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.
IMPACT COMMENTARY
The Impact of Apple and the LGBTQ+ Community
In a time when diversity and inclusion are at the forefront of all industries, corporate executives play a crucial role in fostering acceptance and equality within their organizations. Therefore, in the spirit of Pride Month, we would like to highlight Apple CEO Tim Cook, who nearly nine years ago made an unprecedented announcement about his sexual orientation. His declaration as the first openly gay CEO of a Fortune 500 company amplified the discourse about LGBTQ+ rights in the corporate world, while positively influencing Apple’s trajectory as one of the most successful corporations around the globe.
Cook’s 2014 revelation was a watershed moment in corporate America and significantly impacted Apple’s efforts to cultivate an inclusive culture. It demonstrated that Apple was not just professing these values but was also practicing them from the top down. It brought a new level of authenticity to the company’s commitment and sent a strong message to its employees and other corporations that “covering” or downplaying one’s identity was no longer a requirement for achieving success at the top.
According to a report by Korn Ferry Research from 2022, companies that embrace DE&I are 70 percent more likely to capture new markets and 75 percent more likely to see their ideas materialize. Moreover, diverse teams have been found to be better at solving complex problems and making better decisions 87% of the time. Companies with above-average diversity performance report 19% higher innovation revenue and consistently generate higher ROIs. In addition, according to a recent survey conducted by CNBC and SurveyMonkey, nearly 80% of US workers want to work for an organization that prioritizes diversity, equity, and inclusion.
Cook’s coming out served as a source of inspiration for many employees who may have struggled with their own identities. According to research, revealing one’s sexual orientation in the workplace has significant benefits. It enables individuals to focus on their job performance rather than their identities.
Since Tim Cook’s coming out, one could argue that more individuals now identify as LGBT. In a Gallup survey on LGBT identification conducted in 2022, 7.2% of U.S. adults identified as LGBT, more than double the 3.5% reported in 2012 when Gallup began compiling this data. The percentage of millennials who identify as LGBTQ+ increased from less than 6% in 2012 to 10.5% in 2021, while the share of Generation Z individuals who identify as such rose from 10.5% in 2017 to nearly 21% in 2021. The graphs below illustrate this growth.
According to an insightful report by Wells Fargo, individuals who identify as LGBTQ+ are more likely to have a higher level of education than the general population. The National Health Interview Survey revealed in 2021 that 27.4% of lesbian, homosexual, and bisexual individuals hold a bachelor’s degree, compared to 23.5% of the non-LGB population. In addition, nearly 21% of lesbian, homosexual, and bisexual individuals have attained a graduate degree, which is 5% more than the non-LGB population.
The growing economic power and influence of the LGBTQ+ community present significant opportunities for all types of enterprises. According to the report America’s LGBT Economy by the National Gay & Lesbian Chamber of Commerce, the LGBTQ+ community has a purchasing power of $917 billion. Moreover, LGBT-owned enterprises contribute $1.7 trillion annually to the U.S. economy and generate over 33,000 jobs.
Tim Cook has effectively used his position as Apple’s chief executive officer to advocate for LGBTQ rights and create a work environment where everyone is treated with dignity and respect, regardless of race, gender, or sexual orientation. His coming out served as a beacon of hope for many aspiring LGBTQ+ professionals, and his success story demonstrates that sexual orientation is not a barrier to attaining professional success and shattering the glass ceiling. His courage and determination to openly live his truth has sent a potent message about acceptance and equality in the corporate world. It is crucial that, as we move forward, we continue to strive for a more diverse and inclusive corporate environment in which everyone, regardless of sexual orientation, can flourish and succeed.
MAY GLOBAL EQUITY COMMENTARY
Written by: Newday Investment Team
Asset markets were choppier in May; fixed income traded poorly and the S&P 500 eked out only a small gain even as value and non-US stocks sold off.1 Market breadth remained narrow as tech and communications services continued to rise while all other sectors aside from consumer discretionary posted negative returns for the month. The VIX traded moderately higher during May, before moving decisively lower in June, falling to the lowest level since February 2020 as macro concerns dissipated.2 The Fed hiked its benchmark rate above 5% in early May while also signaling a pause in its tightening campaign given progress on inflation on the inflation front.
