Markets in a Minute
U.S. Dollar Performance After U.S. Elections
This Markets in a Minute Chart is available as a poster.
U.S. Dollar Performance After U.S. Elections
News outlets often draw correlations between U.S. elections and market performance. In turn, some investors opt for more conservative portfolios until the election uncertainty is overcome. But how much influence do elections really have?
In this Markets in a Minute from New York Life Investments, we show U.S. dollar performance after U.S. elections to illustrate that there is no clear trend between the two.
What is the U.S. Dollar Index?
To start, we used the U.S. Dollar Index to track performance, which measures the U.S. dollar relative to a basket of six currencies.
| Currency | Weight |
|---|---|
| Euro | 57.6% |
| Japanese Yen | 13.6% |
| British Pound | 11.9% |
| Canadian Dollar | 9.1% |
| Swedish Krina | 4.2% |
| Swiss Franc | 3.6% |
Source: Intercontinental Exchange
Any changes in these respective currencies can affect the performance of the U.S. dollar.
Post-Election Performance
For each U.S. election from 1988 to 2016, we calculated the U.S. dollar index’s percentage change since election day. Changes were tracked over the course of a year, or 250 trading days.
There was no clear trend in U.S. dollar performance after U.S. elections. Here’s another look at the data, this time showing the range in changes over the year and percentage change at the end of the period.
The U.S. dollar finished up in four years, and down in the other four years. The years after the 1988, 1996, and 2008 elections saw the largest fluctuations in values.
In 1989, the U.S. dollar surged due to three factors:
- High interest rates, which attracted foreign investment
- Political instability in West Germany and Japan
- Strength of American stock and bond markets
In the period after the 1996 election, the dollar climbed again. While foreign currencies collapsed amid the Asian financial crisis, the U.S. economy enjoyed rapid growth and was seen as a safe haven for investors.
On the flip side, the U.S. dollar saw significant declines in the year after the 2008 election. The European Central Bank lowered rates in response to the global financial crisis, raising confidence in the euro and causing the U.S. dollar to fall.
What Investors Can Focus On
In each case above, significant movements were caused by macroeconomic factors, rather than the outcome of the U.S. election.
Here are a few factors that can have a direct impact on market performance:
- Inflation decreases the value of a dollar over time. Investors should consider how prevailing interest rates compare to inflation, and look for assets that build wealth over time.
- Unemployment rates have widespread impact. When unemployment is high, economic output and consumer spending are reduced.
- Economic growth signals healthy demand, and may boost corporate profits and drive up asset prices.
While elections can cause investors to change their asset mix, it’s important for investors to focus on long-term, broader factors that directly influence the market.
Markets in a Minute
Four Types of ESG Strategies for Investors
Amid a global wave of green investment, this graphic breaks down four types of environmental, social, and governance (ESG) strategies.
This infographic is available as a poster.
Four Types of ESG Strategies for Investors
In recent years, sustainable investment strategies have shown a number of benefits for investors, from resilience in market downturns to share outperformance in the long-term.
Meanwhile, investor interest has skyrocketed—with environmental, social, and governance (ESG) indexes advancing 40% between 2019 and 2020 alone. Given the increased demand for green investments, investors have an ever-expanding list of options to choose from. But what ESG approach is the right fit for you?
To answer this question, this Markets in a Minute chart from New York Life Investments looks at the primary strategies used in ESG investing to help investors choose the approach that works best for their portfolio.
What Kind of Investor are You?
Broadly speaking, there are four main approaches to ESG investing: ESG integration, exclusionary investing, inclusionary investing, and impact investing.
1. ESG Integration
“I want to integrate ESG factors and traditional factors to assess the risk/reward profile of my investment.”
For example, using an ESG integration approach, a company’s water usage and toxic emissions would be assessed against financial factors to analyze any future risks or investment opportunities.
2. Exclusionary Investing
“I want to screen out controversial companies or sectors that do not meet my sustainability criteria.”
Using an exclusionary investing approach, an investor may screen out companies whose revenues are from tobacco, gambling, or fossil fuels.
Related ESG Terms:
- Negative Screening
- Negative Selection
- Socially Responsible Investing (SRI)
3. Inclusionary Investing
“I want to seek out companies that are ranked highly in their sector based on sustainability criteria.”
With an inclusionary approach, a fund may include the leading companies in a sector, relative to their peers, such as the top performing tech companies in ESG.
Related ESG Terms:
- Positive Screening
- Positive Selection
- Best-In-Class
- Positive Tilt
- Thematic Investing
4. Impact Investing
“I want to invest in companies that attempt to deliver a measurable social and/or environmental impact alongside financial returns.”
Lastly, impact investing approaches may focus specifically on renewable energy companies that have the intent to make a positive environmental impact.
