OK, a couple of my clients have wondered why I haven’t bothered to comment on the recent gyrations in the market. I might well have commented around February 7 when it appeared the sky was falling, but as it happened I was on vacation in St. John, one of the Caribbean islands hit hardest by last fall’s hurricanes (and happy to be there spending money, thereby helping the recovery efforts). Internet service on the island is still very sporadic, and we didn’t have any service where we were staying that week. Standing outdoors in St. John, it was nice and warm, and the sky didn’t appear to be falling at all, just blue and beautiful.
Of course, by the time I returned home the market indexes had begun to recover, and the Dow Jones Industrials and the S&P 500 ended last week up 4.3% each, their biggest gains in five years. Stocks are still off their recent record highs, but certainly things appear to have stabilized.
What do I make of all this? Quite simply, I believe the markets are returning to a more normal stance. Indeed, the steady rise in stock prices for the whole of 2017, with very little volatility, in stark contrast to the current political chaos in the U.S., made me much more nervous than the market moves of the last two weeks. It is true, as I’ve remarked before (especially right after Trump was elected) – markets are usually influenced more by immediate economic factors than by political factors, and the U.S. economy has continued to be relatively healthy, while the larger global economy has also been rebounding nicely. So, I haven’t been all that surprised in 2017’s upward trend. It’s been the complacency seemingly evident in the lack of volatility that has been curious, even somewhat disturbing. Are investors totally oblivious to the obvious dangers (economic as well as political) inherent when an emotionally unstable person is at the helm of the world’s largest military while supporting a do nothing Republican-dominated Congress in doing nothing about domestic mass shootings? It would seem so.
It wasn’t Trump at all, but the specter of a possible rise in inflation, that caused the markets to swoon. To me, it was an overreaction, and somehow I was comforted. This is the market I’ve become very accustomed to in the 21st century. Short-term gyrations caused by irrational fear or exuberance – I expect that.
If you are an investor in today’s world, expect volatility. Expect that markets will never go straight up without periodic downturns. Expect that eventually, we will have another bear market that lasts longer than a week. We do not live in a safe and tranquil world. And ignoring politics, especially now, could well be perilous.
SRI investors invest with a view toward helping our world become safer, more just, and sustainable. Healthy democracies aid in this process. They are the political context in which a fair and just economy is possible. Ultimately, politics does matter. Short-term gyrations in the markets are normal. Investing for a better world and striving for a more safe and workable democracy are longer-term visions, and together, much more worthy of our attention.