In our opinion, growth expectations showed some initial signs of deceleration. The JP Morgan global composite PMI inched up to 54.4 in May from 54.2 in April, a sixth consecutive increase. 3 The US PMI moved up although PMIs in Europe, Japan, and China fell.4 Some emerging markets also showed signs of a slowdown.5 US nonfarm payrolls growth accelerated for a second month although wage growth remained at the slowest since mid-2021 and unemployment claims accelerated to the highest level since Q4 2021.6 U.S. Bureau of Labor Statistics data showed headline CPI decelerated more than expected to 4%, the lowest level since March 2021 although still above the Fed’s 2% target.7 Core CPI decelerated only modestly with the large drop in headline inflation driven by commodity and goods price deflation.8 Eurostat data showed the same story with headline inflation falling and core less-so.9 The bond-equity correlation was a bit murkier given the S&P 500 rose in aggregate while bonds sold off, although based off most global equity benchmarks it remained positive as equities and bonds sold off together while the US dollar appreciated.10
The front end of the yield curve was relatively stable in May, although following the stronger May payrolls report and the resolution of the debt ceiling deadlock in Congress, we believe the market began to price in the possibility of one more hike in the second half of 2023, where the possibility of a cut had been indicated previously.11 The yield curve continues to be inverted with the spread between 2-year and 10-year Treasurys declining to -0.97%.12 We believe the slope of the yield curve shows that while we cannot completely rule out another hike, we are most likely at or near the end of the current Fed hiking cycle.
We remain less certain about continued disinflation from these levels, although we believe inflation is unlikely to accelerate meaningfully from here. We had been closely monitoring the debt ceiling debate in Congress and given a compromise solution was reached, we are not surprised that volatility in markets resumed its descent in June.
We are cognizant of the historical evidence showing a less favorable environment for equities over the summer months, with September returns negative on average for the S&P 500 since 1945.13 Nonetheless, we continue to believe that downside to global equity markets is relatively constrained absent an unexpected adverse geopolitical event. We continue to evaluate new thematic additions to our portfolios. We believe the volatility in financials since the March bank failures has created some opportunity over a medium-term time horizon and we expect to implement some swaps into financial names where underlying ESG metrics have improved.
Our primary macro debate is about our portfolios’ relative exposures to growth and value factors. If the Fed hiking cycle has reached maturity, we expect that growth stocks will likely continue to outperform in the near-term, which we believe should continue to facilitate a more favorable tailwind for ESG-themed portfolios compared to last year given the positive correlation between growth and ESG factors.14 As we near the end of the quarter, we look forward to reviewing our performance in the first half of the year and making adjustments to our portfolios as we refine our outlook for the duration of 2023.
Footnotes:
[1] See below table citing ETF performance calculations using Trading Economics data.
[2] See https://tradingeconomics.com/vix:ind
[3] See https://tradingeconomics.com/world/composite-pmi
[4] See https://tradingeconomics.com/china/nbs-general-pmi, https://tradingeconomics.com/united-states/composite-pmi, https://tradingeconomics.com/euro-area/composite-pmi, https://tradingeconomics.com/japan/composite-pmi
[5] See https://tradingeconomics.com/russia/composite-pmi
[6] See https://tradingeconomics.com/united-states/non-farm-payrolls, https://tradingeconomics.com/united-states/average-hourly-earnings-yoy, https://tradingeconomics.com/united-states/jobless-claims-4-week-average
[7] See https://tradingeconomics.com/united-states/inflation-cpi, https://tradingeconomics.com/united-states/core-inflation-rate
[8] See https://tradingeconomics.com/united-states/core-inflation-rate
[9] See https://tradingeconomics.com/euro-area/inflation-cpi, https://tradingeconomics.com/euro-area/core-inflation-rate
[10] See below chart from S&P Global as well as table citing ETF performance calculations using Trading Economics data.
