Note: The views and opinions expressed in this newsletter are those of the authors and do not necessarily reflect the official policy or position of Newday Impact. Any content provided by our authors is of their opinion and is not intended to malign any religion, ethnic group, club, organization, company, individual, or anyone or anything.
Investors should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Past performance does not guarantee future performance.
CEO COMMENTARY
Lessons Learned On the Inestimable Value of Summer Camp
Many of us can recall those carefree summer days as a child, that period of endless possibility and wonder between school years. Now as parents, we’re tasked with the responsibility and opportunity to influence how our children spend their precious summer breaks. Navigating summertime schedules and entertainment for your youngsters can be trying, particularly if children are left on their own to determine their summer schedule. A discovery that many parents make too late is that planning far in advance for the summer schedule is imperative these days.
For some young people, Xbox and PS5 have replaced baseball and pool time as favorite daytime summer activities. During COVID, the vision of my own children sitting in front of the television, however, with their minds “on hold” for close to three months, had us scrambling to plan a summer schedule that kept them active and engaged outside of the TV room. The good news is that parents can begin the search at the start of the year to ensure the kids have ample choice on how to spend their summer.
For decades many families have looked to summer camp to provide a physically and emotionally valuable experience for their children during the summer months. Indeed, the camp experience is a right of childhood passage that can be critically important to the development of a child’s independence and self-confidence, while also helping to broaden a child’s social skills.
Summer camp today remains a big business. According to the American Camping Association, in 2017 there were more than fourteen million kids and adults attending camp in the United States. Thus, when it comes to choosing a camp for your children, it is no surprise that there are plenty of choices, ranging from performing arts camps to science camps to good, old-fashioned sleeping bags under the stars and singing around the campfire camps.
The Kennedy Space Center in Florida plays host to week-long Astronaut Training Camps where children train with other campmates in preparation for their own simulated space adventure flight. Adventure Treks, headquartered in North Carolina, hosts camps around the country to give your child a serious outdoor experience – such as ice climbing, backpacking in the Appalachians, or even sea kayaking in Prince William Sound in Alaska. For the traditionalist, the YMCA offers well-reputed camps for boys and girls that also are very reasonably priced.
Choosing a summer camp can be difficult given this vast array of choices. But start simply with an assessment of what you and your child want. Ask yourself what special interests your child would like to explore and what kind of experience your child would profit from most. Because summer camps come in hundreds of shapes and sizes, ask other parents and your children’s school administrators for suggestions on what’s worked well for other families.
And don’t forget to comb the internet to find a summer camp matched to your child’s needs. Sites such as www.acacamps.org and www.summercamp.org provide basic information on how to select from an accredited list of camps. There is a wealth of other information online that can lead you to a safe and exciting summer camps adventure for your child.
Summer can be both a restful and rewarding time for children and families. For those kids lucky enough to attend camp, the time spent away from home making new friends and learning from new role models can be a life-changing experience. Be mindful, however, that many camps began accepting applications for this summer’s encampment this past December. This summer may be different given the uncertainty of shelter in place orders. Summer camp can be a fine gift you give your children to set them on a path toward future success.
IMPACT COMMENTARY
Understanding the Impact and Significance of African American Culture In the U.S.
The African American culture has a long and rich history that has shaped and influenced our country and the world in countless ways. Sadly, their significance and impact have often been overlooked over the generations. As we celebrate Black History Month, we recognize the achievements and powerful influence of African American culture on our collective history. It serves to help us understand the struggles of the past and appreciate the progress of the present. From the depths of slavery to the heights of political leadership and activism to the works of prominent authors and artists and legendary musicians and athletes, the African American culture has had profound importance and significance on the development of the United States and the world around us. This month we explore the contributions African Americans have made to our society and are reminded of the resilience of people who have overcome incredible obstacles to make their voices be heard and continue to fight for equality and social justice.
The history of Black History Month in the United States can be traced back to 1926 when historian Carter G. Woodson and the Association for the Study of African American Life and History (ASALH) developed the first “Negro History Week.” The event aimed to recognize African Americans’ contributions to U.S. history, culture, and society. The event was initially celebrated the second week of February to coincide with the birthdays of President Abraham Lincoln and abolitionist Frederick Douglass. As the event grew in popularity and recognition, President Gerald Ford, in 1976, while coinciding with our country’s bicentennial celebration, officially recognized Black History Week as a whole Month, encouraging all Americans to “seize the opportunity to honor the too-often neglected accomplishments of black Americans in every area of endeavor throughout our history.”