Related ESG Terms:
- Goal-Based Investing
- Thematic Investing
ESG Investing Strategies, By Market
How does interest in ESG strategies vary according to geographical region? Overall, interest has increased across all regions globally (where data was available).
| Interest in ESG By Market* | 2018 | 2020 |
|---|---|---|
| India | 98% | 100% |
| Mainland China | 95% | 98% |
| UAE | 90% | 94% |
| Mexico | N/A | 92% |
| France | 79% | 91% |
| Brazil | 82% | 90% |
| Japan | N/A | 88% |
| Hong Kong, SAR China | 71% | 86% |
| South Africa | N/A | 83% |
| Germany | 64% | 81% |
| Singapore | 77% | 78% |
| United Kingdom | 51% | 77% |
| Canada | 49% | 68% |
| Australia | 49% | 65% |
| U.S. | 49% | 57% |
*With interest in these strategies and already employing them
Source: CFA Institute (Dec, 2020)
At the top was India, where 100% of respondents expressed interest or were already using ESG strategies—up from 96% in 2018.
In fact, India developed National Voluntary Guidelines on Social, Environmental, and Economic Responsibilities of Business as far back as 2011. This was designed as a guideline for responsible business conduct, which later aligned to the UN Sustainable Development Goals in 2016.
Following closely behind were investors in China (98%) and UAE (94%).
By contrast, 57% of investors in the U.S. employed ESG strategies—the lowest among geographic regions. Despite this, in the last two years, this figure jumped 8%, and it may rise higher yet given U.S. president Joe Biden’s new climate priorities. Electric grid and clean energy, decarbonization, and electric vehicle incentives all fall under a massive $2 trillion infrastructure plan, which will likely have a significant impact on the dialogue surrounding ESG.
Going Green
As the global drive for ESG investment continues to rise, investors can harness a greater understanding of different ESG strategies to meet their personal objectives—whether it is risk/reward analysis, seeking out ESG top performers, or a measurable environmental impact.
Markets in a Minute
Visualizing U.S. Stock Ownership Over Time (1965-2019)
The proportion of U.S. stock owned by foreigners has climbed to 40%, while U.S. stock ownership within taxable accounts has decreased.
This infographic is available as a poster.
U.S. Stock Ownership Over Time (1965-2019)
The U.S. stock market is the largest in the world, with total U.S. stock ownership amounting to almost $40 trillion in 2019. But who owns all these equities?
In this Markets in a Minute from New York Life Investments, we show the percentage of U.S. stock owned by various groups, and how the proportions have changed over time.
The Groups Who Own U.S. Stock
Based on calculations from the Tax Policy Center, here is the breakdown of U.S. stock ownership as of the year 2019.
| Category | Share of U.S. Stock | Value |
|---|---|---|
| Foreigners | 40% | $16.0T |
| Retirement accounts | 30% | $12.0T |
| Taxable accounts | 24% | $9.5T |
| Non-profits | 5% | $2.0T |
| Government | 1% | $368B |
Foreigners own the most U.S. stock. Their portion of ownership has grown rapidly, climbing from about 5% in 1965 to 40% in 2019. Foreign ownership exists in two forms: portfolio holdings and foreign direct investment. The former includes holdings with less than 10% of voting stock, while the latter refers to voting stock of 10% or more.
Why has foreign ownership increased so substantially? According to the Tax Policy Center, the growth appears unrelated to U.S. corporate tax rates. Instead, the increase is likely a result of globalization, as U.S. holdings of foreign stock climbed at a similar rate over the same timeframe.
Outside of foreigners, the largest domestic ownership groups are retirement accounts and taxable accounts. Stock ownership within taxable accounts has decreased by 56 percentage points since 1965. On the flip side, U.S. households have increased stock ownership within tax-advantaged retirement accounts, which now amounts to 30% of all U.S. stock holdings.
Retirement Accounts: A Closer Look
The proportion of U.S. stock held in defined benefit plans has decreased substantially since 1965.
Note: life insurance separate accounts are reserves that fund annuities or life insurance policies.
This drop is partly due to the general decline in private employers offering defined benefit plans. Since these pension plans guarantee employees a set amount in retirement, they present a large long-term funding burden.
At the same time, there has been a corresponding increase in U.S. stock ownership within defined contribution plans and individual retirement accounts (IRAs). This reflects the fact that many investors are facing more responsibility, as they must take charge of their portfolios in order to build a sufficient nest egg for retirement.
The Future of U.S. Stock Ownership
Compared to 50 years ago, the composition of U.S. stock ownership today looks very different.
Foreign ownership has increased as globalization took hold, though it’s hard to say if this rise will continue. Since 2017, foreign direct investment in the U.S. has decreased. Not only that, China surpassed the U.S. as the top destination for foreign direct investment in 2020.
In addition, the shift to particular tax-advantaged retirement accounts has been a relatively recent one. For instance, IRAs didn’t exist before 1978, and defined contribution plans started becoming popular in 1980. As circumstances continue to evolve, how will U.S. stock ownership change over the next 50 years?
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