Christianity, Civilization and Capitalism

Mother Teresa and the Insurrectionists:

What do Mother Teresa and the January 6th, 2021 insurrectionists in our nation’s capital have in common?  Obviously, not much.  Mother Teresa (1910-1997) was a Roman Catholic nun widely recognized for her sacrificial Christian service and humility.  She stepped away from living in a convent and found her calling to serve the poorest of the poor in India, those with leprosy, AIDS, other maladies and the dying.  Meanwhile, some of the insurrectionists espoused Christian nationalism and some carried signs that said:  “Jesus Saves,” “In God We Trust,” and “Make America Godly Again.”  These messages were carried by a relatively small number of participants, but they received widespread attention and criticism.   Many Christian leaders denounced the insurrection as blasphemous, unpatriotic and they argued that such displays were antithetical to the teachings of Jesus Christ.  It is clear that there is quite a contrast between Mother Teresa and the insurrectionists. 

Religion was once viewed as an overwhelmingly positive force in American society, but perceptions are changing.  According to a 2019 Pew Research survey, 55% of Americans believe churches and religious organizations do more good than harm in American society, 20% say it does more harm than good, and 24% say it makes no difference. Regardless of various viewpoints, there is much evidence that Christianity has played an outsized role throughout history, often good but sometimes bad.

Given widely differing perspectives related to Christianity, it is interesting to ask: 

-What is the impact on civilization of Christianity and

-what would the world be like if Jesus never existed?

The Topics:  

This post examines Christianity’s role within our civilization and our capitalistic system.  Implicit in this review is the counterfactual of how our civilization and capitalistic system would be different if there was no Jesus or Christianity.  Granted, this is hypothetical, but it is a thought-provoking question.

A number of topics are explored, starting with the Good, the Bad and the Ugly.

To begin, it is important to state that Christianity’s foundation is based on the belief that humans are created in the image of God (“imago Dei”) and have infinite value and dignity.  Key attributes include unconditional love, grace and mercy, forgiveness, service, repentance, redemption, and humility.  Marriage and the family are paramount. 

The post starts with the Good, the Bad and the Ugly, and then delves deeper into a wide range of topics.

This is a Long Read and topics are Bolded so you can scroll down to view the subjects and content that appeal to you.

You can “Jump To” TakeAways & Highlights at the bottom if desired.

Takeaways and Highlights


The Bad & The Ugly

The Good

Goodness Multiplier

The Bible’s Impact

Charitable Giving

Slavery and Racial Justice

Historical Legacy


Health Care and Social Reforms

Music, Literature and Art

Missionaries Large Role

Secular Decline

Spiritual Capital

Capitalism Take-Aways & Highlights

The Bad and the Ugly:

When considering the Good, the Bad, and the Ugly, the Bad and the Ugly are covered first. 

An examination of the Christian impact on civilization requires recognition and acknowledgement of the negative impact:  judgment, hypocrisy, hatred, bigotry, racism, xenophobia, misogyny, greed, child abuse, oppression, homophobia, white supremacy, and anti-Semitism. The scandalous child molestation cases, secrecy and coverup that were first exposed by the Boston Globe’s spotlight investigation in the early 2000s are particularly heinous.

Some critics highlight a narrative where Christians are self-absorbed, materialistic consumers, in a quest for personal satisfaction and self-fulfillment and being blinded by worldly success.  Christians are seen as apathetic towards poverty, racial injustice and environmental risks.  The critique also includes past support of slavery, ongoing racism and capitalism that increases income inequality.  Moreover, parishioners are seen with an inward focus as consumers of church services rather than an outward focus on service and missions.  Finally, some describe Christians as narrow-minded and out of touch with contemporary society.  These values and behavior are seen as anathema to professed values. 

Others point out the Bible’s Old Testament passages that show God’s anger and wrath.  Prominent atheists, such as Richard Dawkins, the late Christopher Hitchens, Karl Marx, Sigmund Freud, and Bertrand Russell, have criticized Christianity as a repressive force against the advancement of civilization, an opiate of the masses, a tool of exploitation, an illusion, a crutch, a source of guilt and pathologies, and the principal enemy of moral progress in the world. 

Many of these criticisms have merit, but these portrayals often reflect the actions of individuals who identify as Christian, but do not act as Christians.  In addition, some of these characterizations are quite subjective and are an unfair representation of Christianity as a whole, and many of these points could be leveled against a broad swath of American society, regardless of their level of religious practice.

Nevertheless, when considering these examples, you might ask what’s to like?

The Good:

Benefits to the individual:  Despite various critics, issues and shortcomings listed above, there are significant benefits to both individuals and to society in relation to religious practices and involvement.

For individuals, there are numerous studies showing that religious practices, prayer, meditation, regular worship attendance and forgiveness are associated with greater happiness, longevity, healthier behaviors, reduced stress, greater civic involvement, less depression and less suicide. 

For example, Pew Research shows that in the U.S. 36% of the actively religious people describe themselves as “very happy,” compared with 25% of the inactively religious and 25% of the unaffiliated.  In addition, people who attend religious services at least monthly often are more likely than those unaffiliated to join other types of nonreligious organizations, such as charities and clubs.  Ohio State researchers found similar results as published in the journal Social Psychological and Personality Science.  According to the study, Christians who prioritize their relationship with God and engage in positive religious experiences have greater longevity, higher levels of psychological well-being and purpose in life.  Religions also promote stress-reducing practices including gratitude, prayer and meditation.  Part of the increased longevity came from the fact that many religiously affiliated people had strong social networks, belonged to social organizations and volunteered more.  The study was supported by grants from the National Science Foundation and the National Institutes of Health.

The level and type of spirituality also helps with well-being according to Martin Seligman, a well-known positive psychologist, who is Professor of Psychology at the University of Pennsylvania’s Department of Psychology.  Seligman differentiated between extrinsic and intrinsic religiousness in his publication “Religion of the Heart: A Study of Intrinsic Religion.”  Extrinsic religiousness exists where individuals use religion as a means to achieve external goals, such as social status, material rewards, or social support. In this case, religion is seen as a tool for achieving specific outcomes, rather than as an end in itself.  Intrinsic religiousness refers to the extent to which individuals hold religious beliefs and values as personally important and meaningful. In this case, religion is an end in itself, rather than a means to an end.  Seligman found a positive link between religiosity, particular religious involvement, and psychological and physical well-being.  This included optimism, meaning and purpose, social support and social capital.  Seligman says that intrinsic religiousness is more strongly associated with positive outcomes such as well-being, life satisfaction, and happiness, while extrinsic religiousness is more weakly associated with these outcomes, and may even have negative effects on well-being in some cases.

A recent study led by researchers at the Harvard T.H. Chan School of Public Health and Brigham and Women’s Hospital is another definitive analysis that shows the importance of spirituality for healthcare.  The study says that spirituality should be incorporated into care for both serious illness and overall health, according to a 2021 article published in the American Journal of Epidemiology entitled Religious Service Attendance and Implications for Clinical Care, Community Participation, and Public Health.  The study is part of the Initiative on Health, Spirituality, and Religion at Harvard that focuses on exploring the intersection of health, spirituality, and religion through research, education, and collaboration.  This study represents the most rigorous and comprehensive systematic analysis of the modern-day literature regarding health and spirituality to date according to Tracy Balboni, lead author and senior physician at the Dana-Farber/Brigham and Women’s Cancer Center and professor of radiation oncology at Harvard Medical School.

In a blog about the research in Psychology Today and in the Human Flourishing newsletter, Tyler J. VanderWeele, director of that program, noted “strong evidence that religious service attendance was associated with lower mortality risk; less smoking, alcohol and drug use; better mental health; better quality of life; fewer subsequent depressive symptoms and less frequent suicidal behaviors.”  He wrote that studies suggest those who attend religious services frequently enjoy a 27% lower risk of dying and 33% lower odds of subsequent depression.

The study, built upon good study designs and rigorous analysis, showed that for healthy people, spiritual community participation — as exemplified by religious service attendance — is associated with healthier lives.  For many patients, spirituality is important and influences key outcomes in illness, such as quality of life and medical care decisions. Consensus implications included incorporating considerations of spirituality as part of patient-centered health care and increasing awareness among clinicians and health professionals about the protective benefits of spiritual community participation.  Put simply, religious participation is an important determinant of health: it is strongly associated, over time, with a variety of positive health outcomes. 

Key findings:

– There is evidence for service attendance being strongly associated with lower mortality, less depression, and lower likelihood of suicide.” 

– Religious participation contributes to physical and mental health, and subjective wellbeing, through shaping behavior, creating systems of meaning, altering one’s outlook on life, building community and social support, supporting moral beliefs, and through an experience of the transcendent.

– Communal forms of religious participation, rather than merely private practices, most powerfully affect health.

– Overlooking spirituality leaves patients feeling disconnected from the health care system and the clinicians trying to care for them.  Integrating spirituality into care can help each person have a better chance of reaching complete well-being and their highest attainable standard of health.

– Other studies have examined meaning and purpose and the vast majority of these have suggested that various forms of religious participation and service attendance are associated with a greater sense of meaning or purpose in life. 

– Research literature suggests that forgiveness itself is closely tied to health. 

–  Caregiving from religious communities as an important pathway to health and wholeness. The very notion of love as seeking the good of another entails caring for those in need; caring for those who are ill and seeking their health and healing was a prominent theme in its own right. 

Interestingly, the study notes that “While causality cannot be definitely established, the evidence that some of the association is causal seems fairly strong.”  Numerous mechanisms have been suggested for what might be responsible for the associations between religious participation and health.  “Social support, less smoking, lower depression, greater self- regulation, hope and optimism, and meaning and purpose may be potential mechanisms, and some empirical evidence says that some of these might indeed explain some of the relationship.”  Other mechanisms suggested that relate religious participation to better mental health include better physical health, comfort from religion, systems of meaning, and relaxation of nervous system through prayer/meditation.

The Harvard analysis shows that religious participation affects health, and that religious institutions play an important role in the provision of health care and public health services.  Religious participation, on these grounds, thus ought to be included in discussions of, and analyses of, health, as is already common practice for other social determinants of health such as race, gender, or income.  This research was supported by the John Templeton Foundation.  In conclusion, numerous studies have shown a relationship between religious activities and regular church attendance and various positive aspects of overall well-being and health.  It is important to note that correlation does not equal causation, but some studies do infer causality.   

Notable Individuals and Morality:  In addition to the benefits listed above, there are noteworthy individual Christians who articulated and demonstrated high levels of morality that lifted up and inspired greater goodness within the overall population.  They have provided the benefits of a moral conscience in times of great distress and war by calling out despicable behavior involved in an immoral war.  These individuals also help the general population in more mundane, everyday life to aspire to higher levels of behavior.

One exemplary example of moral certitude was Dietrich Bonhoeffer, (1906-1945)a Lutheran pastor, who was strongly opposed to the Nazis.  In the biography “Bonhoeffer-Pastor, Martyr, Prophet, Spy,” author Eric Metaxas describes Bonhoeffer’s efforts to overturn Adolph Hitler and the Nazis.  Bonhoeffer articulated the concept of “Cheap Grace,” described as faith without works.  He said that faith without works is not faith at all, but a simple lack of obedience to God.  Bonhoeffer strove to see what God wanted and then to do what God asked in response.  He saw this as the obedient Christian life and as the call of the disciple.  Cheap grace came with a cost, which explained why so many were afraid to open their eyes in the first place.  Bonhoeffer believed that “the antithesis of cheap grace to the Nazi conflict and other moral challenges was a response that required nothing more than an easy mental assent.”  (p. 279).  Bonhoeffer’s courageous moral character and radical obedience to God meant that he was not able to stand silent and allow the murder of thousands.  Bonhoeffer plotted with others to assassinate Hitler, and ultimately the plan was uncovered.  Bonhoeffer was found guilty in a conspiracy to assassinate Hitler and was executed shortly before the end of World War II.  Dietrich Bonhoeffer’s example helps Christians to aspire to a higher level.

Another notable example is Corrie ten Boom (1892-1983), who risked her life to protect Jews hunted by the Nazis.  She eventually suffered a loss of health and her family in a concentration camp.  Nevertheless, she demonstrated unconditional love and forgiveness of Christ towards even the Nazis.  In her example, Corrie challenges us all to a higher level of service.  Ephesians 4:32 says: Be kind and compassionate to one another, forgiving each other, just as in Christ forgave you.

The steady drumbeat of negative and sensationalized media can cheapen our culture, it can tear at our social fabric and breakdown our civic norms.  It can leave us numb and blind us to the altruistic actions of individuals like Bonhoeffer and ten Boom.  Their uncompromised belief and selfless service provide inspiration to everyone, and they are excellent examples showing the goodness of Christianity.

Uplifting Testimonies:  Not everyone is able to lead a life like Bonhoeffer or ten Boom, but there are many everyday heroes.  Life is not always easy, and many people endure extreme hardship, tragedy and heartache.  Despite these obstacles, many share personal narratives chronicling their challenges and heartaches, detailing their lives before Jesus and the profound transformation they experienced afterwards.  These individuals have changed priorities and changed lives and they go forward to more joyful and uplifted lives.  Sometimes they go on to help change the lives of those around them or the world.  These testimonies serve as sources of inspiration for individuals seeking joy, a new self, and redemption.  This is not to say that all things work out fine for Christians, but these testimonies can help lift us up and motivate us to a higher level.

Christianity Today features personal testimonies of redemption in each monthly issue, with individuals sharing their stories of life before and after accepting Jesus. See Christianity Today’s Top Testimonies of 2022

Benefits to Society:

In addition to individual benefits, there are significant benefits to society as a whole from the practices of Christian institutions and individuals.  Down through the ages Christianity has played a role in ending practices such as human sacrifice, infanticide, polygamy, incest, and abortion. Christian teachings on sexuality have condemned marital infidelity and supported marriage and family life.  The teachings of Jesus, such as the Parable of the Good Samaritan, and the Prodigal Son provide a fundamental basis and moral code for Western notions of mercy, human-rights and welfare.

One current example is the role of Christians in helping fund the fight in developing countries against HIV/AIDS, helping millions gain access to life-saving treatment.  Other examples include advocating for persecuted religious minorities and fighting sexual trafficking. Christians have also provided foster families, visited prisoners, and championed criminal justice reform and the rights of unborn children.  According to Michael Gerson and Peter Wehner, in an article in the November 2015 Christianity Today publication, Christians are irreplaceable sources of compassion, providing services and comfort to suffering people at home (e.g. Catholic Charities) and abroad (World Vision).  They are known for healing rather than judgment and finding pathways for grace and healing.

The caricature of Christians as being judgmental ignores the central message of love and compassion that is at the heart of the faith. Christians are called to love their neighbors, to forgive those who wrong them, and to extend grace and mercy to all people.  There are uncounted examples, and there is much to recommend it.

Historian Tom Holland’s book, entitled “Dominion: How the Christian Revolution Remade the World,” sums up the point that Jesus’ ethics changed the world by being on the forefront of universal human rights, caring for the poor, justice for the oppressed and equality for men and women.  Holland, who is not a Christian, says that this was not part of the Greek or Roman legacy.  He says the origins for this principle do not originate with the French Revolution, the Declaration of Independence or the Enlightenment, but in the Bible.    

So, whether examining academic research, reviewing outstanding individuals like Bonhoeffer and ten Boom, or seeing everyday heroes, there are a multitude of examples showing the benefits and goodness of Christianity.

Goodness Multiplier:

The process of contributing to a better world leads to the concept of the “Goodness Multiplier.”  The cumulative impact of people doing good can compound itself with even more good.  The goodness multiplier is based on the idea that positive actions and choices by individuals can have a ripple effect, leading to increased levels of happiness, success, and well-being for both the individual and those they come into contact with.  This positive feedback loop is often associated with positive psychology and the promotion of positive behavior and values. The idea is that when people behave in a good and virtuous manner, this creates a “multiplier effect” that leads to further positive outcomes in the lives of others.  It becomes a positive contagious and self-reinforcing effect, a virtuous circle.

A quasi-mathematical approach to the Goodness Multiplier is summarized by CBS correspondent Steve Hartman and his “On the Road” series.  Hartman’s “The Gift: Kindness Goes Viral” is a YouTube video showing individuals demonstrating kindness, and how this propagates more broadly to other people.  The video shows that an act of kindness might in fact create enough of a “wave of good will” to change the world.  In this video, Hartman works with Professor Anette Hosoi of MIT to apply a quantitative approach to his thesis.  Hosoi utilizes basic math depicted on a chalk board to show how one act of kindness might grow exponentially and positively impact the world.  It is paying it forward and it shows how goodness begets goodness.  This video has gone viral and can be seen here.

This is not explicitly a Christian post, but it demonstrates the power of Christian principles within a secular setting and it helps restore faith in humanity.  To see Professor Hosoi in the video go to the 8 minute mark and again to the 31 minute mark.

While goodness is not limited to Christianity, the Goodness Multiplier greatly expands the good works espoused by Christianity.

The Bible’s Impact:

The Bible is the most published book in the world and it serves as the basis for spiritual guidance and truth for Christianity and the Christian impact.  Given the Bible’s ubiquity, there are both supporters and detractors related to its relevance and impact.  A common complaint, especially by atheists, and a concern of practicing Christians is the difference between the Bible’s Old Testament and the New Testament.  The Old Testament, also known as the Hebrew Bible, is the foundational text of Judaism and it provided the historical and religious context for the emergence of Christianity.  The Old Testament preceded Christianity during the time of roughly 2000 BC to 400 BC and it contains the law, the prophecy, history, poetry, etc.  It highlights the Ten Commandments as the moral code during an era that was much more savage and brutal than today.  The Old Testament often shows sin that invokes God’s anger, wrath, judgment and punishment and these factors identify perceptions of Christianity today. 

