Many people assumed that the market would crash after Trump’s decision to withdraw the U.S. from the Paris climate accord. Why is the market seemingly not reacting to this decision (or, from any of the other seemingly impulsive decisions from the White House)?
Well, things are just not that simple. Here are a few things to consider:
- Most people probably expected Trump to withdraw from the Paris accord, so the market absorbed and responded to this expectation months ago.
- Many believe that states and companies will act independently of the White House and this will modify the effect of Trump’s decision. For example, California has held fast to not changing its carbon emission standards, which are among the most stringent of any country (and CA’s economy ranks as number 6 in largest world economies1 – ahead of France and just trailing the United Kingdom2).
- Others believe that Trump’s withdrawal decision (which will take several years before going fully into effect) will get rescinded by the time the next President takes office.
- Most large companies earn revenues by selling to Europe and Asia and will have to comply with Paris accord standards in order to secure International contracts.
This is why we at Abacus do not try to predict the markets. It is why even if we think we are sure of what is going to happen in the world, we know that the markets probably will not respond to world events in the ways we might expect.
Perhaps the evidence that Trump’s withdrawal from the Paris accord is more symbolic than substantive is in the list of companies who have supported staying in the agreement. Major corporations like Exxon, Chevron, Bank of America, JP Morgan, and General Electric have been influenced by the power of their shareholders to keep a seat at the table in Paris.
However sure we are about anything, including that a leader is making poor decisions destined to upset the market, we must remember how complex things are and how there are millions of investors re-pricing the valuations of companies around the world every day.
Stay calm, stay invested and make more money. Continue spending your dollars with companies aligned with your values and using your shareholder voice to get companies to do the right thing.
[1] http://www.mercurynews.com/2016/07/05/californias-economy-is-bigger-than-all-but-five-nations-world-bank-data-says/
[2] https://www.weforum.org/agenda/2017/03/worlds-biggest-economies-in-2017/