Since then, Black History Month has become an annual celebration in the U.S. and worldwide. Throughout the month of February, people of all races and backgrounds take time to recognize the contributions of African Americans to our country and attend events held to honor and educate. The ASALH also organizes an annual theme to help guide these events and activities, with this year’s 2023 theme being “Black Resistance.” It explores how since our nation’s earliest days, “African Americans have resisted historic and ongoing oppression, in all forms, especially the racial terrorism of lynching, racial programs, and police killings.”
The “black resistance,” both past and present, has made African Americans among the most influential and productive cultural groups in American history. Black people have consistently pushed the boundaries, protested, resisted, spoken up against oppression, and fought the good fight so that the door to the American Dream gets opened to all. Despite many achievements gone largely unheralded and unrecognized, this month will help bring awareness and education to those triumphs.
In fact, one of the most overlooked African American contributions is entrepreneurship. African American individuals have been among the most successful entrepreneurs in American history and have been a cornerstone of the black community for decades. Black entrepreneurship can have a transformative effect on the African American community by creating jobs that lead to economic growth and empowerment for their communities, who have traditionally been excluded from the financial mainstream. Furthermore, it can allow African Americans to build wealth, create generational wealth, and close the racial wealth gap. Entrepreneurship can also be used to develop more black entrepreneurs and business leaders who can help create an equitable and inclusive economy. According to CNBC, Black spending power reached a record $1.6 trillion in 2021, accounting for 8.1% of the US economy. This was an increase of 30% from 2018, when Black spending power was estimated at $1.2 trillion. Black Americans have significantly contributed to the US economy, contributing $2.2 trillion in total economic output in 2020 alone.
Despite these successes, the Black community still faces several systemic and institutional barriers that have hindered their ability to start and grow businesses and improve their economic status. This includes a need for more access to capital and an increase in their limited business networks, role models, and business world knowledge. According to Zippia, Black-owned businesses make up only 6.3% of all businesses yet receive less business financing, often at higher rates. The JEC (Democrats), Joint Economic Committee, created when Congress passed the Employment Act of 1946 to review economic conditions and to recommend improvements in economic policy, found in their 2022 Economic Status of Black Americans found that “Despite significant improvements over the past few decades, Black Americans experience far worse economic conditions than white Americans and the population as a whole. Black workers and families lag behind other racial and ethnic groups in wealth, face ongoing income disparities (across educational attainment levels), and struggle to save for retirement and child care.” The Peterson Foundation, a nonpartisan organization dedicated to addressing America’s long-term fiscal challenges to ensure a better economic future, created a chart below to depict that disparity.
Acknowledging that both advancements and progress have been accomplished in the last five decades and that issues and obstacles still need to be faced and addressed are paramount for guaranteeing every Black American has a fair chance to participate in an economy that is more equitable and inclusive. Not only is this a way to make up for past wrongs, but it can also unlock untapped potential from a largely unused pool of talent that benefits everyone in the U.S.
Please join Newday in celebrating Black History Month and the innumerable achievements and sacrifices African Americans have had and continue to have on our nation. Let us take this time to recognize and learn about the historical impact of the African American culture and use it to move forward in our pursuit of a better tomorrow for Black Americans and All Americans.
FEBRUARY GLOBAL EQUITY COMMENTARY
Written by: Newday Investment Team
Equity markets rallied strongly to kick off 2023, with the Nasdaq (+10.7%) posting its best January since 2001.[1] The oft-labeled “January effect” was in full swing, with market leadership shifting to growth stocks and many stocks that were hit the hardest in 2022. European PMIs continued their recovery and China’s January PMIs jumped as the economy re-opened following the lifting of COVID restrictions. The S&P Global Eurozone composite PMI rose to 50.3 into expansionary territory[2] while China’s NBS General PMI increased sharply to 52.9 from 42.6 in December.[3] The US ISM non-manufacturing index jumped to 55.2 in January,[4] from 49.2 in December even as the ISM manufacturing index fell to 47.4[5], the lowest level since during the pandemic. Importantly, U.S. Bureau of Labor Statistics data showed headline CPI continued to decline in December, reaching 6.5% YoY (the sixth consecutive decline from the peak in June 2022 and the lowest since October 2021). Core CPI also showed a third consecutive decline, hitting 5.7%. Bonds and stocks rallied together in January while the dollar continued to weaken. International stocks and emerging markets lead global markets as the dollar declined along with the VIX.[6]
The front end of the yield curve has been relatively stable with 2-year Treasury yields trading in a narrow range since late September. At its February 1st meeting, the Fed downshifted to a 25bps rate hike (from 50bps in December and 75bps in November), bringing Fed Funds to a 4.50-4.75% target range. Fed Funds futures now anticipate peak Fed Funds at 5% by June 2023, indicating only modest tightening is expected from current levels.[7] Uncertainty in markets has fallen as inflation risks subsided. We continue to expect disinflation in the first half of 2023 as housing, commodities, and durable goods put downward pressure on CPI. We do remain concerned that inflation could become “stuck” at a level above the Fed’s 2% target given the US labor market is tight and wage inflation is still running above 4%. U.S. Bureau of Labor Statistics data showed payrolls grew strongly in January (+517,000) while wage growth continued to decelerate, reaching 4.4% YoY, down from a peak of 5.9% in March 2022. Job openings also rose strongly and U.S. Department of Labor data showed that initial unemployment claims remain near the lowest level on record. Persistent strength in the labor market could cause high inflation to persist longer than markets are assuming, but we do not believe this is likely to be disruptive to markets until later this year.