The late Rachel Held Evans in her book “Inspired” explains how the Bible contains allegorical language and needs to be understood within the context of the times in which it was written.  In an ancient world that often celebrated violent indulgence, the law offered a sense of stability and moral purpose.  “An eye for an eye and a tooth for a tooth may seem as barbaric endorsements of revenge, but within its cultural context this defined example of “retaliation” represented a deliberate move away from excessive punishment allowed in other tribes by limiting retaliatory action to judicious, in-kind responses.  In other words, you can demand restitution for your loss, but no more; this is about justice, not revenge.”  (p. 53)

Andy Stanley’s book “Irresistable” makes a similar claim: “The civil and religious law detailed in God’s arrangement with Israel was superior in every way to the civil and religious law of the surrounding nations…. The protections afforded to the most vulnerable were nothing short of revolutionary in their original context.  Women, servants, foreigners, and children all fared better under Jewish law than did their counterparts in the surrounding nations.  The Sinai covenant was a perfect arrangement within a specific cultural setting in light of God’s purpose for the nation and for the world.”  (p. 95) Stanley goes on to say that “God is love is a uniquely Christian idea. Pagan gods were jealous, fickle, capricious and entertained themselves by trifling in human affairs.” (p. 223)

For some, the Bible is often described as contradictory.  Many scholars believe it is more appropriate to view the Bible as a library with a multitude of authors and wide-ranging contexts.  As such, it offers no simple answers, but rather broad guidelines.  God gave various diverse writings to avoid simplistic solutions to complex problems.  As such, the Bible requires discernment and interpretation related to various points of view and perspectives. 

New Testament Revolution:  The Bible’s New Testament, with its emphasis on unconditional love, grace and mercy, is starkly different from the Old Testament.  The New Testament covers the time from Jesus’ birth at around 5 BC to approximately 70 AD, a roughly 75-year span. It built upon the foundation of the Old Testament and it provided the basis for the Christian faith.  Many of the central themes and characters of the Old Testament, such as the story of Moses and the Israelites, were important to the early Christians.  The New Testament, which is comprised of the Gospels (good news), the letters of the apostles, and the Book of Revelation, tells the story of Jesus of Nazareth, who was the Son of God and the savior of humanity. It provides a transition from the Old Testament by fulfilling the prophecies and promises made in the Old Testament, such as the coming of a Messiah, and by providing a new covenant between God and humanity through the ministry, death and resurrection of Jesus Christ.

Christianity is unique among major religions because it is faith-based rather than works-based. Christianity emphasizes the concept of grace – the idea that salvation is a gift freely given by God, not something that can be earned through good works or merit.  It is also based on the centrality of love and the importance of forgiveness.   Christians are taught to love their neighbors as themselves and to forgive others, even their enemies.  An example of the evolution from the Old Testament to the New Testament is shown/seen by Jesus’ statement:  You have heard an eye for an eye, but I now tell you to turn the other cheek.  Matthew 5:38-39, and whoever would be great, must be your servant from Matthew 20:26.

One controversial aspect of the New Testament regards the Apostle Paul’s command for wives to submit to their husbands as recorded in Ephesians 5:22.  A general reading of Paul shows a patriarchal society that subordinates women.  But, just like in Old Testament passages, there is a need for consideration and context.  Many note that Paul’s message of submission (in Ephesians 5:22) goes both ways, and in the earlier verse (Ephesians 5:21), Paul writes, “Submit to one another out of reverence for Christ.” Stanley’s “Irresistable” says “It’s impossible to overstate the elevated status women enjoyed in the early church.  The notion of mutual submission within marriage was unheard of until the birth of Christianity.  It’s a uniquely Christian idea.” (p. 215)   

This can be read as mutual submission and love in a Christian marriage.  There are various interpretations that suggest the Apostle Paul’s statement about wives submitting to their husbands can be seen as quite liberal for the time it was written.  In Paul’s other teachings he advocated for the spiritual equality of men and women and encouraged women to play important roles in the early Christian church.  Some argue that these teachings mean that Paul was more progressive for his time on gender than many of his contemporaries.  Galatians 3:28 says there are neither Jew nor Greek, slave nor free, male nor female, for you are all one in Christ Jesus. 

In summary, the role of the Bible can be seen as revolutionary for its time and timeless for our current culture.  It provided a basis for moral behavior that has stood the test of time and impacted the world.

Charitable Donations By Individuals

Research has consistently shown that religious individuals give more to charity than those who are not religious.  In addition, religious organizations themselves are often major providers of charitable services, including education, healthcare, and disaster relief to address social and humanitarian needs.

According to the Barna Group, the data is clear:  the church is leading the world in charity.

Barna’s report, The Giving Landscape, published August, 2022, shows that 90% of practicing Christians have given to charity in the past year. Practicing Christians are selfidentified as people who attend church at least once a month and describe their faith as important to their daily life.  Non-practicing Christians fall more in line with the national average on giving, while a slight majority of non-Christians do not report any charitable donation.

Similar results were found by the Giving USA foundation of the Lilly Family School of Philanthropy at Indiana University.  Their research shows that religiously affiliated people are more likely to make charitable donations, whether to a religious congregation or to another type of charitable organization of any kind.  In addition, the Almanac of American Philanthropy says that regular attenders of religious services give to secular causes at a much higher rate than who don’t attend religious services.  These findings suggest that religious communities may have a greater sense of social responsibility and are more likely to engage in acts of charity. 

Institutional examples of Christian Charity:

Charitable giving by individuals is a major source of giving, but there are numerous examples of Christian charitable institutions:

-William Booth, a Methodist minister, established the Salvation Army in 1865.

-Henri Durant, a Swiss humanitarian, founded the Red Cross in 1859.

-The Young Men’s Christian Association-YMCA was founded to develop Christian values in 1844.

-World Vision was founded in 1950 to promote child sponsorship and help regions affected by disaster, poverty and famine.

-The Church Mission Society (formerly known as the Christian Missionary Society) taught 200,000 to read in East Africa in one generation, secured the abolition of widow-burning and child sacrifice, brought medicine to the world and advanced educational systems in China, Japan, and Korea.

There are innumerable charitable organizations, mission agencies, parachurch groups, medical personnel, teachers and other volunteers, but the organizations listed above provide representative examples.

My Cornerstone website includes additional charitable information and here.

To summarize, research has shown that individuals who are active in religious communities tend to give more to charity than those who are not religious.  Additionally, religious communities often provide support and resources for charitable giving, which can increase the total amount of contributions made.

Charity is a virtue, and this is a category with many good actors

You could say the research shows a charitable philosophy that says you can’t take it with you, but you can send it on ahead. 

Slavery & Racial Justice:  

Slavery has been a global institution going back thousands of years, and it has been a significant moral issue for the church.  Although Christianity has played a largely positive role related to slavery throughout history, and especially through the abolitionist and Civil Rights movements, there were some elements of Christianity that supported slavery and segregation.

The Bad Behavior:  Southern Christian slaveholders during the antebellum period before the Civil War justified the enslavement of African Americans by using passages of scripture that they interpreted to support slavery.  There were also a combination of cultural and economic arguments as well that were used to rationalize the enslavement.

Although the institution of slavery was legally abolished through the ratification of the 13th Amendment after the conclusion of the Civil War in 1865, the sinister effects of slavery and racism continued. Almost immediately after the Civil War, state and local Jim Crow statues essentially legalized racial segregation.  Moreover, the Ku Klux Klan emerged to intimidate and maintain 2nd class citizenship and marginalize African Americans by maintaining and enforcing racial segregation.

The Good Behavior:  While slavery was part of cultural value system on a global basis, the church played a major role through the Abolitionist movement to end slavery and reduce racial injustice.

Key events and people:  William Wilberforce(1759-1833) started the abolitionist movement in England based on his Christian convictions.  His determined efforts over a period of 18 years resulted in the elimination of the slave trade in 1807.  After the elimination of the slave trade, he continued his long, persistent fight and slavery itself was finally outlawed in Britain in 1833, just days before he died.  An interesting side note is that the song “Amazing Grace” was written in 1772 by Englishman John Newton, a one-time slave trader who transformed his life to God’s service and was ultimately ordained as an Anglican priest.  He became a spiritual adviser to William Wilberforce and he fought alongside William Wilberforce to end the slave trade.  Christian values were a key source and a notable biblical passage comes from Galatians 3:28 which says there is neither slave nor free, male nor female, for you are all one in Christ Jesus.

The Christian Church played a key role in the abolition of slavery in the United States as well, with many denominations and individual Christians advocating for the end of slavery and supporting abolitionist movements.  A major abolitionist catalyst was Harriett Beecher Stowe’s “Uncle Tom’s Cabin,” published in 1852.  Harriet, was a daughter of a preacher, she was married to a preacher, and all her brothers were preachers.  Her book impacted people in both North and South, and was described as a verbal earthquake.  Southerners hated the book, as it advocated for an end to slavery.

Her book reiterated the profound value of a human soul, and it became one of the most influential novels ever published.  It made emancipation inevitable and became a major factor contributing to the American Civil War.  “So this is the little lady who made this big war,” said Abraham Lincoln upon meeting her for the first time.  Her book was the first great American bestseller.  Although during the Civil War, both the North and the South cited religious support, President Abraham Lincoln said it best:  “My concern is not whether God is on our side,” he said. “My greatest concern is to be on God’s side.”  

Despite the legal end of slavery, segregation and discrimination and racism persisted.  After World War II, a new awareness of the evils of racism led to the U.S. Civil Rights Movement.  The Civil Rights Movement of the 1950s and 60s was a significant moment in history and was based on a nonviolent strategy that showed the incredible role the Bible played.  Many Christians, including ministers and activists, played a key role in advocating for equal rights and social justice for African Americans.  Martin Luther King Jr’s. rhetoric drew on biblical teachings including Matthew’s Gospel which recounts Jesus’ teaching nonviolence.  

Based on early Civil Rights efforts, the U.S. Supreme Court in 1954 ruled in Brown v. Board of Education that separate-but-equal segregation in education was unconstitutional.  Despite the Supreme Court ruling, segregation, discrimination and racism continued.  As a result, the Civil Rights Movement continued to work for the rights of Black Americans.  Prominent examples include the Freedom Riders who rode public buses in order to challenge segregation laws, Rosa Parks and many other foot soldiers who counted on their Christian faith to give them courage to fight against racism.  Black churches and black preachers also played a key role.

In 1964, President Lyndon B. Johnson signed the Civil Rights Act, which legally ended the segregation that had been institutionalized by Jim Crow laws.  And in 1965, the Voting Rights Act halted efforts to keep minorities from voting.  The Fair Housing Act of 1968, which ended discrimination in renting and selling homes, followed.  It is unfortunate that this legislation occurred 100 years after the Civil War.  It is even more unfortunate that, despite this legislation, segregation, discrimination and racism continued to persist.   

Racism and discrimination were being fought not only in America, but globally as well.  Nelson Mandela (1918-2013), an anti-apartheid activist and politician led a highly visible fight in South Africa.  He served 27 years in prison (at times in a cell 8’ by 7’, but upon release from prison he declared his commitment to peace and reconciliation.  He became an icon of democracy and social justice and served as the first president of South Africa from 1994-1999.  He left a legacy of racial reconciliation, and became one of the most profoundly influential people in the 20th century.

Over time, Americans came to understand that slavery violates the Christian concepts of infinite worth of the soul and we are all created in the image of God.  Nevertheless, it took until 1995 for the Southern Baptist Convention to renounce racism and to apologize to African Americans for its history of supporting slavery and advancing segregation.  The apology stated that the intolerant past was not a true representation of Christianity. 

Although the legal and legislative achievements in America were helpful, progress against racism was slow and it proved to be a long and winding road.  The murder of George Floyd in 2020 demonstrated the recurring nature of racism.  Cell phone video of his death went viral and triggered a groundswell of outrage and activism by religious leaders and faith-based groups and others across the United States, reminiscent of the 1960s civil rights movement.  A greater awareness of racism and discrimination by individuals and institutions developed as church pastors denounced racism and held interracial prayer services.  The heightened awareness of racism resulted in statues linked to slavery to be taken down, Confederate flags were removed from government properties and many racially insensitive or inappropriate messages were taken down from social media. 

In the wake of the outrage, Jemar Tisby, MDiv. and PhD in history published “How to Fight Racism:  Courageous Christianity and the Journey toward Racial Justice.”  In this book, Tisby says Christians have a responsibility to fight racism, as it is incompatible with the teachings of Jesus and the gospel.  He goes on to say that “White people tend to grow up with a “colorblind” mentality, meaning they are taught to not “see color,” and that the only way to treat everyone equally is to pretend that everyone is the same.”  (p. 48)  He says that people need to courageously continue down the path of racial awareness so that colorblindness eventually gives way to color-consciousness.  The growing awareness helped many discern personal blind spots of racism by shining God’s loving light on the sinful darkness of racism in hearts, heads, homes-and even in churches. 

These events and history show the church has sometimes been complicit in slavery in the past, and in continuing racism today.  However, the church has also played an outsize role in ending slavery and helping to advance racial justice.

Historical Legacy

The Judeo-Christian impact covers a 4,000-year legacy of major influence within the world, it has outlived all powerful rulers and dynasties, and Christianity became the largest religion at over 30% of the global population.  During this time there were various civilizations with moral codes, and the Judeo-Christian legacy certainly had no monopoly on virtue, but it did have a unique position relative to the centrality of love.  John Dickson’s “Bullies and Saints” points out that universal love is not in the Code of Hammurabi, the ethics of Plato and Aristotle, the maxims of Delphi or the discourses of Seneca, Epictetus, or Plutarch.  He explains that “there is hardly a mention of love mercy, humility or non-retaliation.”  (p. 27)  The Golden Rule is a universal ethical insight, but love your enemies is unique to Christianity.

Moreover, Imageo Dei declares that each person is created in the image of God, and it lies at the heart of the Christian view of human dignity.  Ancient Jews and Christians believed every man, woman, and child was inherently and equally valuable because they bear the image of God.  The application of these principles meant that early Christians also stood in opposition to infanticide, the degradation of women, gladiatorial combats, and slavery.

Christianity, with roots in the Bible’s Old Testament, started with the ministry of Jesus and expanded rapidly, especially after his death and resurrection.  The apostles Paul, Peter, and others risked martyrdom as they preached in their evangelical missionary work and as they wrote epistles to their converts.  Through their efforts, the nascent Christian movement spread quickly through Cyprus, Asia Minor, Macedonia, Greece, Rome, Crete, Spain and other regions. 

After Jesus was crucified on a cross, the apostles were completely demoralized.  The death of their leader drained their energy and critics made them out to be fools tricked by a charlatan.  The resurrection of Jesus on Easter, however, ignited their faith as they came to more fully comprehend his revolutionary mission of love, grace, mercy, service and of salvation. 

Their reaction to Jesus’s resurrection became the greatest testimony to belief in a risen Christ.  Their witness of Jesus life, death and resurrection led them to evangelize with undaunted passion and most were martyred for their faith.  Their spiritual energy and fervorto die evangelizing speaks volumes to support the reality of Christ’s resurrection.  It is highly improbable that the apostles and other Christian converts would dedicate their lives, and become martyrs for a dead leader.  Although persecution and martyrdom do not constitute proof, these events provide a convincing rationale of Jesus’ resurrection from the dead and for his promise of eternal life for his believers.  It is a compelling example of human nature being energized by this miraculous event, and it serves as a challenging question for skeptics, agnostics and atheists to ponder.    

The spread of Christianity was phenomenal.  These early Christians, emboldened by their understanding of Jesus’ revolutionary mission, were persecuted by Jews and then by Roman Emperors.  The Roman emperor Nero was particularly infamous for killing Christians, but it only caused even more to endure persecution and became martyrs for their faith.  Persecution and martyrdom caused Christianity to grow at an even more explosive rate and it is estimated to have grown to roughly 30 million followers by AD350.

Part of the rapid spread of Christianity is explained by the conversion of Roman Emperor Constantine (272-337) to Christianity.  After his conversion, the Edict of Milan was issued in 313, an event which provided religious freedom for all religions and treated Christians benevolently within the Roman Empire.  This paved the way for Christianity to become the official religion of the Roman Empire in 380 under Emperor Theodosius 1. The transition from paganism to Christianity brought half of the Roman Empire under the political and social influence of Christianity.

The construction of roads by the Roman Empire also had a significant impact on the spread of Christianity.  The Roman roads were built with a remarkable level of engineering expertise, allowing for efficient travel throughout the empire. This made it easier for early Christians to travel and spread their message to new regions.  The Roman roads were also important trade routes, and Christian merchants and travelers were able to move along them and establish contacts with other Christian communities, further contributing to the spread of the religion.

Charlemagne (748-814) was a key leader who caused the rapid spread of Christianity.  Charlemagne also known as Charles the Great, was a Frankish king who ruled much of Western Europe from 768 to 814. By 800, Pope Leo III crowned Charlemagne as Holy Roman Emperor.  This was significant because during the Middle Ages, the church and secular rulers were often closely related. 

Charlemagne’s leadership helped create a unified Europe and he is sometimes called the Father of Europe.  He instituted political and judicial reforms that were sometimes referred to as the Christian Renaissance. Charlemagne advanced education and literacy, promoted economic and legal reforms, and protected the poor. Charlemagne strongly supported Christianity and facilitated its expansion.  It must be noted that he sometimes used strong-arm tactics to force Jews and Muslims to convert to Christianity or face persecution.

As the Catholic Church evolved and Christianity grew, historian Geoffrey Blainey characterized the Catholic Church’s activities during the Middle Ages as an early version of a welfare state, providing hospitals for the old, orphanages for the young, hospices for the sick, and hostels or inns for pilgrims.

Great Thinkers Impact

St. Augustine (354-430) was a bishop, philosopher, and theologian who significantly influenced the development of Western Christianity. His early life of sin and heresy was transformed into a life as a devout Christian.  His writings, including his “Confessions” and “City of God,” cover the power of grace, the role of free will, and the relationship between faith and reason.  His writings helped Catholicism to flourish and have had a significant impact on theology and Western philosophy.

St. Thomas Aquinas (1225-1274) was a Catholic priest, philosopher, and theologian, known for his works “Summa Theologica” and “Summa Contra Gentiles.” He believed in a rational approach to theology and used reason to understand and interpret religious beliefs to yield a more systematic and rational approach to theology.  His contributions to the development of moral theology have had a lasting impact on the Catholic Church, and his contributions to Christian theology and philosophy continue to be widely studied and debated.

Ignatius of Loyola:  Ignatius of Loyola (1491-1556) was a Spanish Catholic priest and theologian who founded the religious order of the Society of Jesus (The Jesuits) for missionary work and teaching.  Jesuits took vows of chastity, obedience, poverty and self-denial.  His Spiritual Exercises became known as Ignatian Spirituality.  He was inspired by the example of Francis of Assisi and other great monks.  Ignatius was beatified by Pope Paul V in 1609 and canonized by Pope Gregory XV in 1622.