[11] See https://www.cmegroup.com/markets/interest-rates/stirs/30-day-federal-fund.quotes.html
[12] See https://fred.stlouisfed.org/series/T10Y2Y
[13] See https://www.reuters.com/graphics/USA-MARKETS/SEPTEMBER/zdvxozbwqpx/
COUNTRY GOVERNANCE RESEARCH COMMENTARY
Ukraine’s counteroffensive begins to take shape
With Russia’s winter offensive having largely run out of steam following their capture of the decimated city of Bakhmut, Ukraine has launched the initial phase of its own long-planned counteroffensive in the south of the country. Reporting on the effort has been sparse, but statements from Ukrainian officials and footage from the battlefield indicate that a handful of small villages in the Zaporizhzhia region have been liberated. Observers have cautioned that Ukrainian troops have yet to reach Russia’s main defensive lines and to expect a hard slog for the attacking troops as they try to breakthrough mine fields and defensive fortifications that have been built over many months. Complicating Ukraine’s effort is their paucity of airpower, which Russia has taken advantage of by hitting advancing troops from attack helicopters and fighter planes. This has already resulted in high Ukrainian casualties and a loss of some Western provided equipment. The destruction of the dam at the Kakhovka Hydroelectric Power Plant, in addition to being an ecological disaster, has also narrowed Ukraine’s options for their counteroffensive. Both sides have blamed the other for the dam’s destruction, which has been occupied by Russia since shortly after the war began. However, in the weeks since the dam’s destruction the weight of the evidence has implicated Russia in its intentional destruction by a blast detonated from inside the dam.
Implications: While Ukraine’s forward movement along the southern front has been slow, they have also been using long-range missiles to hit numerous strategic targets far behind the front-lines. They have also been conducting strikes at various points along the front in an attempt to draw Russian forces away from their main effort, including cross-border attacks into Russia’s Belgorod region carried out by pro-Ukrainian Russian militias.
Erdogan holds on to secure a third-term as president
President Recep Tayyip Erdogan has secured another five-year term after winning the recent runoff election with just over 52 per cent of the vote. His challenger Kemal Kilicdaroglu, who had run on a promise to reinvigorate democracy in Turkey, said the election had been unfair but he did not contest the results. Opponents to Erdogan’s increasingly authoritarian rule had hoped a cost-of-living crisis and the government’s delayed rescue efforts after the February earthquake would give them an opportunity to finally challenge his hold on power. In the end, while the election was one of the closest in recent memory, Erdogan proved again his reputation as a wily political survivor. With the election past, the task now falls to the incoming government to rectify unsustainable policies, such as boosting the minimum wage before the election, that have the left the Turkish economy in a precarious position. To that end Erdogan has signaled a shift away from his unorthodox policy choices with the appointment of a revamped economic team. The new finance minister, Mehmet Simsek, is an economist widely respected by foreign investors, and he has promised a return to a more ‘rational’ policy setting. He also pledged to work towards reducing galloping inflation to single digits in the medium term. Erdogan has also appointed Hafize Gaye Erkan, a former Goldman Sachs banker, as the first woman to head Turkey’s central bank.
Implications: Having burnt through an estimated $24bn in foreign currency reserves this year to prop up the lira and to finance a yawning current account deficit, the new team will have their work cut out for them to put Turkey back on a more sustainable path. As a first step analysts are expecting the central bank to triple its main interest rate from its current 8.5% at its upcoming June and July meetings.
Earth911 Podcast: World Ocean Day Special — Ashlan & Philippe Cousteau, Doug Heske Share a Krill Call to Action
World Ocean Day is an international day that recognizes the importance of protecting our world’s oceans. Not only are the oceans a source of food for dozens of species around the world, including humans, they also play a key role in our planet’s ecosystem. It’s a key area of advocacy and impact here at Newday.
Our CEO Doug Heske, with guests Ahlan and Philippe Cousteau of @earthecho, discusses this and more on the Earth911 podcast.
Doug Heske on Main St. Living
Put Your Money Where Your Heart is with Newday Impact Investing
We’ve all heard the phrase – put your money where your mouth is. And, turns out, that might be great advice. There are options now, for investors – both big and small – to invest their money in companies and causes they believe in. Doug Heske with Newday Impact shares more.