As for the stock market, the year 2023 has been one big jump in prices for technology companies. You can call it investors expecting bright futures or having an AI-driven mania. Many people, including politicians, believe that the stock market is a good indicator of the economy of the country. Though this statement has never been taken seriously by finance professionals, it still gives a good feeling about the future when the stock market is going up. However, it is far from the reality of many people’s lives.
Though the unemployment rate has been low this year, it is hiding an ugly truth. Since 2020, the economy after the COVID pandemic has been nothing but ordinary. People have been tired of being forced to stay away from public places and travel. This has caused a manic consumption in travel and purchasing post the quarantine. This has been further exacerbated by the easy money policy of the federal government and central banks. Consumers are tightening their spending now as inflation has made everything more expensive. This is being shown in the increase in credit card balances.
Since the interest rate tightening by the central banks, businesses have been lowering their future business guidance. Furthermore, they have been cutting costs by lowering their non-essential spending and laying off people where necessary. Not to mention AI has already started streamlining business processes, and it is becoming harder for people to find jobs in the current environment. However, the stock market is up over 20% year to date.
Inflation is being sticky as it hasn’t reached the 2% target. Hence, it is unlikely central banks will cut interest rates anytime soon. The higher cost of capital will only increase the unlikelihood of business spending. However, investors are buying the stock market on the chance that central banks will cut interest rates soon because of the economic slowdown or the huge upside that AI is promising.
The current system of economic calculation doesn’t take into consideration the higher cost of environmental damage that climate change is posing, nor does it take into consideration the human impact of technological development that will take away human labor. This is where impact investing and its consideration of looking beyond company profit come into view. Impact investing considers not only the environmental issue but also
- Labor force
- Social impact of the products
- Business impact on other correlated companies
Though the measurement of impact investing is still in its infancy, its advantage to companies reflecting the true state of their business is still very promising. However, as companies focus more on cutting costs and increasing profit, ESG and impact investing is not their top priority in the current environment. Unless investors and consumers demand it.