The Crusades represent another chapter in Western civilization.  Prior to the Crusades, Emporer Constantine believed that the Roman Empire had become too big to be administered efficiently and moved the capital 800 miles east of Rome in 330 to the city of Byzantium, and named it after himself-Constantinople, modern day Istanbul.  This became the Eastern Roman Empire.  Over time, the Great Schism of 1054 marked a major split in the history of Christianity between the Roman Catholic Church based in Rome and the Orthodox Church in the East.  The two regions had developed distinct cultural, political, jurisdictional and theological differences and it became difficult to remain united. 

Meanwhile, the expansion of Islam increasingly controlled territory in the Eastern Orthodox Church, including Jerusalem. In an effort to retain Christianity in the East, the Eastern Orthodox Church in Constantinople requested aid from the Christians of Western Europe.  In response, Pope Urban II called for a Crusade in 1095 to re-take the Holy Land from Muslim rule. Although initially a noble venture that achieved some territorial gains, (including Jerusalem for 90 years), the Crusades continued for over 300 years into the 1400s.  During this time period, church leaders essentially weaponized the Crusades and there were atrocities on both sides.  The Crusades eventually lost momentum and resulted in defeat for Europeans and victory for Muslims.  Many argue that the Crusades actually extended the reach of Christianity and Western civilization.

The Spanish Inquisition, starting in the 1400s and continuing for over 350 years, utilized torture and even cruel burnings at the stake to combat heresy and to consolidate the power of the Spanish monarchy.  The brutality of the Spanish Inquisition became an important factor in the Protestant case against the Catholic Church.  Various estimates put the inquisition’s death toll at perhaps 6,000 over the three-century time span.  Although certainly no justification, it should be remembered that Josef Stalin killed an estimated 15-20 million people and Mao Zedong over 40 million.  Even the Khmer Rouge led by French-educated Pol Pot caused the death of 2 million people in the genocide in Cambodia.  The Spanish Inquisition was a blighton church history and Pope John Paul II publicly apologized for them in March 2000. 

Christianity and religion are often rightfully listed for their role in various “Holy Wars,” but it is worth noting that more people died under in the 20th century as a result of godless ideologies than had perished in all of Western civilization’s religious wars put together.

Protestant Reformation:

The Protestant Reformation was a significant event in European history that brought about numerous positive changes.  Despite Christianity revolutionizing Western religion, there was growing concern related to the increasing wealth, power and secularization of the Catholic church.  Major issues emerged including corruption, nepotism, sexual misconduct among the clergy, abuse of power by church leaders, and the sale of indulgences.  All these taken together contributed to the increasing disillusionment with the Catholic Church.

The Protestant Reformation was spearheaded by Martin Luther with the publication of the 95 theses in 1517, bringing several important benefits and changes to Europe.  Luther advanced the doctrine of the priesthood of all believers, emphasizing individual interpretation of the Bible and religious freedoms. He also advocated a separation of religious and worldly realms and upgraded the role of laymen within the church, obligating them to use reason to govern the worldly sphere in a rational way.  The establishment of new protestant denominations, the promotion of education and literacy, and the reduction in the power and wealth of the Catholic Church were other significant outcomes of the Protestant Reformation.

John Calvin, another key figure in the Protestant Reformation, believed in a separation of powers through a system of checks and balances. He also strengthened the support for democracy by supporting elected laymen within his representative church government.  He was also well known for supporting a strong work ethic.  Calvinists and Lutherans developed a theory of resistance that was called the doctrine of the lesser magistrate.  This framework was later utilized in the American Declaration of Independence.  This doctrine resisted political absolutism and supported the development of modern democracy.

Key developments of the Protestant Reformation can be summarized as:

-The development of democratic ideas, as rulers were increasingly seen as accountable to their people rather than to the Church.

-The promotion of education and literacy, as the printing press made the Bible and other religious texts widely available.

-The creation of a more pluralistic and diverse religious landscape in Europe and the proliferation of new denominations.

-The spread of ideas related to individualism, capitalism, and the scientific revolution.

These changes had far-reaching effects, contributing to the development of modern Western society and shaping the course of world history.

The Protestant Reformation proved to be a watershed event leading to modern democracy.  The ideas of Martin Luther, John Calvin, and others paved the way for the development of democracy in England and America.  It is worth noting that all of these men wrote before John Locke published his “Two Treatises of Government.”  Calvin’s impact was profoundly influential in America where an estimated 55 percent to 75 percent of white citizens in this era associated themselves with Calvinist churches, and members of the tradition were significantly overrepresented among American intellectual elites.

Christian Impact in America:

The Protestant Reformation liberated Christian’s perspective regarding the role of government controls and persecution and this trend continued with the establishment of colonies in North America. 

The Pilgrims were a group of separatist Puritans who in 1620 fled from religious persecution by King James 1 of England. They established the Mayflower Compact, a social contract that was the first governing document of Plymouth Colony.  It was an agreement to make their own “just and equal” laws for their common good.

The Puritans were another Puritan group who established the Massachusetts Bay Colony in 1628.

The Puritans believed in the idea of personal responsibility and the importance of individual freedom and autonomy, which helped to lay the foundation for the concept of individual rights and freedoms in modern democracies.  The Puritans practiced a degree of religious toleration and allowed other religious groups to settle in their colonies. This helped to establish a tradition of religious freedom and diversity in the American colonies, which later became a cornerstone of American democracy.

The Puritans also established a form of representative government in their colonies, where elected officials made decisions on behalf of the people. This helped to establish the idea of representative democracy and the principle of government by the people. John Winthrop, an English Puritan lawyer, was one of the leading figures who helped establish the Massachusetts Bay Colony in New England.

He was elected governor of the Massachusetts Bay Colony in 1630 and served in that position for several terms.  John Winthrop used the metaphor of a “Shining City on a Hill” in a speech that set the tone for the Massachusetts Bay Colony and helped to establish the principles of religious piety, community, and moral responsibility.  Winthrop stressed the importance of cooperation and mutual support among the settlers, calling for them to live in a “body politick” where they would help and support each other.

This new colony was in a unique position as a beacon of hope and godliness to help shape the rest of the world and for the development of American democracy.  Ultimately, Winthrop’s lofty ideals for a godly society did not match the reality of mundane, everyday living, but his contribution to democracy was substantial.

In conclusion, the Pilgrims and Puritans played a vital role in shaping American democracy by contributing to the development of democratic principles.

John Locke (1632-1704) is celebrated as one of the champions of human liberty. His Christian beliefs, especially his Calvinist views, greatly influenced his ideas about democracy. He believed in the principle of equality, that all humans were created equally free and that governments needed the consent of the governed. Locke’s philosophy on freedom came from the Bible, including the theological doctrine of Imago Dei and the basic idea of human equality, including equality of the sexes.  Locke believed in the idea of natural law, and the idea that all individuals are equal in the eyes of God, and that all individuals have certain natural rights that should not be infringed upon by the government. He also believed in the idea of a social contract, where individuals agree to give up some individual freedom in exchange for protection and security provided by the government. His belief in the idea of a higher power, or divine law, guiding human affairs, also influenced his ideas about the limited role of government and the importance of individual liberty.

America’s Founding Fathers were greatly influenced by Locke, especially Thomas Jefferson and Benjamin Franklin.  Locke’s ideas about the need for individuals to be able to freely exercise their conscience and moral judgment, and his call for the protection of certain unalienable rights, were crucial in the formulation of the Declaration of Independence. The document proclaims that all men are created equal and endowed by their Creator with certain unalienable rights, among which are life, liberty, and the pursuit of happiness.

Christianity’s formative role in America’s early years is also shown by George Washington-America’s first President.  Washington made a noteworthy 1789 Thanksgiving Day Proclamation that is still cited today, and is worth quoting:  “Whereas it is the duty of all Nations to acknowledge the providence of Almighty God, to obey his will, to be grateful for his benefits, and humbly to implore His protection and favor…I do recommend…the People of these States to the service of that great and glorious Being, who is the beneficent Author of all the good that was, that is, or that will be….And also that we may then unite in most humbly offering our prayers and supplications to the great Lord and Ruler of Nations and beseech Him to pardon our national and other transgressions, to enable us all, whether in public or private stations, to perform our several and relative duties properly and punctually; to render our national government a blessing to all the People.”

At times our nation’s Founders made grievous errors and compromises inconsistent with the truth of Scripture and the high-minded principles found in the Declaration of Independence.  While surely imperfect, our nation’s Founders-many of them people of faith-achieved something unique in human history:  a republic where ordinary people have a say in their government. 

Historical figures, such as John Adams and Alexis de Tocqueville emphasized the crucial role of religion in promoting liberty and morality.  Alexis de Tocqueville is particularly remembered for:  “Liberty cannot be established without morality, nor morality without faith.”

This sentiment echoes the views of past US presidents, such as Franklin D. Roosevelt, who recognized the essential role of religion in the foundation of American democracy.

Franklin Roosevelt at an address to the 1933 National Conference of Catholic Charities said:  “With every passing year I become more confident that humanity is moving forward to the practical application of the teachings of Christianity as they affect the individual lives of men and women everywhere.”

George W. Bush is also remembered for his faith in remarks at the 2006 National Prayer Breakfast:  “I believe in the power of prayer, and I believe in the power of faith, and I believe in the power of this great democracy to lead the world in the values that have made our country strong.”

The religious role within our democracy continues through organizations like the Religious Freedom Project at Georgetown University’s Berkley Center for Religion, Peace and World Affairs.  The Religious Freedom Project is dedicated to the analysis of religious freedom and the role of religion in public life, the relationship between religion and democracy, and the impact of religious freedom on global politics and human rights.

In conclusion, Christianity has had a significant impact on the development of democracy in the United States and around the globe, influencing the values and ideas that have shaped the nation and inspiring individuals and communities to work towards justice and equality.


Christianity has had a significant impact on the advancement of education throughout history, both in the United States and around the world.  Christianity has been involved in the founding of many of the world’s earliest schools and universities, including the University of Bologna, the University of Paris, and Oxford and Cambridge Universities. In addition, most of the world’s greatest universities were started for Christian purposes.  Christianity has also been a major influence in the development of curricula, particularly in areas such as theology, philosophy, and the liberal arts. The vast majority of classical Latin texts – pagan as well as Christian – were preserved by diligent monks in the so-called Dark Ages. 

Christianity has also promoted literacy and education for the masses. Since Protestant Reformers wanted all members of the church to be able to read the Bible, education on all levels got a strong boost.  This included compulsory education for both boys and girls.  Many of the first colonial colleges were founded by Christians, including Columbia University, Brown University, Rutgers University, and Yale University.

Many Christian scholars and educators have made significant contributions to the advancement of knowledge and understanding in a variety of fields, including science, literature, and the arts. Christianity has emphasized the importance of the individual and their potential for growth and development, encouraging individuals to seek education and to use their skills and abilities for the common good. Many Christian denominations have established programs for religious education, providing individuals with the opportunity to learn about their faith and to deepen their spiritual understanding.

Christianity has also played a significant role in the development of modern science. The modern science of genetics was created by Augustinian friar Gregor Mendel, and Catholic priest Georges Lemaitre was a brilliant mathematician who created the theory of the primeval atom, better known as the big bang theory. Presbyterian minister Thomas Bayes created Bayesian statistics, widely used today in artificial intelligence and machine learning.

Despite a common misconception, a Pew Center study about religion and education around the world in 2016 found that Christians ranked as the second most educated religious group worldwide after Jews, with an average of 9.3 years of schooling. Christians were also found to have the second highest number of graduate and post-graduate degrees per capita while ranking first in absolute numbers.

In summary, Christianity has had a significant impact on the advancement of education, inspiring the establishment of schools and universities, influencing curricula and the advancement of knowledge, and encouraging individuals to pursue education and to use their skills and abilities for the common good.

Health Care, Social Services and Reform

Christianity has been instrumental in the development of hospitals and the care of the sick going back to the Middle Ages.  This legacy continues today as many Christian organizations are involved in the development of healthcare and education initiatives, providing access to these essential services for those in need. 

Christianity has also played a significant role in advancing the care for the poor, both in the United States and around the world.  The teachings of Jesus encouraged his followers to care for the poor and marginalized, and Christianity has a strong tradition of charity and compassion.  In addition, many Christian organizations, including churches, mission societies, and charitable foundations, have been established specifically to address the needs of the poor and provide assistance and support.

Christians have often been at the forefront of advocating for government policies that address poverty and provide support to those in need, and Christianity has inspired many individuals to engage in volunteer work and community service, helping to address the needs of the poor or disadvantaged.

Christian women’s groups, such as the Women’s Christian Temperance Union, were instrumental in advocating for women’s suffrage.  Christianity has also inspired and sustained a tradition of social and political activism in the United States, encouraging individuals and communities to work towards the common good and to seek justice for those who are marginalized or oppressed.

Christianity has also played a significant role in prison reform, with individuals like John Howard, Elizabeth Fry, and Lutheran pastor Theodor Fliedner working towards improving the conditions of prisons. Florence Nightingale, the mother of modern nursing, was trained in one of Theodor Fliedner’s schools in Kaiserswerth.

Lastly, Christianity has also been involved in labor reform, with individuals like Anthony Ashley Cooper, who pioneered child labor laws, prohibited women from working in mines, and established mental health sanitariums, among other achievements.

Despite today’s partisan politics, Christianity has played a significant role over the years (decades and centuries) in advancing healthcare, the care for the poor, inspiring individuals and organizations to engage in charity and compassion, and advocating for policies and initiatives that address poverty and promote justice and equality.

Music, Literature and the Arts

Christianity has left a profound impact throughout history on the advancement of music and literature, as well as the creation of art. In music, Christianity has been a major influence in the development of sacred music, inspiring works by many of the most admired classical music composers, including Bach, Handel, Mozart, Pachelbel, Vivaldi, Haydn, Beethoven, Mendelssohn, and Verdi.  Christianity has also inspired a wealth of musical works, including operas, oratorios, and other musical forms that depict stories from the Bible and the lives of Christian saints.  Noteworthy hymns include “Amazing Grace” and “How Great Thou Art.”  Contemporary music includes:  “What A Beautiful Name” by Hillsong Worship, “Amazing Grace (My Chains Are Gone)” by Chris Tomlin, and “10,000 Reasons (Bless the Lord)” by Matt Redman.

Christianity has also used music as a key element in worship, and its emphasis on musical education has led to the establishment of many programs for the training of musicians and the development of musical skills.

In literature, St. Augustine’s “Confessions” is widely considered to be the first autobiography ever written in the canon of Western Literature, profoundly influencing the coming medieval worldview. Thomas Aquinas’ “Summa Theologica” is a compendium of all the main theological teachings of the Church and is regarded as one of the classics of the history of philosophy and one of the most influential works of Western literature. St. Ignatius Loyola’s book of meditations, known as the “Spiritual Exercises,” was influential in the Catholic counter-reformation, a period of spiritual, moral, and intellectual revival in the Catholic Church in the 16th and 17th centuries. 

In art, the Renaissance masterpieces produced by Catholic artists like Michelangelo, Leonardo da Vinci, and Raphael remain among the most celebrated works of art ever produced.  Vincent Van Gogh’s explicitly Christian works include “The Raising of Lazarus” and “The Good Samaritan,” among others.

In conclusion, the impact of Christianity on music, literature, and art has been significant, influencing the development of sacred music, emphasizing the importance of musical education, and inspiring works of literature and art.

Missionaries-Democracy & Economic Development

One stereotype about missionaries and missions is that they were closely associated with colonialism.  However, according to professor Robert D. Woodberry, Protestant missionaries not funded by the state were regularly very critical of colonialism and they were very effective in improving peoples’ lives. Woodberry’s work analyzed the long-term social, political, and economic impact of Protestant missionary activity in Asia, Africa, and Latin America. His seminal article, “The Missionary Roots of Liberal Democracy,” was published in the American Political Science Review in 2012 and won the American Political Science Association’s 2013 Luebbert Best Article Award. Woodberry (utilizing data on the number of schools, teachers, printing presses, hospitals, and doctors) found a significant statistical link between democracy and Protestantism,

Woodberry explored why some nations develop stable representative democracies while neighboring countries suffer authoritarian rulers and internal conflict. For example, during the colonial era British missionaries in Ghana had established a whole system of schools and printing presses, while France, the colonial power in Togo, severely restricted missionaries. The statistical model Woodberry created could test the connection between missionary work and the health of nations. He found that missionaries had educated women and the poor, promoted widespread printing, led nationalist movements that empowered ordinary citizens, and fueled other key elements of democracy.

To strengthen his theory, Woodberry used sophisticated statistical analysis to control for a host of factors such as climate, health, location, accessibility, natural resources, colonial power, disease prevalence, and more. He found that areas where Protestant missionaries had a significant presence in the past are on average more economically developed today, with comparatively better health, lower infant mortality, lower corruption, greater literacy, higher educational attainment (especially for women), and more robust membership in nongovernmental associations.

Woodberry acknowledges that there were some racist missionaries and missionaries with self-centered motives, but the average effect was a profound positive economic and political impact. This applies to conversionary Protestants only, as missionaries financed by the state and Catholic missionaries prior to the 1960s had no comparable effect. Woodberry’s research has transformed the ugly character of the missionary into a positive force for the common good.

Secular Trends:

Topics addressed so far have shown significant positive Christian and religious impact, but current trends show a decline in Christianity in America and Europe. Research and studies from Pew Research, Barna and others show Christian practices, and attendance is down significantly in the U.S. and especially in Europe in recent years. This trend has given rise to the so-called term “Nones”, i.e. responses to surveys list None of the religions listed above.  Meanwhile, those saying they are either religiously unaffiliated, agnostic or atheistic continues to rise. 

In a December 2021 report, Pew Research found that the percentage of Americans who describe themselves as Christian dropped 15 percentage points, from 78% in 2007 to 63% in 2021.  Religious attendance also declined, and those designated as “nones,” grew from 16% to 29% over that time frame.

In the “American Worldview Inventory 2021” report, Dr. George Barna at the Cultural Research Center highlighted declines in Christianity.  This report shows that 86% of U.S. adults held a biblical view of God in 1991, but now only 46% do.  Belief in the Bible as “the accurate Word of God” fell from 70% in 1991 to 41% in 2021.  Finally, only 40% of U.S. adults say they have high confidence in religion, compared to two-thirds of U.S. adults in the 1970s. 

