The second quarter of 2020 brought a dramatic disconnect between the real economy and the markets. Stocks soared near pre-pandemic levels while virtually all the major economic indicators – jobs, incomes, corporate earnings, consumer confidence, overall growth – continue to struggle mightily as the coronavirus pandemic rages on. The second quarter of 2020 has also brought a powerful resurgence of the movement towards racial equality, and a fast-growing number of investors now focused on investing for racial justice.
The US-based S&P 500 rallied 20.5% for the quarter, leaving it down just 3.1% YTD. The global MSCI All Country World Index was up 19.4% for the quarter and down 6.0% YTD. In the meantime, US GDP declined 5% in the first quarter and is now expected to decline 8% for the year overall. Those projections have gotten worse, not better. As the chart below shows, US jobless claims have improved but unemployment remains much higher than it was pre-pandemic, with an exceptionally uncertain outlook.
Much of the rise in stocks can be attributed to massive and unprecedented government stimulus. The Federal Reserve has lowered the federal funds rate to essentially zero and provided liquidity across the economy, while the $3 trillion+ stimulus from Congress has flooded the economy with cash.
We now know that a lot of those funds have gone to entities already flush with cash, which then (at least in part) stash it away, in turn ballooning money market funds and stocks.
In some ways, the rise in stocks is an indicator of the failure of “stimulus” cash to get where it can be put to real productive use: to cities as they rethink and rebuild infrastructure, to schools and universities as they retool to operate in new ways, and to businesses (small and large) explicitly to protect jobs.
Stocks are also rallying because they look increasingly attractive relative to bonds, now yielding historically low returns. Stock investments in the largest corporations, with their huge balance sheets and easy access to all that liquidity, appear to be benefiting most. Big companies are best positioned to survive and even thrive from reduced competition as smaller companies are unable to weather the tough economic conditions. In addition, stock prices are being driven by faith that science will develop a vaccine in coming months, which, like so many parts of our economy, is very uncertain.
Coronavirus continues to lay bare the enormous inequities underlying the US economy, especially for people of color. The virus is disproportionately affecting both the health and livelihoods of minorities across the country. A staggering 41% of all Black-owned small businesses have closed since March, and the racial gap in unemployment has ballooned with June unemployment rate standing at 15.4% for Black workers vs. 10.8% for white workers.
We’re now in the midst of a massive movement for racial equality – perhaps the largest the US has ever seen — and investors have a role to play.
Here are things we are doing across investment portfolios at Figure 8:
1. We’re investing a portion of fixed income assets into Community Development Financial Institutions (CDFIs) and other entities charged with the mission to direct capital to underserved people and communities. When you see that your portfolio holds investments in entities such as Capital Impact Partners, the Low Income Investment Fund, Self Help Credit Union, and Calvert Community Investments, know that you are part of the movement that is investing for racial justice.
2. We’re joining with other investors to demand large-scale change, and are a signatory to the Investor Statement on Coronavirus Response and have endorsed Racial Justice Investing and its Investor Statement of Solidarity to Address Systemic Racism and Call to Action.
3. We’re using our (your!) shareholder voice in calling on major corporations to take action. Figure 8 was one of 87 signatories asking Nike, FedEx and Pepsi to terminate business with the National Football League’s Washington D.C. franchise if it did not stop using the name “Redskins” – a change that as of this writing has just been announced.
4. We continue to help guide and facilitate clients’ charitable giving targeted at dismantling systemic racism and promoting economic justice.
In addition, we are committed to integrating racial justice into Figure 8’s investment decision-making and across our own operations.
One thing we’d like to highlight is our banking partner, Self-Help Federal Credit Union, which for four decades has provided financial access (and we’d add, terrific service!) to people of color, women, and underserved communities. Like many other CDFIs, Self-Help has been instrumental in getting Paycheck Protection Program (PPP) loans to places of greatest need, having processed 1600 loans, 80% of them under $150,000 and 51% going to borrowers of color. You can read more about Self-Help’s overall impact here.
The bottom line is that access to money and finance is at the heart of challenging systemic racism. We at Figure 8 commit to being part of the solution, and to using our unique role as investors to shift the balance of wealth and to promote economic and racial justice.
If you’d like to learn more about our work at Figure 8 or how you can get involved with investing for racial justice, please don’t hesitate to contact us. We’d love to hear from you.