Perhaps one of the most intriguing – and important – trends for individual investors is the market’s current disregard for conventional wisdom, as evidenced by the bull run’s continued uptick despite a contentious political climate. If you want evidence of the market’s unpredictability, consider the following – where cause and effect seem out of whack.

The Ongoing Bull Run

Respected financial institutions and regulatory bodies, including the Bank of England and the Federal Reserve Bank of Philadelphia, track and maintain indices that monitor partisan conflict. When index results are viewed alongside private investment trends, it becomes apparent that U.S. stocks have generally fallen more rapidly at times when domestic political dissent and strife have increased. This trend has been clearly illustrated by Trump’s White House victory. When Trump won, many analysts expected to see stock prices suffer. It didn’t happen. Likewise, the ensuing political turmoil regarding travel and immigration and fierce battles over the Affordable Care Act did not depress the markets. With healthcare remaining a key issue and tax reform on the horizon, the partisan conflict index is likely to remain high.

Why does the market disregard escalating partisan conflict? Why is one of the longest bull runs in history continuing to flourish in the face of intense political strife? No one seems to know. Pundits note that political acrimony in the United States seems to slow foreign investment and economic growth. But when it comes to the U.S. investment environment, things remain rosy.

Economists are hard pressed for an explanation, although some experts suggest that Wall Street favors the gridlock created by political strife over the unknown ramifications of change. Others opine that solid corporate earnings and low interest rates are canceling out the negative feelings created by contentious arguments on Capitol Hill. Either way, the market’s indifference remains a conundrum.

The Boom in Socially Responsible Investing

Investment strategies that embrace companies demonstrating environmental, socially responsible, and governance awareness were in vogue prior to President Trump’s inauguration – but the category has seen an unexpected surge since the president took office.

Additionally, socially responsible investing funds are attracting record amounts of cash. Asked to explain this trend, the majority of investment experts will argue for one or both of the following explanations:

  • Contrarianism – in the same way that the overall performance of the markets has bucked the obvious, this approach seeks the rewards that come from going against the grain; or
  • A surge in political awareness post-election has fueled the interest in ESG stocks and SRI funds. Interest had been growing over the past decade, but the arrival of Trump in the White House has stirred some to action who were not previously interested in social activism. Millennials make up a large component of investors who look for companies that embrace socially responsible causes.

In response to this trend, some focused equity traded funds have sprung up – for example, ETFs that look for investment opportunities consistent with Catholic values or funds that focus on gender diversity at the boardroom level.

If any of the above has got you thinking, consult your tax and investment professional advisors before changing your investment strategy for this, or any other reason. Not all ESG stocks and funds will deliver results commensurate with traditional stocks, and some SRI funds charge higher fees than other ETFs.