Other survey results show that the percentage of Americans who are “post-Christian” has increased from 38% in 2007 to 44% in 2021. This means that a growing number of Americans do not identify with or practice Christianity.  Barna’s survey work also showed what is called a “seismic generational shift in worldview” among millennials.  Many in that age group are seeking “a nation without God, Bible, and churches.”  As a result, “the United States has become one of the largest and most important mission fields in the world.” Stephen Bullivant, in his book “Nonverts:  The Making of Ex-Christian America,” describes a growing millennial sub-set of the Nones who were raised in religious households but who now check “no religious affiliation” on surveys.  He characterizes this category as “nonverts,” and this segment is growing rapidly.

It is difficult to explain the rapid decline in Christianity within the millennial cohort.  Perhaps there is a general broadening of individualism where Americans increasingly identify with a self-actualizing mindset far different from traditional norms in a movement away from traditional household formation, vocation and education and religion.  Technology and social media certainly helps facilitate this trend by allowing personalization and individual preferences.  The trend of declining Christianity and increasing secularization in the U.S. appears to be following a trend that is far more advanced in Europe.  The impact of the decline of Christianity and the corresponding secularization is difficult to quantify but there is evidence of negative consequences.  

Various studies from the Journal of Marriage and Family, the Journal for the Scientific Study of Religion and other sources find declines in religious attendance are associated with lower levels of meaning and purpose, higher rates of family instability, lower levels of social trust and higher levels of political polarization.  These findings are significant after controlling for factors such as income, race and education.

One study in particular that shows the impact of declining religion is “Opiates of the Masses? Deaths of Despair and the Decline of American Religion” a working paper by researchers Andrew L. Whitehead, Samuel L. Perry, and Joseph O. Baker. This study, published by the National Bureau of Economic Research, explores the relationship between the decline of organized religion in the United States and the rising rates of “deaths of despair” – deaths due to drug overdoses, suicide, and alcohol-related diseases.

The study states that “We know of no other cultural phenomenon involving such large, widespread changes in participation prior to the initial rise in U.S. mortality, … nor do we know of any phenomenon that matches the seemingly idiosyncratic patterns observed for mortality.”  In addition, states with high levels of religiosity have suffered less from mortality, the study reports, while states which experienced larger decreases in religiosity have had the largest gains in the rate of deaths of despair.

The relationship between religious attendance and lower rates of “deaths of despair” is partially explained by social support networks, with religious communities providing a sense of belonging and social support that can help prevent substance abuse and suicide.  The study fits the hypothesis of research about the dissolving bonds of social connection in modern America that goes back decades to Robert Putnam’s iconic “Bowling Alone” in 2000 that was related to the weakening family ties.

Some scholars make the case that the decline of Christianity has contributed to a decline in moral values and social cohesion. For example, the conservative writer Rod Dreher has argued that secularism and individualism are contributing to a “crisis of meaning” in American society, and that Christianity can provide a sense of community and purpose that is lacking in a secularized culture.

Although Research from Barna and others show Christian church attendance is down in the U.S. and Europe, it is growing in Africa, Asia, Latin America and especially China.  For example, Sub-Saharan Africa has seen significant growth in Christianity in recent decades, with some estimates suggesting that the number of Christians in sub-Saharan Africa could double by 2060. Pentecostal and charismatic forms of Christianity have been particularly successful in the region.  Christianity is also growing rapidly in many parts of Asia, particularly in countries such as China, India, and Indonesia. In China, for example, there are estimated to be over 100 million Christians, despite government restrictions on religious expression.  In Latin America, there has been a recent surge in evangelical and Pentecostal forms of Christianity in the region.  Brazil, in particular, has seen significant growth in evangelical Christianity in recent years.  As a result, declines in America and Europe may be more than offset elsewhere, and there is actually a net gain in Christianity.  It’s important to note that while Christianity may be growing in certain regions, it is also facing challenges and persecution in other parts of the world.

The consequences of religious decline and the rise of secularism in the U.S. and Europe is concerning and has several troubling aspects:

– Religion has traditionally provided a framework for moral behavior, and with its decline, people may struggle to find a moral compass and a sense of meaning in their lives.

– With the decline of religion, people may become more focused on their own individual needs and desires, leading to a decrease in community spirit and social responsibility.

– In some cases, the decline of religion has led to negative social behaviors, as people search for meaning and purpose outside of traditional religious institutions.

To conclude, numerous studies show a decline in religious practice and attendance, and this decline is associated with a range of negative consequences.  Given the positive impact covered in various topics listed above, this is troubling development.


Financial capital is a widely understood foundation of our capitalist system, but there are other factors that generate intangible economic value as well.  For example, human capital is based on an individual’s skills, knowledge, experience, and training.  Natural capital is comprised of goods and services provided by the natural environment, including geology, air, water and living organisms.  More recently, spiritual capital is being recognized for its capacity to create economic value. 

Spiritual capital is a term that includes faith, hope, love, compassion, forgiveness, and gratitude.  These qualities add moral and social dimensions to capitalism. Spiritual capital can be developed through practices such as prayer, meditation, and service to others that align with one’s values and beliefs.  Individuals who cultivate spiritual capital find meaning and purpose in their lives, leading to higher levels of happiness and fulfillment. While difficult to quantify, spiritual capital has been linked to higher levels of economic performance and sustainability. The economy can be indirectly impacted by ethical decision-making and values that focus on fairness and social justice, leading to greater business success and profitability, and ultimately a positive impact on the overall economy.  Spiritual capital positions religion as a resource available to help meet civilizations basic economic and social needs.

It is difficult to establish a direct, causal relationship between spiritual capital and the economy, but the economy can be impacted indirectly through ethical behavior and decision-making.  For example, spiritual values by an individual that focus on fairness and social justice, may contribute to greater business success and profitability and ultimately produce a positive impact on the overall economy.  Econometric models are statistical tools that are used to analyze economic relationships and to make predictions about future outcomes. These models typically focus on quantifiable economic variables such as GDP, inflation, employment, and consumer spending, rather than subjective concepts such as spiritual capital.  However, positive benefits from higher levels of an individual’s performance could impact economic data.  This positive outcome could be reflected in economic data that could be incorporated as an explanatory variable in an econometric model.


Cornerstone exists to provide educational investment information within a Christian context.  As a result, the relationship between the impact of Christianity on capitalism is a relevant topic.  Like so many other topics described above, the relationship between Christianity and capitalism is complex and is a mix of positive attributes, but also some that are negative. 

Negative Effects:

Critics of capitalism find many shortcomings:  Income inequality, wealth inequality, environmental degradation, ongoing discrimination of people of color, a glass ceiling for women, and CEO pay that is historically high compared to median worker wages.  There is also the issue of imports from countries with poor child labor protections and bad working conditions.  Moreover, the U.S. continues to face serious social and economic challenges:

-Years of wage stagnation and diminished economic prospects have embittered many Americans on the prospects for getting ahead and on the opportunity to participate in the American Dream. 

-Slow productivity growth.

-the personal and social disruption caused by automation,

-towns and communities that have been left behind.

There are also issues of consumerism and materialism.  Some may remember the 1987 movie “Wall Street,” directed by Oliver Stone.  Michael Douglas, the lead actor, portrayed Gordon Gekko and his “Greed is Good” ethos.  Some critics saw unrestrained greed depicted in the movie as a portrayal of a mindset that led to the 2008/2009 Great Financial Crisis.  For some, Gekko was characterized as representing a successful corporate psychopath.  Regardless of the interpretation, it is clear that greed is certainly not one of Christianity’s positive attributes or desired outcomes. 

Karl Marx saw a struggle between capitalists and the proletariat.  Although Marx envisioned the impoverishment of the proletariat, it is significant that the average Englishman was three times richer when Marx died in 1883 than in 1818, the year in which he was born.  More recently, French economist Thomas Piketty wrote “Capital in the 21st Century”, a historical analysis of wealth and income inequality.  The book examines the evolution of income and wealth inequality in Western capitalist societies over the past two centuries, and it offers a theoretical and empirical analysis of the underlying economic and social forces driving these trends.  Piketty’s research draws on extensive historical data from a variety of sources, including tax records, estate records, and household surveys, and he documents a widening gap between the rich and the poor in terms of income and wealth.  He argues that the concentration of wealth and income needs to be mitigated by progressive taxation and other policy interventions.  Critics argue that there were flaws in his use of tax data to estimate the distribution of wealth.  In addition, his use of national income doesn’t account for the value of government transfer payments including Social Security, health benefits and food stamps that are a large and growing part of the personal incomes of low- and middle-income households.  Some criticize the focus on inequality as too narrow, and that economic growth and innovation are more important than redistribution.  Regardless of the interpretation, income and wealth inequality are real issues, and his book has stimulated a healthy debate. 

Corporate Concentration and Market Power are also concerns because they decrease competition.  Concentration and market power allow firms or a group of firms to influence the price, quantity, or quality of a good or service in a market. There are several ways in which firms can acquire market power. For example, a firm may have a significant technological advantage over its competitors, have exclusive access to key inputs, or benefit from high barriers to entry, such as economies of scale or regulatory restrictions.

Concentration and market power can be a desirable goal for individual firms on a short-term basis, as it allows them to earn higher profits and achieve greater market dominance. However, market power can also have negative consequences for consumers, competitors, and the overall economy, as it can lead to higher prices, reduced consumer choice, reduced quality, and less innovation.  Reduced innovation is especially troublesome because it can cause less investments in new technologies that can disrupt their existing business models. Less innovation can also stifle the emergence of new companies and products.

Concentration and market power can also provide political influence over government policies and regulations favorable to the company that further entrenches their dominance in the market and hindering a more competitive marketplace.  Overall, corporate concentration and market power can lead to a less competitive and less innovative economy, with negative impacts on consumers, workers, and overall economic growth.

Negative Externalities:  An externality is an effect of economic activity that is not accounted for in the costs of the goods or services paid in in production or consumption.  Carbon released by companies (like factories producing cars) and individuals (driving a car or heating a home) are examples of a negative externality.  In these examples, there is an “external” cost of climate change that is not being paid by the company or the individual.  Other examples include air and water pollution that cause increased health care costs.  These “external” costs can be addressed by governments via taxes (to fund cleanup or health care costs), subsidies, public services or regulations.

Benefits Of Capitalism:

Broad-based Progress:  Although there are negative impacts from capitalism, there are significant benefits from the capitalistic system.  In his book “Progress: Ten Reasons to Look Forward to the Future,” Swedish writer Johan Norberg describes society’s progress in various spheres of life, including literacy, poverty, life expectancy, the environment, food availability, sanitation, violence, freedom, and equality. The book has received favorable reviews from the Economist and Kirkus Reviews. The author notes that in all areas of our lives, global average life expectancy has increased from 31 years in 1900 to 71 by the early 21st century, global literacy improved from about 20% to about 85% by the end of the century, access to modern sanitation tripled over the last thirty years, and famine went from being a universal phenomenon to being an exception affecting only a small fraction of the world.  This long-term analysis takes a longer-term perspective that helps avoid short-term political factors and cyclical fluctuations.

Global Poverty and the Rise of the Middle Class.  Capitalism has played a major role in reducing extreme poverty, raising the global living standards and creating a middle class. Over the course of time there has been unprecedented economic growth that has lifted hundreds of millions out of poverty.  According to a report by the Economist, in 1820, 94% of the world’s population was living in extreme poverty. The rate dropped to 72% by 1950, and today it stands below 10%.

Capitalism raises income and provides jobs.  The capitalist system has advanced economic growth that has reduced poverty and raised incomes and provided jobs.  The poverty rate adjusted for government transfer payments has fluctuated over time but has generally decreased since the 1960s.  According to the U.S. Census Bureau, the Supplemental Poverty Measure (SPM), which adjusts for government transfer payments and non-cash benefits, was first introduced in 2011.  Since the introduction of the SPM, the poverty rate adjusted for government transfer payments has decreased from 16.1% in 2011 to 9.1% in 2019, the last year for which data is available.

When looking at longer-term trends for middle-class Americans, from 1975 to 2020, the median household income in constant 2020 dollars increased by approximately 22%, or about 0.4% per year on average.  the median household income in constant 2020 dollars was $62,843 in 2020.  This is not a great growth rate, but it is more than the current narrative of no gains.

Hours Worked & Conditions:  Workers spend a large part of their life working, and they often work significant parts of each day.  As a result, working conditions are a major factor within peoples lives and within the capitalistic system.  The number of hours worked by American workers has changed significantly over the past 100 years, with a general trend towards shorter workweeks and fewer hours worked per day.  In the early 20th century, it was not uncommon for many workers in the United States to work 60 or more hours per week. The Fair Labor Standards Act (FLSA), enacted in 1938, established a maximum workweek of 44 hours, this was later reduced to 40 hours in 1940.   

To be clear, not all workers have seen the same reductions in work hours. For example, many professions such as healthcare workers and emergency responders continue to work long hours due to the nature of their work. Additionally, there has been a rise in part-time work and the gig economy, which has resulted in some workers having less predictable and more variable work schedules.  Finally, COVID-19 accelerated the Work-From-Home phenomenon.

Overall, the trend towards shorter workweeks and fewer hours worked per day has been driven by a combination of labor market regulations, technological advancements, and changes in societal attitudes towards work-life balance. While there is still variation across industries and occupations, many workers in the United States today work fewer hours than their counterparts did 100 years ago.  Another consideration relates to the mis-match between job requirements and worker skills and abilities.

Currently there are a large number of job openings not being filled due to unavailability of trained workers.

Jobs can provide purpose and dignity in several ways:

-Many jobs involve providing goods or services that contribute to the betterment of society. For example, doctors, nurses, and other healthcare professionals provide care that improves people’s health and well-being, while teachers help educate future generations.

– Jobs can offer opportunities for workers to develop and hone their skills and expertise. This can provide a sense of accomplishment and pride in one’s work.

– Jobs can provide workers with a sense of accomplishment as they complete tasks and achieve goals. This can be especially true in jobs that involve creative or intellectual work, where workers may take pride in their ability to solve complex problems or create something new.

-Jobs can provide opportunities for workers to build relationships with colleagues, clients, and customers. These relationships can provide a sense of community and support, which can contribute to workers’ overall sense of purpose and dignity.

– A good fit and vocation means we have a job that matches our unique skills, aptitudes and abilities.

We are not all called to be pastors or missionaries, and our prospects in the NFL or the NBA are nil, but a job can provide workers with a sense of purpose and dignity by giving them opportunities to contribute to society, develop their skills and expertise, achieve goals, and build relationships with others. By providing a sense of meaning and value, jobs can play an important role in promoting well-being and a sense of fulfillment in people’s lives.  A vibrant economy also helps provide meaningful jobs.

Jobs/Workplace Downside:  There is a need to buy groceries, make the mortgage and car payments, and buy braces for the kids’ teeth, but there are still too many jobs that don’t pay a living wage. 

This is especially true for single parents. 

-There are still too many dead-end jobs that don’t give workers purpose, a sense of positive accomplishment, the satisfaction of a job well done, and a feeling of self-worth.  Income levels aren’t as critical to worker satisfaction so long as there is the opportunity for growth and advancement. 

-There can be a mismatch between job requirements and worker skills and abilities.  When workers lack the necessary skills and abilities to perform their job, it may require additional training and resources to bring them up to speed.  

-Poor Managers and/or supervisors may resort to verbal and other forms of abuse, causing a lack of respect for basic humanity and dignity.

– Our capitalist economic system has business cycle recessions and structural change.  There can be hopeless despair from losing a job or not being able to find suitable employment.  In these cases, there are government safety nets, but a job provides benefits that an unemployment payment doesn’t. 

– There is a need to avoid ethical issues like selling cigarettes or pornography.

Our economy generally provides employment conditions and opportunities, but capitalism and Christian values don’t always provide an optimal mix for work/life balance.

Capitalism Helps Retirement:  Capital markets historically provided returns on equity and bond portfolios that exceeded the inflation rate.  Positive future investment trends are likely to persist on a longer-term basis.  When individuals invest through 401k/403/b retirement plans, Inherited Retirement Accounts-IRAs and other investment accounts over their working years, they benefit from long-term trends of rising investment returns and the power of compounding to accumulate sizable nest eggs.  In fact, Albert Einstein once said “compound interest is the eighth wonder of the world.”  These investment portfolios enhance social security to provide income for retirees after their working years.

Consumer Choice is another capitalist benefit compared to a planned economy where a bureaucrat determines what is available and the price.  With capitalism, consumers have a myriad of choices, and they vote in real time through their purchases of various goods and services.  (Would you like that in a larger size in magenta?)  There are uncounted businesses seeking to discern what you want, and they are committed to supplying it at a price that you will pay.  They know if they don’t provide goods and services competitively, then someone else will.  Economists call this Creative Destruction and bankruptcy is the fate of those who don’t provide the appropriate value proposition.  Most small business fail, but there are enough successful entrepreneurs to maintain a growing, dynamic economy.

Progress Over Time.  Would You Trade your life for John D. Rockefeller?  John D. Rockefeller (1839-1937), a notorious oil entrepreneur, was one of the richest Americans of all time.  Despite his wealth, he didn’t have some of the goods and services that are now mainstream and almost seen as necessities.  He had no television or internet or email.   For much of his life he had no air conditioning and couldn’t travel by car or plane.  There were few medicines and no antibiotics.  Middle-income people today have access to a much wider range of consumer goods.  Healthcare services, including preventative care, advanced medical treatments, and specialized services are widely available. While healthcare costs can still be a significant financial burden, there are a range of insurance options, public healthcare programs, and charitable services available to help ensure that people can access the care they need.  Today middle-class people have it much better than the richest man from a century ago.

Capitalism is the best system compared to the others:  Sir Winston Churchill said that “democracy is the worst form of government, except for all those others that have been tried.” In a similar way, capitalism is the worst economic system, except for all the others.  Churchill also said “The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.” This quote reflects Churchill’s belief in the importance of balancing the benefits and drawbacks of different economic systems.  Along that line of reasoning, many point out that socialist economies like Venezuela, Cuba, and Russia have stagnated, while people are desperate to immigrate to the United States for a chance at a better life.

Growth is necessary but not sufficient:  Maitreesh Ghatak, Professor of Economics at the London School of Economics, explains that growth is necessary for poverty alleviation and improvements in various other social indicators, but it is not sufficient. In order to take advantage of growth opportunities, the poor need access to human capital, the key inputs to which are education and health.

