In a Nutshell


By Ken Herman


Is This the New Mission of Corporate America?

"Looking beyond April, the old saying says “Sell in May and Go Away,” but that rule hasn’t held true in recent years."

Many of my Wall Street colleagues recently shared concerns about proposed board diversity plans. Differences of opinion between those advocating for greater corporate diversity and those seeing it as an industry quota system have created tensions.  Other arguments played out recently in many areas of Corporate America that are increasingly becoming outspoken political forces. Once upon a time the business world sought to maximize profits for shareholders via lobbying or marketing efforts, but their newfound power is developing into some kind of governance system, while many investors appear to be buying into this vision. 

Georgia recently made needed improvements in its voting security laws, including new ID requirements for absentee voters, shortened absentee voting, guaranteed (but limited) drop boxes, expanded early voting and bans on handouts for people waiting in line to vote.  GOP lawmakers said the bill was necessary to restore election confidence, but Democrats feel the measure will restrict voting rights, and some have exaggerated this by calling it “Jim Crow 2.0”.  Soon after the decision MLB announced it would no longer hold the 2021 All-Star Game in Atlanta, and other corporations were quick to jump on board.  Dozens of executives have come out to blast the new law, including leaders at Apple, American Express, Coca-Cola, Delta, Merck and Microsoft. 

While corporations have long sought to influence policies that directly impact their business, recent trends suggest CEOs are now injecting themselves into political debates or activism that could indirectly affect their bottom line.  In an age of cancel culture, where ideas are carried on social media within minutes, someone may have to warn these overreacting entities of potential risks and consequences of picking sides. This political activism looks very risky!  I have always thought CEOs owed their focus, concerns and communicated sensitivities to the bottom line of their representative corporations.

Switching to a happier subject, April has been the best market month (by far) over the last 50 years, #2 over the last 20 years, and #3 over the last century. The market, after its consolidation, looks very positive, especially with anticipated corporate earnings coming out shortly. The first quarter of 2021 closed with the Dow leading the major market indexes (for a change) being up 7.76%, vs. +5.77% for the S&P 500 and a tepid +2.78% for the Nasdaq composite.  In fact, the Dow beat Nasdaq by the widest margin in any quarter in the last 15 years – since 2006.  That’s quite a shift from 2020.

Since 1983 April’s gains have been steady.  But for the last 10 years there has been an early dip first, then a mid-month plateau, with most gains coming in the last 8-to-10 days.  In the last 10 years, Bespoke says, April has risen nine of 10 times, with average gains of +2.34%.  Looking beyond April, the old saying says “Sell in May and Go Away”, but that rule hasn’t held true in recent years. It could ring especially hollow this year assuming we emerge from most Covid-19 lockdowns.

Economists now estimate that the U.S. economy could grow by 6% to as much as 7% this year, fueled by a massive fiscal stimulus and the continued rollout of vaccines that are expected to have the pandemic significantly under control.  That would be the fastest growth rate since 1984, during Reagan’s “Morning in America” re-election campaign vs. Walter Mondale.  This is no impossible dream, when you consider that a 7% gain would be a rebound from last year’s 3.5% contraction.

An unprecedented amount of liquidity has entered the economic system in the last year.  Total Covid-19 relief and other government programs total $5.3 trillion so far.  With that much money in hand we’re now fueling a manufacturing surge, ready to meet new demand at a time when the pandemic should be winding down.  That combination could fuel 6% to 7% GDP growth.  Or not, if ongoing critical manufacturing component shortages and open border disruptions continue.  Also, how much confidence exists that Washington leadership will not continue to harm the economy with its green new deal decisions?