We continue to expect a more favorable environment for markets in the first half of the year, barring any unexpected geopolitical shocks. The Treasury yield curve has inverted further with the spread between 3-month and 10-year Treasurys dropping to -1.17% as of early February.[8] The yield curve appears to be predicting a high likelihood of recession, although adjusted for CPI it is positively sloped (given high current inflation that is expected to moderate significantly going forward), which may indicate that the nominal yield curve is sending a false signal. PMIs are showing a rebound in global growth, we believe, due to diminished concerns over war and energy crisis in Europe as well as the rapid reopening of the Chinese economy. The primary geopolitical concern we are monitoring is the debt ceiling debate in Congress, which could come to a head over the summer. We think these discussions may cause volatility in markets given the realities of a split Congress. A plausible compromise between the parties is not yet apparent.
In December we continued the process of increasing portfolio beta across our strategies while also adding exposure in the financials and industrials sectors to begin hedging against a move higher in oil in 2023. In January we cut some benchmark technology exposure and began swapping into new names that were beaten down and we expect to perform well in 2023. We added Sociedad Quimica y Minera de Chile (NYSE: SQM) to several of our strategies, as we felt the stock had significant upside potential after dropping over 30% in the last six weeks of 2022. SQM is the world’s second largest lithium producer located in Chile and we felt the stock drop was unwarranted given we remain constructive on the outlook for lithium as an essential material for electric vehicles. Likewise, we felt the macro outlook had improved in Chile given the result of the September 2022 constitutional referendum, which appeared to make potentially disruptive proposals for reform less likely to ultimately be adopted. SQM stock was up more than 22% in January.
We plan to make additional changes to portfolio positioning based on evolving macro conditions as well as our evaluation of new opportunities. We expect to reduce some exposure in the Consumer Discretionary sector later in Q1 given the potential for inflationary concerns to re-materialize. Given our portfolios lean towards growth factor exposure, we also plan to use the recent significant outperformance in growth stocks to swap into some value names where we feel good about the trajectory from a thematic ESG perspective. We look forward to providing further updates as we implement portfolio changes.
Source: Standard & Poor’s, Yardeni
Footnotes:
[2] See https://tradingeconomics.com/euro-area/composite-pmi
[3] See https://tradingeconomics.com/china/nbs-general-pmi
[4] See https://tradingeconomics.com/united-states/non-manufacturing-pmi
[5] See https://tradingeconomics.com/united-states/business-confidence
[6] See above chart from S&P Global as well as table citing ETF performance calculations using Trading Economics data.
[7] See https://www.cmegroup.com/markets/interest-rates/stirs/30-day-federal-fund.quotes.html
[8] See https://fred.stlouisfed.org/series/T10Y3M
[10] See https://www.mining.com/web/the-worlds-top-10-lithium-mining-companies/
COUNTRY GOVERNANCE RESEARCH COMMENTARY
Russia’s invasion of Ukraine nears one-year mark with no end yet in sight
As Russia’s invasion of Ukraine nears its one-year anniversary, the relative lull in the fighting that had held for much of the winter has been replaced with an increased tempo of Russian assaults in the east of Ukraine as they try to finally capture Bakhmut after over six months of failed efforts to take the town. Russia has been employing its newly mobilized troops to try and regain momentum after Ukraine’s successful counteroffensives over the fall. Zelensky has said he believes a new Russian offensive has started, and Ukrainian intelligence assesses that Putin has given orders for his forces to take the entirety of the Donetsk and Luhansk regions by March. Russia has also continued its targeting of civilian infrastructure with waves of missile and drone attacks. Western provided air defenses have helped blunt the impact of these strikes, but they have still caused widespread damage. Limitations on the types of weapons provided to Ukraine have continued to fall, most recently with the promised delivery of modern tanks and longer-range rockets (though Ukraine has been rebuffed on its plea for even longer-range ATACMS missiles). Both Russia and Ukraine are gearing up for renewed battles in the spring in what could be a decisive moment in the war.