Capitalism has evolved over time, and it is critical that it continues to do so. The early days of the Industrial Revolution are remembered for the Robber Barons, anti-competitive behavior and a host of other maladies.  Much improvement has been achieved since those days.  Today, we have consideration of stakeholder capitalism that looks at investors, employees, etc.  Investors are also more informed and enlightened and are often willing to demand higher standards from corporations.  For example, the Triple Bottom Line standard considers financial, social and environmental performance of a company.  These examples show capitalism’s evolution.

The Bible looks and the pros and cons of capitalism and makes a number of key points:

It teaches that wealth can be spiritually destructive.  Jesus asserted that a man cannot serve both God and mammon.  The apostle Paul called the love of money the root of all kinds of evil.  But that doesn’t mean that the Bible condemns production and exchange.  The Bible doesn’t forbid risky investments. Jesus himself encourages a certain kind of them.  The Bible gives the example of the servants entrusted with 1 and 5 and 10 talents in Matthew 25:14-30.

Economists say that capitalistic free markets allocate scarce resources (both human and physical) more efficiently than other systems.  Market competition is fundamental to the U.S. economy, and when firms have to compete for customers, it leads to lower prices, higher quality goods and services, greater variety, and more innovation.  Competition is critical not only in product markets, but also in labor markets.

When firms compete to attract workers, they must increase compensation and improve working conditions.  Free markets are based on a meritocracy that maximizes growth in a system matching talent and effort with tangible rewards. 

There is a thesis that innovation goes to the wealthy:   But, a 2005 paper by Yale economist and Nobel Laureate William Nordhaus finds “Only a minuscule fraction of the social returns from technological advances over the 1948-2001 period was captured by producers, indicating that most of the benefits of technological change are passed on to consumers.”  For example, Bill Gates wealth resulted from the benefits of Microsoft software on personal computers, but billions of users and our economy have benefitted much more.  Apple’s wireless ecosystem has also had huge benefits to individual consumers. Obviously, the research for this post was completed using a personal computer and the internet.

It is true that some entrepreneurs and innovators amass great wealth for themselves, but this is not nearly as much as they benefit our society.  It needs to be remembered that innovators have the potential to amass great fortunes, but they risk bankruptcies and personal insolvency.  It is a risk/reward tradeoff that ultimately benefits consumers.

Innovation is disruptive to the system, but it is a fundamental driver of economic growth.  It is the oxygen.  A free market capitalistic system allows innovation and risk takers to create new products and services that benefit consumers and drive growth to higher levels.  A few notable examples of innovation are as follows: 

-The microprocessor in the 1970s led to the development of the computer industry and the digital revolution.  Imagine a world without the internet or email, e-commerce, social media, or a smart phone. 

– Regardless of the business, companies need to analyze data to make better decisions. With the amount of data being generated today, manual analysis is no longer feasible. robotics, artificial intelligence and machine learning can process and analyze large volumes of data at machine speed.  The findings can solve challenges in sustainability, environment, traffic congestion, cybersecurity and healthcare for the greater good.  Most recently, Artificial intelligence has brought us ChatGPT and similar services.

– Imagine medicine without innovation:  Advances in biotechnology, such as gene editing and personalized medicine, are transforming healthcare and the pharmaceutical industry, and have the potential to greatly improve human health and economic growth.

– Innovation provided COVID vaccines.  Operation Warp Speed was a public-private partnership launched by the US government in 2020 to accelerate the development and distribution of COVID-19 vaccines.  The rapid development and distribution of COVID-19 vaccines has been a critical tool in the fight against the pandemic, helping to reduce the spread of the virus and save lives.

The average time required for vaccine development traditionally takes several years, if not decades, for a vaccine to go from the laboratory to widespread use.  But the development of COVID-19 vaccines was faster than for any previous vaccine in history, taking less than twelve months to develop the first vaccines, which is significantly shorter than the average vaccine development time.  Messenger RNA was the technology behind the COVID vaccines, and it is now being repurposed for cancer and other diseases.

– Practical fusion reactors promise almost limitless, carbon-free electricity.  Research has for decades inspired researchers to try to make fusion power work.  Fusion reactors are at least a decade or more away from commercial operation, but the positive impact from this innovation is potentially immense.

Capitalism provides the basis for freedom for creativity and innovation.  It allows an incentive system for growth and progress.  Growth maintains our economic system and helps take people out of poverty. Capitalism provides profit maximization that raises return and capital (both equity and bonds).  Capitalism even enhances people’s retirement through competitive returns that allow earlier retirement dates while allowing/increasing income security for the years after a working career.

Christianity has had a major impact on the development of capitalism, and capitalism has improved the lives of many people.  For all its critics/faults, freedom and capitalism reduced world poverty and famines, provided for a middle-class, and dramatically improved living standards across the globe.

It is common to ask what causes poverty, but it is instructive to also consider what causes prosperity.

Take-Aways & Highlights:

Many of my posts focus more heavily on the investment side, but this post was created specifically to examine the impact of Christianity on civilization and our capitalistic system.  Cornerstone exists to provide educational investment content within a Christian perspective, and this post is clearly focused on Christianity.  It has been a wide-ranging endeavor and no small task.  It is certainly not the most authoritative or definitive text on the various topics, but it is a clear effort to shine the light on these subjects.  There are obviously many other different perspectives (see Addendum below) but there is value to putting it out there to stimulate further thought and dialog.

At a High Level I believe the review of the various topics related to Christianity and religion supports an immensely positive Christian impact on our civilization and capitalistic system.  The foundation of Christianity is good and it has much to offer.   At its core, there is a centrality of love.  Followers are called to love God, to love their neighbor as themselves and to love their enemies.  Christianity can also be characterized by grace, mercy, service, charity, forgiveness, repentance, redemption, and humility.  Christianity states that people are made in the image of God, and that all are equally valuable.  Marriage and the family are paramount.  It is about healing rather than judgment.  It is about paying it forward and giving back.  It is about faith rather than works.

It has been a bedrock foundation that undergirds our existence and provides guardrails for a legacy over two millennia.  It has outlasted dynasties, powerful rulers, armies, civilizations, and it has withstood the test of time. 

There have been bad actors, imposters and dirty laundry that obscured and subverted core teachings, but there is a big difference between people’s actions and God’s intent and plan.  Moreover, God uses imperfect people for his purposes.  Finally, where there have been abuses there has always been a self-reforming spirit within Christianity that purges bad behavior and reinforces God’s love.

Hypothetical Counterfactual:  This review was framed within the hypothetical context of what the world would be like if Jesus and Christianity never existed.  It is clearly not possible to know such an outcome, but a loss of the benefits described in the topics above argues for a world that would be much worse off.

A Challenge to Skeptics, Agnostics and Atheists:  Since this blog’s premise is an immense positive impact of Christianity, then it means that Jesus’ life, death and resurrection actually happened as described in the Bible, and that this resulted in the many positive impacts.  While there is ample historical evidence of the existence of Jesus, there are skeptics, agnostics and atheists who either deny his miraculous resurrection or simply see Jesus as a good teacher. 

There is no proof related to the divinity and resurrection of Jesus Christ, but there is compelling evidence as seen in the behavior of his apostles.  The crucifixion terrorized and demoralized his followers and caused them to flee and deny him.  But his resurrection on Easter, ignited their faith as they came to comprehend his revolutionary mission of service and of salvation.  Their witness of Jesus life, death and especially his resurrection led them to evangelize ruthlessly to advance his ministry and most were martyred for their faith.  Their actions and motivation speak volumes to support the reality of Christ’s resurrection. 

It is highly improbable that the apostles and other Christian converts would dedicate their lives, and become martyrs for a dead leader.

Their fervent actions raises a challenging question for skeptics, agnostics and atheists: 

Why would these apostles and other followers endure persecution and martyrdom?

Again, would they really do this for a dead leader?

The Free Rider:  To the extent that there are immense benefits from Christianity, then there is an argument that many in our civilization benefit from being a “Free Rider.”  Economists describe a free rider as a person or group that benefits from a good or service without paying for it, or paying their fair share.  Applying the Free Rider concept to Christianity means that many have a better society and civilization without contributing either charitably, or through their time and talents.  A corollary is that the world would be even better if everyone contributed. 

A Force for Good:  Based on topics covered, my verdict is that Christianity is a force for good and the impact is immensely positive.

Considering Mother Teresa’s efforts (mentioned at the beginning) with lives and souls saved, you could even say her impact is infinite.  Not everyone is a Mother Teresa, but humanities’ myriad collective positive actions seem immeasureable.

Christianity promotes the common good, it raises the tide, and it lifts all boats.

As always, comments and critiques are appreciated and welcomed to broaden the dialog.

Jeff Johnson, CFA

April 14, 2023

Cornerstone Investments website:

Other Blog Posts:


I considered this post for several years and read a number of books and scoured the web before I began actually writing it.  Cornerstone Investments was created to provide educational investment content within a Christian perspective, and this post takes a deeper dive. First, I must concede that Christianity, religion and theology are not in my wheelhouse and I’m not a scholar and don’t claim deep knowledge.  But, my efforts involved extensive reading and research, and I have attempted to be objective. Nevertheless, it is a view through my lens.  There are no doubt controversial statements and other valid perspectives and interpretations.  There are also likely relevant omissions.  I have attempted to avoid glaring factual errors.  This effort isn’t saying other religions don’t have a positive impact, but it does say that Christianity has had a very powerful positive impact.

I have attempted whenever possible to look at longer-term trends (decades and centuries) rather than shorter time periods.  Longer-term trends become more apparent or obvious when looking at a decade or a century compared to short-term cyclical or media-driven, polarizing political factors.  Regardless of any perceived positive or negative impacts for the contemporary time period, the long sweep of history shows broad-based and recurring benefits.

Christianity has been the focus, but at times the consideration has been at a broader level of religion or spirituality.  It is often difficult to dis-entangle them from each other. Finally, on a personal note, I found my personal faith was broadened and deepened by creating this blog.

Again, I welcome comments and questions.



Overview-Slamming on the Brakes:

There was nowhere to hide in 2022 as a diversified 60/40 portfolio had the worst performance since 1937.  Nearly all major asset classes declined sharply.  Stocks had their lowest returns since the Great Financial Crisis of 2008 and the 40-year bond bull market came to an end with the worst bond performance ever.  The reason for the bloodbath is that the era of easy, low-cost money came to an abrupt end.  The pivot from free/easy money (from late 2008 through late 2021) towards more normalized interest rates meant that asset price inflation was displaced by consumer price inflation.  

As the Fed belatedly recognized the error of the “transitory” inflation narrative, they raised short-term interest rates by 4.25% during the course of 2022-the fastest pace since the Volcker era some 40 years ago.  The easy money era was caused by two crises:  The Great Financial Crisis starting in 2008, and the COVID-19 pandemic starting in early 2020.  Central banks around the world reacted to these crises by pushing interest rates to near zero (and even negative rates in Europe and Japan.)  There is little doubt that global coordinated policy responses to the GFC and the pandemic were essential, but hindsight tells us that the response was not sufficiently targeted and it caused serious economic dislocations.  The stimulus over this long 13-year period provided more money than the productive capacity of economy was able to efficiently absorb.  It also encouraged investors to bid up valuation levels and take greater risks to pursue higher returns than what was available from shorter, safer U.S. Treasury bills.  The reality for investors is that strategies that worked from 2009 through 2021 (Fear Of Missing Out-FOMO, There Is No Alternative-TINA and Buy the Dip) no longer worked in 2022.   Hopefully, the current policy to normalize interest rates can be accomplished in a shorter time frame, and without severe economic consequences.

Long-Term Performance and Risk:

The data shown in the table above provides context and perspective related to performance and risk (standard deviation) for both the short-term 2022 performance and longer-term performance. 

Some of the Major Take-Aways

-Bonds, especially long maturity bonds, were crushed and did not provide the historic hedge to offset against equity declines.  Bonds typically hold their value or even provide positive performance when stocks decline.

-Since bonds did not provide the typical ballast to negative stock performance, a typical 60/40 portfolio declined more than -15%.

-U.S. large cap stocks suffered a sharp decline after a decade of outperformance.

-Huge tax loss selling and a rebalancing by pension and sovereign funds moving funds from equities to bonds also contributed to the declines.

As always, recent performance is a poor forecast for the future, and negative 2022 performance is no reason to avoid bonds or stocks in the future.


Although most assets, sectors and stocks declined, there were some winners:

Energy was the only positive sector in 2022.  The Energy Select SPDR-XLE sector fund rose 58%, and Exxon Mobil-XOM rose 88%.  The energy outperformance resulted from a decade of underperformance and under investment.  The lack of investment resulted after oil fell to $26/barrel in 2016, and this exacerbated the boom-bust cycle.  The energy sector had also fallen out of favor as the Environment, Social, and Governance-ESG investment objective avoided “dirty non/green” oil investments.  Solar typically does well when oil prices rise, and First Solar-(FSLR) gained 72%.


The FAANGs (Facebook, Apple, Amazon, Netflix, Google) were multi-year darlings, but they were De-Fanged due to their high valuation and the prospect of slowing growth from a probable recession.  Facebook/Meta-META was down -64% and Netflix-NFLX was down -51%.  More traditional names held up better with Apple-AAPL down -27% and Microsoft-MSFT down -29%.

The Stay At Home winners tumbled as COVID gradually abated.  Peloton-PTON lost -78% as their subscription model for exercise equipment dried up.  Zoom-ZM held up much better, with a decline of -19%.

Meme Stocks seemed to defy gravity in 2021, but crashed back to earth in 2022.  GameStop-GME, the bricks and mortar game seller, was down -50%%.  AMC Entertainment-AMC, the movie theatre chain, was down -85%.

Crypto (additional coverage below) stocks like Bitcoin-BTC-USD also deflated.  Bitcoin is down -76% from its Nov 2021 high.

On a regional basis, the Chinese Large Cap ETF-FXI was down -23%.

Long-Maturity Bonds were a train wreck.  As interest rates rose, bond prices declined, and this caused the total return for the US Treasury 20+ year index to decline -31%.  The unprecedented bond market decline caused diversified 60/40 equity/bond portfolios to experience the worst annual performance since 1937.    

Long-Term Bulls and Bears

The graph above shows Long-Term trends for gains and drawdowns.  Although bull markets can run for years, drawdown can sometimes last for years as well.  The graph also shows periods of high volatility as evidenced by the precipitous decline and rapid recovery as COVID emerged as a risk.  The graph highlights the importance of a long-term horizon.


Inflation was the big story for 2022, and the market reacted strongly to any comments about inflation coming from Fed chair Jerome Powell.  Initially, Powell described inflation as transitory, but it quickly became clear that this was not the case. Inflation had been relatively stable near the Fed’s 2.0% target for a number of years, leading to complacency about potential increases.  However, the annualized Consumer Price Index inflation rate rose from 1.4% at the end of 2020 to 7.0% by the end of 2021, and then to a peak at 9.1% in June 2022. Although prices for energy, cars, and rent have been trending down recently, wage inflation remains high. The strong job market has kept wages high, and there is the potential for sticky wages, particularly in the service sector, to feed through to persistent inflation.  As of now, it is unclear how long it will take for inflation to decline and how low it will go. There is also a question of whether Fed rate increases to combat inflation could potentially trigger a recession.

S&P 500 Large Cap

The graph above shows S&P 500 performance since the pre-pandemic year-end 2019.  After setting an All-Time-High of 4,977 on January 3, the S&P 500 dropped to 3,577 on October 12, a decline of -39%.  Performance has rebounded somewhat since October and the S&P 500 total return was down -18% for the year. 


The graph above shows the market’s valuation based on the Price/Earnings ratio for the S&P 500 index since 1990.  The market was obviously very expensive in the late 90s during the internet frenzy.  The market valuation eventually declined to a very cheap level during the nadir of the 2008 Great Financial Crisis.  The current market valuation has fallen as tech and crypto high-fliers declined precipitously.  P/E ratios do not provide a good market forecast for near-term performance, and history shows that markets can remain overvalued or undervalued for longer than we like or expect.  Nevertheless, PE ratios do provide a good indication of longer-term performance.  A relatively high PE ratio indicates below-average investment returns over the next 5-10 years.  The current PE is near average historic values, and this implies market performance in line with long-term historic levels.  

The graph above shows the market’s valuation based on the Price/Earnings ratio for the S&P 500 index since 1990.  The market was obviously very expensive in the late 90s during the internet frenzy.  The market valuation eventually declined to a very cheap level during the nadir of the 2008 Great Financial Crisis.  The current market valuation has fallen as tech and crypto high-fliers declined precipitously.  P/E ratios do not provide a good market forecast for near-term performance, and history shows that markets can remain overvalued or undervalued for longer than we like or expect.  Nevertheless, PE ratios do provide a good indication of longer-term performance.  A relatively high PE ratio indicates below-average investment returns over the next 5-10 years.  The current PE is near average historic values, and this implies market performance in line with long-term historic levels.  

Market Consensus Outlook for 2023:

The table shown above highlights consensus year-end 2023 forecasts compiled from Wall Street strategists and from various government entities.  FactSet has reviewed strategist accuracy for the 20-year time period from 2002 through 2021 and found the average forecast error was 8.3%.  However, when they excluded volatile years of 2002 and 2008, the average error was 0.8%.  This indicates that the strategist forecasts are valuable most years, but it also indicates that an investor must be prepared for outlier years. 

Although forecasts are sometimes wide of the mark, the consensus data does reflect what is currently priced in the market, and it is a helpful starting point for discerning the fundamental drivers of the markets.  An understanding of the consensus expectation also provides perspective as markets react to unanticipated or surprise developments.  It is notable that the range between the high and low S&P 500 forecasts are particularly wide, and this indicates heightened risk, uncertainty and volatility.

Small Cap Stocks

Small cap stocks have outperformed large cap stocks historically, but they have been laggards in recent years.  Although small caps are more volatile, they are important in a portfolio’s overall asset allocation plan.  Small caps are expected to grow faster than large cap stocks and should provide better longer-term performance.  Small caps have been under-owned and should benefit from increased investor interest.

Foreign Stocks:

International stocks as measured by the MSCI-EAFE index outperformed in the 1970s, the 1980s, the 2000s and in 2022, but have mostly trailed the S&P 500 since the 2008/2009 Great Recession.  International stocks are cheaper than U.S. stocks, and especially cheaper than U.S. large cap stocks, and they should benefit from investors seeking cheaper valuation levels.  They also provide additional diversification benefits. 

