall Street Journal article walks through the outperformance of ESG investments (funds made up of companies with stronger environmental, social, and governance ratings for their business practices) during this downturn.

Past performance is no guarantee of future results. And there is no guarantee that this outperformance will continue.

But if we aren’t going to question conventional wisdom now, when will we?

What happened in the markets last week

Stocks fell last week, with the S&P 500 down 2.3% and the Dow Jones Industrial Average falling 2.7% amid headlines that included a new record for unemployment and renewed US-China trade tensions.

The big news last week was retail sales. Not surprisingly, this number — which includes spending online as well as on restaurants, cars, clothing, and furnishings — dropped 16.4% in April, its worst monthly decline on record.

While some economists believe April could prove to be the bottom for sales, most predict a slow and gradual rebound. Even so, it’s unclear whether consumer spending will return to its previous levels. Even with the recent ease in lockdowns, unemployed consumers won’t have an income to spend. And people who have a job may be reluctant to spend, or have gotten used to not spending. Stores and restaurants that are permitted to open won’t be allowed to accommodate their “old normal” number of customers, and it’s anyone’s guess when people will feel comfortable going out.

Since consumer spending accounts for almost 70% of US gross domestic product (GDP), April’s figures don’t bode well for the growth of the economy.

What are the markets telling us?

Week after week, the economic news is bleak. With the hopes of a V-shaped recovery mostly dashed and lockdowns easing more slowly than expected, many experts are now predicting a swoosh, a large drop followed by a slow recovery.

But so far, markets haven’t tumbled at every bit of bad news, which implies that investors aren’t significantly surprised by the economic data and still believe that the economy will recover — even if it doesn’t start until 2021.

In fact, market volatility as measured by the CBOE Volatility Index (VIX) fell to 27.57, its lowest level since February, meaning investors’ expectations of market volatility are falling.

So investors are continuing on as they’ve been for the past several weeks: keeping calm and, for the most part, investing on. But until a coronavirus vaccine is developed and readily available, no one knows what a new normal will look like. It can’t come soon enough.

Until next week,

Sallie Krawcheck Signature


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