Implications: With hundreds of thousands of new soldiers at its disposal Russia is hoping to use its current advantage in troop numbers to make gains before the arrival of newly pledged advanced Western military equipment. The question for Ukraine is whether the deliveries will come fast enough to enable them to retake more of their sovereign territory.to incredibly high casualties. Away from the front-line battles, Ukraine continues to employ Western provided precision artillery to strike targets deep inside Russian occupied territory. The most dramatic of those strikes occurred on New Year’s Day at vocational school housing Russian conscripts in Makiivka, in the eastern Donetsk region. Ukrainian officials claimed as many as 400 troops were killed. Russia only acknowledged 89 fatalities, which would still mark it as the deadliest single attack so far in the war.
Implications: In a sign of continued Western support, new weapons packages have recently been promised by the United States and others. Most importantly they will now include armaments that had previously been considered off-limits, such as Patriot air defense systems and armored fighting vehicles, which will be useful for future counter-offensives.
China reopens ending three-years of zero-Covid policy
China recorded one of its worst years for economic growth on record in 2022, with GDP rising just 3%. This was well below an already low official target of around 5.5%, itself the least ambitious goal the country had set in three decades. After three years in which strict Covid controls took precedence over growth, at the end of last year China abruptly began relaxing its zero-Covid policy following protests and increasing frustration within the business community. Earlier this month, China reopened its borders to international travelers and returning residents without the need to quarantine for the first time since 2020. The rapid reversal in Covid restrictions has led to an enormous wave of infections with one government expert estimating that 80% of the population had been infected. The government reported 60,000 deaths in the month after reopening, which the WHO has said likely vastly undercounts the true number. There are signs the post-reopening wave of infections has peaked with no new spike in cases reported around the recent Lunar New Year holidays. With the lockdowns and restrictions in the rearview mirror, Chinese officials have signaled they intend to reset economic policy in order to pursue greater growth.
Implications: China’s ability to successfully manage its zero-Covid exit has been described as the most important factor for global growth in 2023. Longer-term a reported first-ever decline in the Chinese population is a reminder of challenges facing China where low fertility rates and an aging workforce will threaten future economic growth.
Republicans take control of the House and debt limit fight looms
Republicans took control in the House of Representatives following a messy fight to elect Kevin McCarthy as Speaker, with far-right Republicans exacting a number of concessions for their support. One such concession being a promise to not raise the debt limit without also passing a plan for deficit reduction. With debt having soared due to emergency pandemic relief spending and unfunded tax cuts passed during the Trump administration, Republicans have committed to using their new majority to leverage the necessity of increasing the United States’ borrowing authority to bring about reductions in future spending. Treasury Secretary Janet Yellen wrote in a letter to Congress that the country had hit its debt ceiling of $31.4 trillion on January 19, and that she was instituting “extraordinary measures” to allow the United States to avoid defaulting on its obligations. Yellen warned options to avoid default could be exhausted by June, but that the precise X-date is difficult to forecast given the difficulty of knowing the government’s payments and receipts months in advance. The Biden administration has said they will not negotiate over something as vital as ensuring the country honors its debts. However, McCarthy and Biden recently held initial talks at the White House, and months of fraught negotiations are likely to follow. Before any agreement can be reached with the White House, Republicans will also have to agree amongst themselves what formula for deficit reduction would be acceptable to them.
Implications: Republicans have said cuts to Social Security and Medicare are off the table, but given those programs large and growing share of the federal budget that will make the budget math even more difficult. According to one analysis, in order to balance the budget in the next 10 years without any new revenue while also sparing defense, Social Security and Medicare from the chopping block would require an 85% reduction in all other spending.
RECENT NEWS/MEDIA
Earth911 Podcast: Newday Impact Investing’s Anne Popkin on the Politicization of ESG Investing
Anne Popkin, president and chief operating officer at Newday Impact Investing, joins the conversation to discuss Environmental, Social, and Governance, or “ESG,” investing. More than $8.4 trillion has been invested in ESG-related equities and funds as of the end of 2022, according to Bloomberg. And it will be a hot topic for investors, Congress, and the federal government, as well as several southern states — notably Florida and Texas, who are at war with ESG because it represents, in the words of Florida’s Speaker of the House, Paul Renner: “woke financial titans who seek to dictate policy to Floridians regardless of our choices at the ballot box.” Anne provides an investor’s perspective on the politicization of ESG.