Emerging Market Stocks:

Emerging market stocks are another asset class that has trailed in recent years.  Since emerging markets have been a laggard for a number of years, it is easy to ignore them in portfolios.  Nevertheless, it is worth remembering that during the “Lost Decade,” the S&P 500 had a -0.95% annualized loss over 10 years (2000-2009).  During that same time period, the MSCI Emerging Markets index posted a 10.63% annualized gain!  Emerging market stocks are more volatile but offer better growth prospects than developed markets based on a younger population and a growing middle class.  They are cheaper than developed markets, they offer diversification benefits and they look poised for good longer-term performance.


Historic Interest Rates:

As depicted in the graph above, the U.S. Treasury 10-year bond yield peaked at 15.8% in September 1981 as the U.S. battled double-digit inflation.  As inflation subsided, rates have trended lower.  Interestingly, forecasters, including the US Federal Reserve, have consistently projected rising rates.  Historic long-term bond total return performance has been positive until 2021 due to bond price increases as rates declined.  Rates eventually reached an all-time low yield of 0.52% on 3/9/20 as initial COVID fears caused a flight to quality.  Since that time, rates have moved up and performance has been negative. 

Interest Rates Since the Pandemic:

Although interest rates declined for nearly 40 years, the recent bout of inflation has caused the Fed to react by raising short-maturity rates by 4.25% in 2022.  The year began with the U.S. Treasury 10-year bond yield at 1.51%.  Rates then moved up to a 4.24% yield by October 24 due to inflation fears.  Since then, longer-maturity rates have come down to a year-end yield of 3.88% due to a moderation in inflation and recession fears.  The rising rates have caused the UST 20 year + index to fall by an incredible -31%.  Although 2022 was the worst bond market ever, interest rates have moved up and future performance should be better.

Crypto Collapse:

Matt “Fortune favors the brave” Damon, Steph Curry, Gisele Bündchen, LeBron James and others pitched cryptocurrency to the public before a massive implosion.  Kim Kardashian paid a $1.26 million fine for pumping the unregistered token EthereumMax on Instagram while failing to disclose that she was paid $250,000 for her post.  The 2022 Super Bowl was satirically referred to as the “Crypto Bowl” due to numerous cryptocurrency ads, and was reminiscent of the advertising binge during the dot-com bubble of the 1990s. 

The crypto exchange FTX (previously one of the biggest crypto exchanges in the world) declared bankruptcy on November 11.  After revelations of risky, unethical business practices, there was a surge of customer withdrawals.  Meanwhile, FTX had loaned out customer funds and then didn’t have sufficient funds to cover the customer withdrawals.  Sam Bankman-Fried, FTX CEO and founder (and so-called wunderkind), is now charged with eight counts of fraud of “epic proportions.”  He is under house arrest and fitted with a bracelet that monitors his movements.  Unfortunately, investors using the FTX exchange will face a challenging legal battle in attempting to get their crypto deposits back because the bankruptcy process will likely treat their deposits as uncollateralized, unsecured claims.  FTX had been trading far above any fundamental value, so the precipitous decline was no surprise.  Bitcoin, the largest blockchain-based digital asset traded on crypto exchanges, dropped from an all-time high of $68,991 in November 2021 to under $17,000 after the bankruptcy announcement.  Ironically, the NBA’s Miami Heat are playing in the recently renamed FTX Arena.  They are not alone, as the LA Lakers play in the Arena. 

The FTX bankruptcy does not appear to pose systemic risk to the traditional financial system like the so-called “Lehman” moment that helped precipitate the 2008 Great Financial Crisis.  This experience clearly highlights the value of established exchanges like the New York Stock Exchange and the regulatory infrastructure protecting investors.

It still looks too early to invest in cryptocurrency.  Although there were nearly 1,500 IPOs in the late 90s, only a handful are still in business.  Very few investors were savvy or lucky enough to invest in Amazon’s IPO back in the day, and picking a big crypto winner today faces long odds.  Cryptocurrency and blockchain technology have disruptive and transformative potential, but caution still looks warranted for 2023.    

Looking to 2023:

2022 is one for the record books, and it is good to have the year in the rearview mirror.  While investment performance was mostly either bad or very bad, it is important to look forward to 2023.  For most investors with a long-term investment horizon, the future likely offers better potential, especially for bonds and diversified portfolios.  Listed below are various positive and negative investment factors and analysis related to expected future returns.   

Positive Factors:

-The sharp market decline means that stock valuations are now in line with historic levels.  The silver lining for bonds is that bond price losses have resulted in higher yields and the prospect for positive future returns.  

-Household debt levels are in good shape. The household debt-service ratio is lower than at any time prior to the pandemic and cash represents about 25% of total household debt—the highest level since 1970.

-American consumers are flush with more than $1 trillion of stimulus-derived savings and the lowest household debt relative to gross domestic product in two decades. 

-U.S. corporate balance sheets are strong with U.S. corporate debt to after-tax profits as low today as it was in the 1960s.

-Employment is strong but it is a conundrum.  Although a number of economic recession indicators point to recession later in in 2023, the employment situation remains positive.  Typically, the employment conditions deteriorate along with the decline in other economic statistics.  There can be a lag, however, between economic deterioration and rising unemployment so employment conditions may eventually fall as well.

–Corporate earnings surprised to the upside during 2021 and 2022.  Despite recession fears, earnings reported by FactSet increased at a respectable 5.1% in 2022 and revenue growth increased 10.4%.  Earnings growth is seen at 6.4% for 2023 and revenue is expected to grow 4.3%.  There is no doubt that current conditions are clearly being impacted by the economic slowdown.  If inflation remains higher than expected, then broad-based consensus earnings growth could be revised downward.

-The US economy doesn’t appear to have overbuilt inventories or other excesses.

-China is easing their zero-COVID policy controls, and they have announced an end of quarantine requirements for inbound travelers.  The gradual reopening of their economy bodes well for future global economic growth.

Negative Factors:

-Inflation may prove more persistent than the market currently expects, and this could cause the Fed to raise rates higher than currently expected and this could also precipitate a deeper, longer recession.  A December Bloomberg survey of economists currently indicates a 70% chance recession in 2023, and the current bear market may well be associated with an upcoming recession.  There have been 17 bear markets since World War II and the average decline has been -31%.  Of the 17 bear markets, 9 were accompanied by a recession, and the average recessionary market decline was -36%.  Recessions typically see 10-20% earnings decline.  Finally, the Fed’s desired “soft landing” (curbing inflation without sinking the economy) is hard to achieve and historically improbable.   

-Traditional recession indicators point to a recession, especially the “inverted yield curve.”  The bond market moved into an inverted yield curve position in July as short-term Treasury interest rates rose to 2.89%, above the longer-maturity 2.67% U.S. 10-year Treasury Note interest rate.  This inversion of the maturity timeline resulted from the Federal Reserve pushing up short-term interest rates to control inflation while the broader bond market, fearing a recession, pulled down long-term interest rates.  (The yield curve typically has an upward slope with lower short-term rates and higher long rates as investors require a higher rate to compensate for the longer maturity commitment and unanticipated inflation.)  An inverted yield curve preceded the last seven recessions.  As a result, there is heightened concern about a looming recession.

-Although there are numerous recessionary indicators, the market assumes either a soft landing with slow but positive growth, or a short, shallow recession.  This optimistic assessment is driven by a solid job market.  History shows, however, that inflation is slow to be eradicated. 

-After decades of globalization, the norm is now deglobalization as companies seek to insource operations and shorten supply chains.  The net effect is slower economic growth due to less efficiency and lower productivity.

-Decarbonization is now a reality as numerous studies point to the prospect of a future tipping point where there is an irreversible change in the climate system and locking in further global warming.  As a result, there is a necessity for new “cleaner” infrastructure investment, and the reality of higher operating costs.

-Demographic shifts are resulting in an aging population and labor shortages that results in slower growth in developed economies.

-Political developments continue to be a risk.  The Russia/Ukraine war not foreseen last year, but it continues to be a drag on global economic growth.  Iran is unstable with riots.  China’s tensions with Taiwan and Hong Kong are troubling.  North Korea is another threat.  Political events or changes in government policy are often discounted, but they do happen and they negatively impact growth prospects.

-Massive stimulus packages implemented in 2020 and 2021 to battle COVID are now mostly expired.  Consequently, this component of growth is no longer an economic driver.  Meanwhile, there is an argument that the stimulus may have not delivered the kind of longer-term potential growth that many economists expected.

– Stagflation is a key risk facing the global economy as growth continues to slow while inflation remains stubbornly elevated. 

What should you expect in the future?

It is very difficult to accurately predict market performance for the upcoming year, but bond market performance looks positioned to produce positive performance.  History suggests that equity markets will also rebound, and a diversified portfolio will do much better in the coming year.  Longer-term trends are more important for financial health than annual performance and there are industry guidelines to inform your longer-term planning timeline.  Short-term volatility in both directions often leads to poor investment decisions.  During the internet frenzy of the late 90s, it was common to extrapolate huge returns into the future.  Despite these lofty aspirations, it was actually a time when we were heading into a lost decade.  By contrast, the Great Financial Crisis in 2008 caused many to assume the worst and go to cash.  In reality, the ensuing decade generated stellar returns.  Neither of these highly volatile short-term situations were realistic or helpful for future performance.

At this stage in the investment cycle, pessimism is probably the biggest risk for most investors.  It is easy to talk about discipline and a long-term perspective, but it is not easy to implement in either up or down markets.  At the beginning of 2022, some pundits said we are in the midst of the “Roaring 20s”, and others warned of another “Lost Decade.”  The reality is that no one knows for sure, but it is best to position portfolios within a longer-term perspective. 

-For shorter timelines, it is best to stay conservative and avoid risk.

-For longer timelines, it is helpful to consider expected long-term returns. 

Listed below are expected returns for major asset classes:

These long-term asset class returns are compiled by Cornerstone from major asset managers like JP Morgan, Vanguard and others.

It should be noted that these returns are higher than last year due to the fact that the market is much lower, valuations are much cheaper and bond yields are much higher.

After considering the asset class expected long-term performance above, it is helpful to compile these returns into broad-based portfolios based on your overall Investment Objective.

These long-term returns for Investment Objectives ranging from aggressive to conservative are compiled by Cornerstone from major asset managers like JP Morgan, Vanguard and others.

The table above provides guidance for various Investment Objectives related to longer-term performance expectations.  The table allows you to use your personal Investment Objective to show the expected return and risk for your planning purposes for your portfolio. 

It needs to said that market knowledge, discipline and experience all help maintain perspective.  It also helps to keep in mind that markets can move farther and longer then expected in both directions.  Big portfolio winners are likely overweight and expensive, and should be trimmed.  Portfolio losers are likely underweight and consideration should be given to purchases.  As always, a long-term perspective, appropriate Investment Objectives, diversification and rebalancing are more important than chasing last year’s high-flyers.   

Cornerstone exists to provide educational investment information with a Christian perspective.  Some posts are purely about investments (like this one), but other posts have covered stewardship and charitable giving, core values and ESG, Happiness/Money, etc.  This is a unique combination, and Cornerstone continues to evolve.  Your comments are always helpful and are appreciated.

For additional investment and financial planning information see my Cornerstone website

The information provided is for informational and educational purposes and it does not constitute personal investment recommendations or investment advice.  Past performance does not guarantee future performance.

Jeff Johnson, CFA

January 2, 2023

Bitcoin, Meme & Inflation in 2021, Wild West in 2022?

While “unprecedented” was the word to describe COVID- plagued 2020, the year 2021 had its own share of unique developments, surprises and disruptions.
Bitcoin and other cryptocurrency names gained more mainstream acceptance from both retail and institutional investors despite record volatility.
Meme stocks became the rage as GameStop started the year by jumping over 2400% by late January as retail investors waged a David vs Goliath battle with hedge funds and other institutional investors.
Inflation: As the year progressed, inflation escalated to levels not seen in nearly 40 years.
Everything Rally– Investor IRA, 401k and taxable accounts advanced nicely as markets provided a third year of big gains.

Wild West in 2022? The developments in 2021 provide an interesting backdrop for the 2022 outlook.


High Level 2022 Market Comments:
The Wall Street consensus remains bullish and sees more market gains for 2022. But, there is a wider-than-normal range between bullish views and bearish views and there is a growing list of naysayers who see more downside.

Inflation is seen by most as moderating and becoming less problematic. This benign view could change rapidly, however, if inflation rises higher or persists longer than expected.

The market expects COVID to go from a pandemic to an endemic that the world learns to live with. This may well be the case, but there is a risk of a variant that is highly transmissible and highly virulent.

Markets have had above-trend growth for over a decade, but inflation has been a surprise and the Federal Reserve has significantly shifted its interest rate policy. The Fed has pivoted from a highly stimulative policy to a tightening policy. This is a major shift from a market tailwind to a headwind and suggests that 2022 could be very different.

Increased retail investor trading is disrupting the market’s traditional institutional structure.

China has unique developing risks including increasing property development defaults and President Xi Jinping’s meddling and control over large Chinese companies.

Investment Portfolio Comments and Recommendations:
Rebalance your portfolio. The big run up in mega-cap stocks in the S&P 500 over the last three years means that portfolios are highly skewed to the largest stocks with the highest valuation levels. Rebalancing back to your strategic investment objective allows the purchase of assets with more attractive valuation levels and prospects for better long-term performance.
Tactically overweight U.S. small caps, value style holdings and developed international. Exercise caution on emerging markets due to China.
Fixed Income bond maturity levels should be kept relatively short, with an emphasis on corporate high-quality and high-yield bonds.
Charitable Giving of highly-appreciated stock is particularly attractive given the big stock market gains and high valuation levels. Obviously, there are few opportunities for tax-loss selling, but negative performers should be liquidated to offset capital gains.
Bitcoin/Crypto has had huge gains but this group is still in the speculative stage. Any purchases should not exceed 1-2% of your portfolio. Blockchain investments look like they have broad long-term applications and appear much more attractive than Bitcoin and other cryptocurrency investments.


Bitcoin/Crypto and the meme craze were two new large market factors, so special attention is provided directly below. Market Outlook details are provided further down.

2021 High Fliers: Bitcoin and Meme:
Powered by social media forums like WallStreetBets, GameStop, AMC Entertainment and others revolutionized the way markets operate.

Bitcoin, Crypto & Blockchain:
Bitcoin and other cryptocurrency assets performance skyrocketed again in 2021 and drew increasing attention from both retail and institutional investors. Although Bitcoin is the oldest and largest “digital currency”, there are literally thousands of cryptocurrencies and new crypto assets are continuing to be developed.

Bitcoin and other cryptocurrency are essentially a software program run across a network of linked but independent computers. As such, Cryptocurrencies don’t have a physical form but instead exist only as entries in an electronic ledger as virtual or digital money that takes the form of tokens or “coins”. The cryptocurrency ecosystem allows you to trade over independent exchanges (like Binance or CoinBase) or transfer assets by having a new line entered into the electronic ledger that indicates the transfer. In this regard, it is like a bank account statement that shows transfers of digital money. Rather than existing in a physical form (coins, currency, credit cards, etc.), however, they remain entirely intangible. New cryptocurrency is developed by so-called “Miners”, high-powered computer users competing to solve complex cryptographic computational math problems to win the latest block in the blockchain database.

Bitcoin was up 60% in 2021, and up 118% annualized over the last five years. For comparison purposes, the S&P 500 index was up 18.5% annualized over the last 5 years. Bitcoin was also very volatile. Over the last five years, the standard deviation for Bitcoin was 89% compared to 15% for the S&P 500. Although Bitcoin is the oldest and most common cryptocurrency, there are numerous other crypto assets with even higher performance and volatility.

Since the cryptocurrency system exists over a network of independent computers, they are decentralized as opposed to the current centralized financial system. The crypto universe provides an anonymous peer-to-peer electronic currency system that is not controlled by any central authority. Consequently, they can’t be controlled by commercial banks or central banks like the U.S. Federal Reserve. Central banks historically have heavily influenced money supply, interest rates and the value of the dollar. The decentralized mode of operation is referred to as Decentralized Finance or DeFi, a catchall phrase for banking services offered on a blockchain-based platform.

Primary Functions and Benefits:
Store of Value: Bitcoin is a currency store of value like gold, and is sometimes called digital gold. Bitcoin was developed with a limit of 21 million bitcoins that can ever be mined. As of 2021, there have been 19 million Bitcoin that have already been mined, so new mining supply will be limited and it will cease in the future. With Bitcoin supply capped at 21 million, there is a scarcity value that presumably protects against inflation and other risks and these factors helps explain the popularity.

Medium of exchange: Crypto provides an alternative to traditional financial services transactions. Theoretically you could buy a pizza, but high transaction costs make it better suited for the purchase of your next Lamborghini. The industry is evolving, and PayPal’s Venmo app and the Cash App from Block (formerly Square) now make it easy to buy cryptocurrency or to send it to others. Retail shopping outlets can be expected to accept some of the most common cryptocurrencies.

Diversifier: Cryptocurrency theoretically provides portfolio diversification benefits because it is expected to have a low correlation with other financial assets. Crypto has an idiosyncratic risk profile that is different from other fundamental factors. As a result, crypto in a portfolio has the potential to offer a more attractive risk/reward profile.

Convenience and Efficiency: Cryptocurrencies offer innovation, cost reduction and even the extension of financial services to underserved populations compared to the legacy financial services industry. Since transactions occur peer-to-peer, there is a vast swath of “middlemen” and administrative layers that are eliminated.

Primary Negative Factors:
Bitcoin and other crypto assets have No Intrinsic Value: They exist as digits in a computer program and don’t generate cash flow like typical stocks and bonds. Traditional examples of assets that don’t generate cash flow include gold, art, baseball cards, classic/exotic cars, beanie babies, etc., but these examples do have a physical presence. Digital assets are seen by some as evolving as a new, separate asset class that generates returns as the price keeps increasing. Critics derisively say that investment gains are based on the Greater Fool Theory (where you need to find a Greater Fool who is willing to pay even more.)

Regulation: Regulation is a huge, complex, multi-faceted issue. The Securities and Exchange Commission, the Department of Treasury, the Federal Reserve, state banking commissions and regulatory authorities across the globe are all considering regulation related to cryptocurrency. A primary objective is to protect investors in a way similar to current investor protections. There is also a major concern related to systemic risk. For example, coordinated central bank intervention was critical for stabilizing the global economy during the Great Financial Crisis and recession in 2008/2009. If cryptocurrency had been part of the global financial structure during that crisis, it is difficult to comprehend how central banks would have functioned. Meanwhile, as regulatory issues are being deliberated, digital currency benefits are being explored by the Federal Reserve and by other countries. Although most countries are considering digital currencies, China has banned Bitcoin and other crypto-related activities.

