On December 14, as a year of staggering loss was coming to a close, Covid-19 vaccine distribution began in the United States. As of this writing, more than 124 million people have received the vaccine, while 46 million people (more than 14% of the total US population) are fully vaccinated. The accelerating pace of vaccination is good news from a public health perspective, a welcome harbinger for the many households that have suffered financially during the pandemic, and critical to the economic recovery of the nation.
For the first quarter, large company stocks in the US rose 6.2%, smaller company stocks were up 12.7%, foreign stocks were higher by 3.5%, and US bonds (broadly measured) were down -3.4%. As vaccination rates grew, business restrictions relaxed and employment forecasts brightened. Optimism about the US economy grew during the first quarter, helping to support the markets. Over the last year, market growth has been fueled by investors who felt reassured by the government stimulus and other Covid economic relief programs.
“The economy is not the market” is a well-worn yet important axiom reminding us that national economic circumstances will not always correspond in the near-term with results in the stock market. There may be no better example of this than 2020, when the stock market surged in spite of a domestic economy that contracted by about 3.5% – the worst annual economic performance in the US since the 1940s. While the economy and the markets are separate entities, they nonetheless influence each other, particularly over the longer-term. Positive economic conditions tend to support growing business revenues, which in turn help to drive stock markets higher.
As springtime arrives, we are seeing US economic conditions improve as consumer spending increases, particularly on in-person services that were most impacted by the Covid pandemic. Restaurant and hotel bookings are up, airline tickets sales are growing. US consumers spent more on gyms, salons, and spas in March than was spent in these businesses in the entire period since pandemic began. A poll of economists in March forecasted 2021 economic growth at nearly 6%. If this forecast proves accurate, it would mark the most rapid expansion in nearly four decades. If stock values had “gotten ahead” of economic conditions in 2020, forecasted economic growth may give the economy a chance to catch up over the course of the year.
Economic growth has historically been fueled by natural resource consumption. Much academic research has documented that the global economy cannot grow indefinitely on a planet with finite natural resources. The mission of socially responsible investing is to reallocate investment capital in ways that promote a sustainable economy. More than $50 billion was invested in a wide variety of socially responsible investments in 2020—more than double the prior year. Investors are sending a clear message that they value sustainability and corporate responsibility, and companies are taking note that the business-as-usual approach to pressing social and environmental challenges is now out of step with investor objectives.
While many Americans escaped health or financial calamity resulting from the Covid pandemic, too many did not. According to Bloomberg, compared with White people, “The Covid-related death rate is 1.9 times higher for Blacks; 2.3 times higher for Hispanics; and 2.4 times higher for American Indians.” The overall unemployment rate in February 2021 was 6.2%, although the rates varied significantly by race: 5.6% for Whites, 8.5% for Hispanics, and 9.9% for Blacks. While medical expenses are a leading cause of bankruptcy, the most common cause is the loss of income, according to a 2016 consumer study. Recently renewed government assistance will help, but the road to financial stability will be long for many. “These data show clearly that health and financial risks are allocated unequally among racial groups in the U.S. As socially responsible investors we support both a sustainable economy, and fairness in public health policy.”