The U.S. economy’s roaring and unemployment is at a 50-year low. The market continues to set new all-time highs week-after-week.
In short; it’s a good time to be a bull. Even after 2019’s massive stock gains.
And in 2020, equities could potentially go higher still. The last two years of a president’s term have historically been the best for the market. Thus far, President Trump has lived up to that standard.
Some analysts still see warning signs of a slowdown, though, which they think could arise in the latter half of 2020.
But nobody’s predicting a recession long-term.
Well, nobody except for Larry Fink, CEO of BlackRock, the world’s largest money management firm.
In an annual letter published Tuesday, Fink addressed the world’s top chief executives:
“Climate change has become a defining factor in companies’ long-term prospects,” he said. “But awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance.”
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With almost $7 trillion in assets under management (as of Q3 2019), Fink’s words carry significant weight among business leaders – many of whom are traveling to Davos, Switzerland for the World Economic Forum (WEF) next week.
This year’s WEF topic is “Stakeholders for a Cohesive and Sustainable World,” which narrowly beat out “Cowboys” and “Pizza Party” in last month’s theme voting.
All jokes aside, the Forum’s pow-wows have long been criticized for being out of touch with the real world.
This time around, Fink wants CEOs, investors, and policymakers to go back to their roots before it’s too late.
“Climate change is almost invariably the top issue that clients around the world raise with BlackRock. From Europe to Australia, South America to China, Florida to Oregon, investors are asking how they should modify their portfolios,” he said.
“And because capital markets pull future risk forward, we will see changes in capital allocation more quickly than we see changes to the climate itself. In the near future – and sooner than most anticipate – there will be a significant reallocation of capital.”
Fink continued, comparing climate change to the crises of the past.
“Over the 40 years of my career in finance, I have witnessed a number of financial crises and challenges — the inflation spikes of the 1970s and early 1980s, the Asian currency crisis in 1997, the dot-com bubble, and the global financial crisis,” he said.
“Even when these episodes lasted for many years, they were all, in the broad scheme of things, short-term in nature. Climate change is different. Even if only a fraction of the projected impacts is realized, this is a much more structural, long-term crisis. Companies, investors, and governments must prepare for a significant reallocation of capital.”
The “reallocation” Fink’s talking about is already taking place, albeit on a small scale. The term “activist investor,” which has been used in the past to describe corporate raiders, has taken on a new meaning. Environmentally conscious money managers like Fink have put more time (and money) into evaluating companies that develop fossil fuel alternatives.
Regardless of the market’s stance on climate change – whether it’s man-made, natural, or even preventable – the fact is that if Wall Street goes “woke,” plenty of small alt-energy firms could rapidly explode in value. BlackRock’s already got its eye on a few (undisclosed) options.
Before 2020’s done, a whole new realm of “low hanging fruit” may materialize.
But only if Fink’s message resonates with CEOs, who remain just as split on climate change as the rest of the world.