Volatility: Price movements of +/- 10% in a day have occurred in the past. As mentioned above, traditional measures of risk like standard deviation show risk many times greater than traditional stocks and funds.

Energy consumption: Crypto creation and transactions require immense electricity utilization to power the decentralized computers. Bitcoin’s annual electricity usage is described as nearly equal to Sweden’s. It should be noted that some cryptocurrencies are more energy efficient than Bitcoin, and continued efficiencies are expected. Obviously, cryptocurrency has a large carbon footprint at this time.

Illicit payments: Since cryptocurrency transactions are anonymous, it is used for money laundering, ransomware, sex trafficking, terrorist financing and other illicit uses.

Taxes: The IRS Form 1040 currently asks if you received, sold, exchanged or acquired any financial interest in any virtual currency. Your crypto exchange will send you Form 1099-K if you have more than $20,000 proceeds and 200 transactions, and a copy also goes to the IRS. The IRS is obviously concerned about tax avoidance and additional monitoring can be expected for holding crypto in an exchange or digital wallet.

Blockchain is Most Intriguing:
The decentralized aspect of blockchain has given rise to the term Web 3.0. The Web 3.0 characterization foresees a third-generation internet where decentralization makes the web more transparent, and efficient, and unleashes transformational potential for business, finance and governance.

Parallels to the DotCom Bubble?
Cryptocurrency assets like Bitcoin are hailed as the next big thing by true believers. They are also seen as pure hype by others. One analyst described being bullish on Bitcoin because he was bullish on cognitive dissonance. Charlie Munger (Warren Buffet’s partner) says “This era is even crazier than the dot-com era” when most stocks became worthless. Jamie Dimon, CEO of JP Morgan-the nation’s largest bank, has described Bitcoin in the past as worthless. Given the passion and disparate views, it seems helpful to reflect on the DotCom Bubble. Between 1997 and 1999 there were 1,460 IPOs. was the most noteworthy example of excess. The stock went public at $9 on November 13, 1998, it closed at $63.50 on the first day of trading and by August 2001 it fell below $1 and was delisted. Most IPOs from that era were acquired or merged with other companies or simply ceased to exist. Only 25 reported earnings till 2018 to recover their IPO value according to Shivaram Rajgopal, Professor, Columbia Business School. Today there are very few survivors from that time. (Amazon, Nvidia, Red Hat are prominent survivors). Although there were few survivors, the internet is many orders of magnitude larger today than in 1999.

At this time, it is difficult to foresee the long-term prospects for Bitcoin and a raft of other cryptocurrencies. Newer entrants are emerging with protocols that process more transactions at a faster rate and at a lower cost. The industry continues to develop new products, including stablecoins and Non-Fungible Tokens-NFTs, etc. In any event, the blockchain technology appears to have particularly good growth prospects as the internet evolves. This overview is barely scratching the surface, but the impact from innovation appears huge. Although this space is expected to grow to immense proportions, it looks too early to pick the winners and to be confident you have found the next Amazon.

Retail & Meme:
Retail investors became a new market force that drove the meme stock phenomenon. Meme stock traders use message boards like Reddit’s WallStreetBets, Twitter and other social-media platforms to quickly communicate an investment idea, trend or theme. These meme tactics are in contrast to traditional institutional “fundamental” analysis that is based on company financials and valuation. GameStop-GME, a bricks and mortar video game retailer with declining sales, became the first big meme stock. GameStop traded at under $19 at beginning of the year, but hit an all-time-high of $483 by Jan 28, a 25-fold increase. It ended the year at $148. In January, GameStop benefited from a short squeeze on hedge funds and other institutional investors who were “short” the stock. (A short squeeze occurs when investors utilize an option to sell a security now, with the obligation to buy it at some point in the future. The intent is to be able to buy the stock in the future at a lower price. When a stock price rises instead of falls, the short investors end up buying at higher prices, causing a loss on the option trade.)

Social media platforms allowed retail investors to quickly move together and run in packs to pile on to amplify price moves. This “Stick it to ‘em.” attitude against the big guys caused a short squeeze that inflicted massive hedge fund losses. GameStop investors were encouraged to HOLD FOREVER (or at least for the long-term despite short-term volatility), but an online typo, now immortalized as HODL came to be characterized as “hold on for dear life.”

Social media proved to be effective, and the meme stock traders used the same tactic on AMC Entertainment and others. It needs to be said that once the meme stock phenomenon gained traction, institutional traders and others joined the fray trading on both up and down momentum and various other trend following and quant algorithms.

Since meme stocks usually trade on various non-traditional themes, they typically trade at prices well above what would be justified by traditional valuation metrics. As a result, they require investors to “Hold Forever.” Because these investors can’t cause the stock prices levitate forever, they are ultimately exposed to incurring heavy losses. Meme stocks need to recognized as highly speculative and are best suited for short-term traders rather than as long-term investment strategies. Traders must have the capacity to sustain significant losses. Some investors disparagingly comment on YOLO investors as those who’ve never seen a bear market. Nevertheless, meme stock trading has established itself as a major new force in the markets. It looks clear that this trend represents a new generation of investors developing expertise and learning from potential downside, just like every other generation of investors who were educated by losses.

While Bitcoin, Crypto, Blockchain and Meme stocks generated huge gains, the broader market had an exceptional year as well. Going in to 2021, the consensus expectation was for steady gains, but the reality was a big market “melt-up”. Despite supply chain constraints and COVID persistence, the big gains in 2021 helped major indexes generate their best three-year equity performance since 1999. Long maturity bonds did not have a good year, however. The U.S. Treasury 20 Yr+ long-maturity bond index fell by -4.4%, as it was hurt by rising interest rates.

The data from the table above provide context and perspective, especially related to longer-term performance and risk as measured by the standard deviation. As always, recent performance is a poor forecast for the future.

Within the overall market, big cap U.S. stocks, as measured by the S&P 500 index shown in the graph below, maintained their performance leadership and foreign stocks continued to lag. Energy, previously oversold and unloved, was the strongest sector. Investors saw past under-investment in the oil and gas sectors as leading to higher short-term oil prices. Utilities were the weakest sector, but they still managed to gain a very respectable 18%.

Market activity was robust in other parts of the investment universe as well. Investor fervor led to record investments in Initial Public Offerings and SPACs (Special-Purpose Acquisition Companies). Analysis by Bank of America showed that 70% of IPOs for the year through November were unprofitable, a higher level than during the late 1990s tech bubble.

Mergers and Acquisitions deals also set records, with global volume at $5.8 trillion and U.S. volume at $2.5 trillion. Accommodative monetary policy kept interest rates low, and the low rates fueled easy availability of cheap financing and booming stock markets.

Finally, private equity set a record of $990 billion of deals according to Dealogic. Valuation levels are described as more than twice historic levels.

At this time, most everything has been up and to the right. Market momentum appears solid on a near-term basis, but overall growth rates have been well above long-term sustainable levels. Optimism looks overdone and needs to be tempered by sustainable longer-term fundamentals. It is difficult to call the timing of a bear market, but future returns will likely be much lower than the recent past.

Market Consensus Outlook for 2022:

The table above highlights consensus year-end 2022 expectations for the S&P 500, GDP growth, inflation and the 10 Year U.S. Treasury note. The consensus shows continuing economic recovery, moderating inflation and rising interest rates. Although forecasts are often wide of the mark, the consensus data does reflect what is priced in the market, and it is a helpful starting point for discerning drivers of the markets. An understanding of the consensus expectation also provides perspective as markets react to unanticipated or surprise developments. It is notable that the range between the high and low S&P 500 forecasts are particularly wide, and this indicates heightened risk, uncertainty and volatility. FactSet analysis going back to 2003 shows the consensus typically overestimates year-end market performance, but the consensus has reasonable accuracy most years.

The biggest surprise of 2021 was inflation. The annualized Consumer Price Index inflation rate was 1.4% at year-end 2020, but it rose sharply to 6.8% overall and 4.9% core (net food and energy) during 2021. Increasing inflation began ramping up as the massive container ship Ever Given got stuck sideways in the Suez Canal in March for six days and blocked a key global shipping artery. This event foreshadowed supply chain woes that resulted in an extraordinary surge in global prices, and these constraints aren’t expected to be resolved until well into 2022. Gradually, this “goods” inflation began seeping into the services sector. At this point, inflation has spread into more persistent sectors like wages and rent and there is growing concern related to a wage-price spiral.

The Federal Reserve’s so-called “Dot Plot” forecast shows core inflation dropping to 2.7% by YE 2022 and 2.3% by YE 2023. The Market consensus expectation is higher than the Fed with a 3.5% 2022 inflation rate, and a high-end rate of 5.2% by Wells Fargo. Inflation is clearly running hotter than seen in decades, and the market is currently expecting a gradual moderation in interest rates. History says that moderate inflation rates are not too problematic because inflation allows companies to raise prices and enhance profitability. History also shows that stocks have not been hurt too badly except when inflation is above 6% or when it is negative. Hopefully, inflation will trend down, but vigilance is essential related to the possibility of higher inflation over a longer time period.

According to most valuation measures, equities have been extremely overvalued for several years. The graph below shows the S&P 500 trading at a relatively expensive forward Price/Earnings ratio of 22. Although the market is quite expensive, at least it is not as expensive as the late 90s internet frenzy. PE ratios do not provide a good market forecast for near-term performance, and history shows that markets can remain overvalued or undervalued for longer than we like or expect. Nevertheless, PE ratios do provide a good indication of longer-term performance. A relatively high PE ratio indicates below-average investment returns over the next 5-10 years.

Small Cap Stocks:
Small cap stocks have outperformed large cap stocks historically, but they have been laggards in recent years. Although small caps are more volatile, they are important in a portfolio’s overall asset allocation plan. Small caps are expected to grow faster than large cap stocks and should provide better performance. Small caps have been under-owned and should benefit from increased investor interest.

Foreign Stocks:
International stocks outperformed in the 1970s, 1980s, and the 2000s, but have trailed the S&P 500 since the 2008/2009 Great Recession. International stocks are cheaper than U.S. stocks, and they are especially cheaper than U.S. large cap growth stocks. They should benefit from investors seeking cheaper valuation levels.

Emerging Market Stocks:
Emerging Mkts: Emerging market stocks are another asset class that has trailed in recent years. Emerging market stocks are more volatile but offer better growth prospects than developed markets based on a younger population and a growing middle class. they are cheaper than developed markets, they offer diversification benefits and they look poised for good longer-term performance.

China is currently a risk to emerging markets because it represents roughly a third of emerging market indexes, and because it has country-specific issues. First, the Evergrande property development company has defaulted on bonds, and additional property development companies are expected to default in the future. Real estate development has been a key Chinese growth driver, but this sector is overbuilt and over-levered, and it will be a drag on future growth. President Xi Jinping has also led a crackdown on technology giants like Ant Group, on private businesses in the education sector and on cryptocurrencies. Xi Jinping is pursuing a common prosperity objective, but he is stifling entrepreneurial innovation. The iShares MSCI EM ex China-EMXC ETF has a Morningstar analyst Gold rating that is a way to invest in emerging markets without Chinese exposure.


Historic Interest Rates:
Interest rates have been trending lower since the early 1980s. The 10-year U.S. Treasury bond interest rate peaked at 15.82% in September 1981 as the U.S. battled double-digit inflation. As inflation subsided, rates have trended lower. Interestingly, forecasters, including the US Federal Reserve, have consistently projected rising rates. Historic long-term bond total return performance has been high due to bond price increases as rates declined. With interest rates at current low levels, there is little potential for additional bond price gains. Instead, any increase in yields will negatively impact bond prices and will be a drag on total return performance. If inflation picks up faster than expected, then longer-maturity bonds will experience significant negative performance.

Interest Rates Since the Pandemic:
The 10-year US Treasury bond began 2021 with a 0.92% yield and ended the year at 1.51%. The rising interest rate environment caused 10-year Treasury Bond price to decline and cause negative total return performance. At this time, real yields (nominal yield net inflation) continue to be negative. Fed policy is to raise short-term rates on securities like the 90-day Treasury Bills, probably starting in mid-year 2022. On the positive side, high-yield corporate bonds generated a 5.3% total return. These high yield bonds have higher yields and shorter maturities that are less impacted by rising interest rates. Looking forward, longer-maturity bonds are expected to face higher interest rates that will further erode their bond price and result in another year of negative total return performance. Since the economy remains strong, high-quality and high-yield corporate bonds again look poised to generate positive returns.

Wrapping Up:
Investment performance has been very strong in recent years, and your IRA, 401k and taxable holdings are likely up significantly. After the huge market decline during the Great Recession a dozen years ago, many pessimistically commented about their “201k” holdings. After a decade of above-average returns and optimism, it might be more realistic to temper optimism by picturing “601k” holdings. Markets will eventually mean revert back to a more fundamentally driven 401k valuation level.

At this stage in the investment cycle, overconfidence is probably the biggest risk for most investors. It is easy to talk about discipline and a long-term perspective, but it is not easy to implement in either up or down markets. Some pundits say we are in the midst of the “Roaring 20s”, and some warn of another “Lost Decade.” The reality is that no one knows for sure. Market knowledge and experience helps maintain perspective, and it also helps to keep in mind that markets can move farther and longer then expected in both directions. Big portfolio winners are likely overweight and expensive, and should be trimmed. If you want to buy Bitcoin or meme stocks, keep the weight below 2%. As always, a long-term perspective, appropriate Investment Objectives, diversification and rebalancing are more important than chasing last year’s high-flyers.

Jeff Johnson, CFA
January 6, 2022

Cornerstone exists to provide educational investment information with a Christian perspective. Some posts are purely about investments (like this one), but other posts have covered stewardship and charitable giving, core values and ESG, Happiness/Money, etc. This is a unique combination, and Cornerstone continues to evolve. Your comments are always helpful and are appreciated.

For additional investment and financial planning information see my Cornerstone website.
The information provided is for informational and educational purposes and it does not constitute personal investment recommendations or investment advice. Past performance does not guarantee future performance.

Happiness and Money

Bill Clinton’s 1992 campaign mantra proclaimed:  “It’s the economy, stupid.”  Granted he was trying to win the presidency, but if his statement was true, then the current strong economy and stock market should make us all happy.  Right?  After all, the economy and current euphoric stock market bodes well for retirement accounts, educational funding opportunities, bucket list items, and the chance for once-in-a-lifetime dreams to come true.  And yet, it is often said that money can’t buy happiness.  The U.S. has gotten a lot richer but it hasn’t necessarily gotten happier by many measures.

Obviously, the relationship between happiness and money is not simple and there are many dimensions.

Money and happiness were linked in Franklin Roosevelt’s campaign theme song “Happy Days are Here Again.”  In the 60s the Beatles sang “Can’t Buy me Love.”  Pharrell Williams sang Happy in 2014 and TikTok now offers Be Happy by Dixie D’amelio.  Whatever the age, happiness is big and so is money.

Happiness and money (or the lack of money) are often interrelated and entangled

Money is easy to measure, but happiness from money is much harder to value.  You can easily look at your online brokerage statement and see everything from a high-level summary to great detail.  Depending on markets, this review elicits either a happy or an unhappy gut reaction.  (When markets are down sharply, people often don’t even want to look at the statements.)  Although Fidelity, Schwab and other investment websites provide great “money” detail, don’t expect an online tab or section anytime soon that calculates you your happiness value.  Without a doubt, happiness from money is far more complicated and nuanced.

Happiness can be defined as an emotional state that includes gladness, pleasure, felicity, a feeling of good fortune and possessing what you desire.  It tends to be externally triggered based on other people, things, thoughts and perceptions, and it is often transitory.  Happiness is sometimes described as joy, but joy can be differentiated from happiness based on a deeper sense of grace, gratitude, hope and contentment with who you are.  Psychologists often attach a sense of emotional and physical wellbeing to the definition of happiness.

However you define it, Amazon offers plenty of plenty of books on money and happiness.

We value and strive for more of both happiness and money

America’s founders enshrined the concept of happiness in the Declaration of Independence:  “We hold these truths to be self-evident that all men are created equal  … with certain unalienable rights, that among these are life, liberty and the pursuit of happiness.  Earlier drafts included the right to own property, but property was ultimately dropped because it was seen as redundant to liberty and the pursuit of happiness.

A current indication of the popularity of happiness is a Yale class called the Science of Well-Being. This class, the most popular course in Yale’s 320-year history, is taught by Laurie Santos, a psychology professor whose lectures attract nearly a quarter of the Yale student body.  If you are interested see Yale Happiness Class

Positive Psychology is another happiness development.  Positive psychology is the scientific study of what goes right in life.  Psychology historically held a clinical focus on human problems and how to remedy them.  It looked at weaknesses and shortcomings, including depression, despair and disorder.  Positive psychology was popularized by psychology professor Martin Seligman, a leading happiness researcher.  Positive psychology examines how individuals can create full and healthy lives.  It doesn’t deny the valleys, and it recognizes that life entails more than avoiding or undoing problems, but it recognizes positive life events as a significant part of the human condition.   A positive psychology perspective is helpful when thinking of happiness and money.

Market traders and investment pundits on the Bloomberg Market and the CNBC cable channels give real-time examples of happiness/unhappiness and money.  Frantic and panicked are words that describe the tone on big down days.  Raw base instincts are laid bare.  Big smiles, complacency, hubris and overconfidence are on display on big up moves.  (Oftentimes you can have the audio turned off and you can tell big market moves from facial expressions.)  You may wonder where are the grown-ups.  The reality is that money and happiness are amped up to the max in these circumstances.  For individuals, money (as expressed through the markets) also generates both happiness and unhappiness.  Down markets contribute to insecurity or a fear of an inadequate retirement or shortfalls related to other investment goals.  Although down markets elicit concern, up markets don’t cause individuals to say their investments are too high or too much.  It is clear that too little money causes unhappiness, but it is less clear that more money causes more happiness.

A widely cited 2010 study found that the relationship between happiness and income plateaus once you earn $75,000  (Nearly $90,000 in 2021 dollars)

This study, by Nobel Prize winners Daniel Kahneman and Angus Deaton, showed that poverty, (including insufficient education and inadequate healthcare,) causes distress and unhappiness.  That is no surprise.  When these basic needs are met, however, the benefits of additional income rapidly diminish.  A common explanation for why money doesn’t buy happiness can be described by the term psychological homeostasis.  Psychological homeostasis, among other things, describes the human tendency to get used to circumstances quickly, both positive and negative.

Another study conducted by psychologists Sonja Lyubomirsky, David Lykken and Auke Tellegen found that the way our brains internally process our circumstances is more significant than external factors.  Their research found that external factors like income and investment levels account for about 10% of long-term happiness.

Subsequent research has further refined the association between money and happiness.  Research completed in 2020 by Jean Twenge, a psychology professor at San Diego State University and Matthew A. Killingsworth, a happiness researcher and senior fellow at the University of Pennsylvania’s Wharton School of Business, shows that happiness continues to increase for high-income earners.  Their 2020 study says that the earlier “$75,000 happiness plateau” thesis was misunderstood.  Killingsworth said the original study was for a specific kind of happiness:  emotional well-being that encompasses day-to-day experiences and feelings.  When looking more broadly, however, they found longer-term life evaluation continues to be positively impacted by money.

Economic analysis of lower income families shows a clear relationship between happiness (and unhappiness) and sufficient (insufficient) money for necessities.  Adequate income allows getting enough to eat, a roof over your head and the wherewithal to take your kid to the doctor.   Within that context, relieving poverty is a major driver of increased happiness.

These studies and research have some latitude for a range of interpretations, but they do point to a relationship between money and a longer-term sense of life satisfaction, contentment and well-being.

Money allows for enriched experiences

Although money can’t generally buy sustained happiness, it can offer big benefits if used as a tool to enrichen lives.

It provides for educational opportunities, and education strongly correlates with future happiness.  With more education, people are more likely to be able to do the things that give their life purpose.  For example, it allows travel to experience different cultures.

It provides improved healthcare, which allows longer productive lives while reducing pain and suffering.

It allows charitable gifts to lift up worthy causes.  There is a high correlation between charitable giving and happiness.  Giving allows the potential for great transformation, and this can provide immense joy.  By contrast, psychologists report that self-centeredness and self-absorption tend to lead to stress behaviors, isolation and unhappiness.

It provides the potential better use of our time, according to researchers at Harvard Business School.  While increasing wealth can produce an unintended consequence of a rising sense of time scarcity, money spent to purchase time-saving services can enhance happiness and life satisfaction.  By eliminating tedious, humdrum activities, people are free to pursue their passions.

In short, greater financial resources allows people the freedom to flourish.  Meanwhile, a lack of money precludes these benefits.

The Downside

While money can be a beneficial tool, it should not be an end to itself.  There is a danger that our personal identity can be wrapped up by the amount of money we make and how much we possess.  It becomes a shallow point of pride.  If we are driven to simply accumulate it, we can lose sight of the purpose of money.  It has been described as collecting hammers instead of building a house.  We can also succumb to messages and images that entice us to pursue something more or better.  Our culture induces dissatisfaction with who we are and what we have as it drives desires for a new car, a bigger house or a work promotion.  These messages make it difficult to be content with yourself, your family, your work and with your possessions.

There can also be an unhealthy personal association or attachment related to money.  Examples include an excessive need for safety, secrecy, control, pride, power, weakness, virtue, vice, envy, regret, etc.  Moreover, shame can result from feelings of how much or little you have, and how well or poorly you spend it and even your perception of self-worth.  These dysfunctional attachments and associations typically go back to our upbringing and our culture, and they are hard to overcome.  Finally, money and spending priorities are known stressors in marital and other relationships.

Winning the Lottery Is No Curse

Lotteries provide an interesting case where a winner is instantaneously morphed from low/middle income in a “life-changing” transformation to great wealth.  This phenomenon is much different than wealth derived by an entrepreneur founding a successful company or the receipt of a large inheritance.  Media portrayals of lottery winners show ecstatic people basking in their sudden, newfound wealth.  Lottery winners are quite newsworthy and considered “good tv”, and there is a common narrative that winners will blow it and declare bankruptcy.  Popular accounts and anecdotes abound that say that winning the lottery brings bad luck and that all that money makes people miserable later in life.

Contrary to common stereotypes, academic studies find far different outcomes.  A study, published by the National Bureau of Economic Research, by New York University economics professor Daniel Cesarini and his fellow researchers found that lottery winners retained their wealth well over a decade after their big win.  They found that winners that quickly squander their wealth are rare.  In most cases, they saw that people worked a little less, and that they spent their money prudently.  They also found that people who win large sums of money do cut down on work but it’s quite rare for them to quit altogether. They cut back mostly in the form of taking longer vacations.  The study found “Large-prize winners experience sustained increases in overall life satisfaction that persist for over a decade and show no evidence of dissipating with time.”  In other research, University of Michigan economic professors Justin Wolfers and Betsey Stevenson documented that lottery winners have higher life satisfaction.  The relationship between income and satisfaction is remarkably similar across dozens of countries.

It needs to be acknowledged that research on lottery winners is difficult and complicated.  Results are often found by surveying winners, and self-reported data suffers from low quality.  In addition, lottery winners are under no compulsion to report their income and tax records to researchers.  Finally, research is biased by the fact that cases of financial ruin are more frequently publicized than cases of stability.  Another complicating factor is the reality that many lottery winners choose to remain anonymous.

Although rags-to-riches stories are popular fare and make interesting reading, it should be noted that low-income groups have higher participation rates, and many social policy advocates view lotteries as a regressive tax.  Lotteries have been disparagingly referred to as a stupidity tax.

Religious Faith & Biblical Perspective.

The Bible dedicates numerous passages of scripture to money and the use of money.  In general, the Bible doesn’t necessarily condemn wealth but it does stress the obligation to be generous and it highlights the risk of loving money.  Wealthy Biblical individuals include Abraham, Solomon and Job.  Examples of generosity include Joseph, called Barnabas, Cornelius and Philemon.  Some scriptural passages include:

Warning against the love of money.  Hebrews 13:5 says to Keep your lives free from the love of money and be content with what you have.  Matthew 6:24 says No one can serve two masters, for either he will hate the one and love the other, or he will be devoted to the one and despise the other. You cannot serve God and money.  1 Timothy 6:6-12 says But godliness with contentment is great gain, for we brought nothing into the world, and we cannot take anything out of the world. But if we have food and clothing, with these we will be content. But those who desire to be rich fall into temptation, into a snare, into many senseless and harmful desires that plunge people into ruin and destruction. For the love of money is a root of all kinds of evil.

Charitable Giving/Stewardship. Charitable giving is a recurring theme throughout the Bible.

Acts 20:35 says In all things I have shown you that by working hard in this way we must help the weak and remember the words of the Lord Jesus, how he himself said, ‘It is more blessed to give than to receive.’  2 Corinthians 9:7 says Each of you should give what you have decided in your heart to give, not reluctantly or under compulsion, for God loves a cheerful giver.

A profoundly spiritual paradox is that giving is the ultimate source of great wealth and happiness.

Blessings & Rewards:  The Bible is sometimes maligned by a narrative of vengeance and punishment, but there are many passages related to blessings and rewards.  Proverbs 3:9-10 says Honor the Lord with your wealth and with the first-fruits of all your produce; then your barns will be filled with plenty, and your vats will be bursting with wine.  Matthew 5:21 says His master replied, ‘Well done, good and faithful servant! You have been faithful with a few things; I will put you in charge of many things. Come and share your master’s happiness!’

These passages don’t endorse the prosperity gospel, but they do provide a broader perspective than is commonly portrayed.

Work and Money and Happiness.

The value of work is a robust finding in happiness research.  Quite simply, a job gives a feeling of earned success and it lifts up our pride and self-worth.  Despite long commutes, the drudgery of routine tasks, all-too-frequent Zoom sessions and bad managers, work provides a sense of achievement, creative effort, and self-reliance.  In contrast, unemployment and underemployment bring misery and despair.  There is a danger in over-romanticizing work, and there are clear cases of a bad fit.  In these circumstances there is a need for job skills and training for the marginalized.

Whether running a hedge fund or trimming a hedge, work creates a sense of purpose that transcends the paycheck.

Some things money just can’t buy

“Tell me that you want the kind of things that money just can’t buy” according to the Beatles song ‘Money Can’t Buy Me Love.’  The focus of this blog post has been on the relationship between happiness and money (and the lack of money).  As mentioned previously, happiness and money are interrelated, but there are some fundamental factors that are in many ways independent of money.  After all, there is a difference between being rich and wealthy.

Listed below are some additional key happiness factors:

Relationships.  You can’t buy friends and family.  They are there, and are important whether you live in poverty or have a fortune big enough to buy Texas.  A close bond with people we trust and confide in is essential to our happiness and overall well-being.  Relationships keep us grounded, they sustain us through good times and bad and they give us a sense of community.  People with strong ties to friends and family have the highest levels of happiness and wellbeing and friends and family relieve feelings of depression and negative thinking.  They lift us up and help us see something bigger than ourselves.

Faith and Spirituality.  Research has shown over and over that people with faith and who follow a spiritual practice tend to be happier and more able to handle life’s vagaries than nonbelievers.  Faith helps take the focus away from narrow self-interests to ponder the deeper meaning and purpose of life.  Faith is transcendent, it is bigger than us, and it helps us grow.

Purpose and Agency.  Purpose is critically important in providing meaning in our lives.  The utilization of our talents, passions and aspirations helps us gain a sense of our unique calling, and that we are here for a reason.  Personal agency is the belief that you have the ability and capacity to influence or handle your thoughts and behavior related to circumstances and various life events.  It involves faith that you can deal with life’s tasks, challenges and opportunities rather than being powerless.  The combination of purpose and agency provides meaning and wellbeing and a sense of our personal destiny.

Giving and volunteering.  There is a high correlation between charitable giving and happiness.  Giving has the potential for great transformation that provides immense joy.  By contrast, psychologists report that self-centeredness and self-absorption tend to lead to stress behaviors, isolation and unhappiness.  Volunteering our time can even give us the feeling of having more time because we feel we can decide to give some of it away.  

See  Cornerstone Charitable 

Gratitude.  Gratitude involves thankfulness and appreciation of what is valuable and meaningful.  It has been shown to improve mental health, boost the immune system and contribute to an overall sense of well-being.  Gratitude includes kindness, which research links to physical and emotional benefits.  Fight-or-flight stress hormones are diminished as your brain releases oxytocin, a hormone that is correlated with trust, reduced fear and positive emotions.

Forgiveness.  Forgiveness is the conscious and deliberate act to release feelings of anger and negative emotion directed towards someone who has wronged you.  Forgiveness gives freedom from resentment, vengeance, hatred and other unhealthy emotions that are detrimental to happiness.  It doesn’t require reconciliation.  It allows us to extend grace and it liberates us from being captive to the offended one.  Forgiveness has been shown to reduce stress, anxiety and depression and to provide a more optimistic sense of well-being.

The attributes listed above greatly benefit individual happiness, and in turn they benefit broader humanity.  These benefits are incalculable, but they are very real.

Wrapping Up

Happiness and money are interrelated and entangled in many complex ways.  This web post provides only a high-level overview.  Coverage of many of the factors is cursory, and only scratches the surface.  It needs to be said that poverty doesn’t guarantee virtue, and wealth does not guarantee vice.

The headline results show that a lack of money reduces happiness.  Time and space do not allow exploration of topics like income and wealth inequality.  Money can be harmful if it becomes a source of personal identity or dysfunctional attachments.  Money generally does not produce lasting happiness beyond a short-term sugar high.  On a longer-term basis, however, it enrichens life and it can provide a greater sense of well-being, contentment and overall positive life evaluation.

Finally, from a holistic perspective, there are non-monetary factors that are hard to measure empirically, but that have immense intangible benefits.  Arthur Brooks, Harvard professor and past president of the American Enterprise Institute, summed these up best: “like kids taught to read, habitats protected or souls saved.”

Jeff Johnson, CFA

May 7, 2021

Cornerstone exists to provide a mix of investment information within the context of a Christian perspective.

For more information  See Cornerstone Investments 


2020 Mid Year-Clorox, Zoom, FOMO and More-July 9, 2020

Why So Volatile-April 2020

One for the Record Books-March 14, 2020

Coronavirus Comments-March 1, 2020

Big 2019, 30 Yrs of Ups & Downs, Outlook/Recommendation, January 9, 2020

Charitable Giving Update and Comparisons-2019, October 26, 2019

Market Record, Panic, New Record-What’s Next? July 13, 2019

Educational Investment Seminar-Take Aways.  May 22, 2019

A Wild Year, A Great Decade and a Market/Economic Disconnect.  January 3, 2019

Investments:  Faith-Based & Environmental, Social and Governance.  November 9, 2018

Investment Guidelines 101-(Are Financial Advisers Worth It?).  June 22, 2018

Paul, Apostle of Christ and Economic Priorities.  April 2018

Charitable Contributions.  January 13, 2018

I Bonds Offer a 7.12% Yield and Inflation Protection

Tired of earning 0.01% in your checking account and money market fund?  For most of the last 10 years higher returns with low risk have been a bridge too far.  Well, how about a safe 7.12%?  The recent jump in inflation means that the current interest rate on I Bonds issued by the U.S. Treasury has been adjusted upward to 7.12%. 

I Bonds are not as exciting as Bitcoin or GameStop, but you will likely sleep better at night.


-I Bonds are officially called Series I Savings Bonds, and they offer a guarantee from the U.S. government that you can recover your original investment plus inflation increases based on the Consumer Price Index. 

-I Bonds have been available since 1998, and they have offered good inflation-adjusted returns during periods from the 1990s through the mid 2000s.  Investment return performance has been weak, however, over the last decade as the inflation rate remained under 2%.  In cases where inflation is negative, the return is zero for that period and the principal does not decline. This actually happened in 2009 during the Great Recession when inflation was negative and the I Bond return was 0%.  The recent jump in inflation has now made these investments attractive again.

-I Bonds can be considered a very competitive “parking place” for “near cash”, but you can also hold them for up to 30 years. 

-I Bonds can be bought up to the last day of any month and the investor still receives the full interest payment for that month.

Inflation Adjustments:  The current interest rate for I Bonds is 7.12% (for December 2021 through May 2022), and then it is adjusted every six months based on the inflation rate at that time.  My Cornerstone inflation expectation is for a gradual reduction in the inflation rate, and a lower inflation rate translates into a lower I Bond return.  Nevertheless, I expect an I Bond investment would significantly beat your bank rate for the next couple years.

Rates are moving up, but … The Federal Reserve announced on Wednesday that they will be raising rates, but don’t expect anything big anytime soon.  The Fed’s current “Dot Plot” forecast signals three interest rate increases between June 2022 and the end of next year.  The forecast also sees three additional rate increases in 2023 and three more rate increases in 2024.  Based on this forecast, short-term interest rates would be around 2.25% by yearend 2024.  Although short-term interest rates will slowly rise, these rate increases will rise even more slowly for your deposits in your checking and money market funds.  Banks are always very quick to raise rates on loans, but they will delay raising your deposit rates as long as possible.  Hey, they are in a competitive business to make a profit and meet shareholder expectations.  They have also learned that you will tolerate these low deposit rates because you have had little recourse in the past.  It needs to be remembered that your investment portfolio likely holds banks and you will benefit from stronger investment performance. 

The maximum annual investment is $10,000 per social security number (plus up to $5,000 more if you elect to receive your federal tax refund in I bonds).  If you have kids, you can set up accounts for them as well.  So, if funds are available, a married couple could put in a total of $20,000 before the end of 2021 and then another $20,000 in 2022.  You could do the same for kids. 

You can’t get this from you Adviser/Broker:  Although it would be convenient to purchase I Bonds through your existing advisory or brokerage accounts, you need to set up an account with the U.S. Treasury.  I Bonds are purchased via the website, and it is set up to pull cash from your checking account. There is no charge of any kind at any point. The Treasury website is very intuitive and it is designed to easily walk you through the process.

Liquidity:  The I Bonds cannot be liquidated for one year after purchase.  They can be redeemed between one and five years but you must forfeit 3 months of accrued interest.  After five years they can be liquidated without penalty.

Taxes:  You have the option of paying your federal taxes on an annual accrual or you can wait until maturity to pay the whole tax obligation.  Like other U.S. Treasury securities, there is no state or local tax.  If you use your income tax refund to purchase U.S. savings bonds, complete and file IRS Form 8888 with your tax return.  They can also be used without taxation under some conditions for educational expenses. 

The graph below shows the current upward move in inflation and the history going back to 1971. 

Jeff Johnson, CFA

December 18, 2021

Cornerstone exists to provide educational investment information with a Christian perspective.  Some posts are purely about investments (like this one), but other posts have covered stewardship and charitable giving, core values and ESG, Happiness/Money, etc.  This is a unique combination, and Cornerstone continues to evolve.  Your comments are always helpful and are appreciated. 


2020 began with hardly a cloud in the sky.  It seems like a long time ago when we gave little thought  to simple things like going to work or socializing with family and friends.  Going or to our kids’ or grandkids’ soccer game or shopping were routine.  We knew we faced a polarizing election, but at least voters would sort it out.  Most everyone had a job and the U.S. unemployment rate was at 3.5%, a 50-year low.  Investors were benefitting from the longest economic expansion and the longest bull market in history, Chinese trade-war tensions were subsiding, and the 2020 outlook was promising. 

Then, the lights went out and 2020 became a year like no other.  COVID-19 became the dominant theme of the year, and it impacted everything.  It seemed like the word “Unprecedented” was used in every other sentence.  

The Shutdown Caused Many Hardships:  Life came to feel surreal as normal activities ground to a halt and the economy and most other activities shut down faster than at any time in history.   Lockdowns, Stay-At-Home orders, Work-From-Home and social distancing meant that many social activities, businesses, schools and churches abruptly went dark.  Parents were suddenly attending to school-aged children and helping with distance learning while dealing with a precarious work environment.  Unexpected impacts included shortages of toilet paper, Clorox and baking flour.  Bad haircuts and motion-sensing Purell dispensers became the norm.  The NBA season and the NCAA basketball tournament were early casualties.  Zoom became a staple of everyday life, and “You’re muted!” became an all-to-common refrain.  Who knew Domino’s Pizza would displace a nice restaurant. 

With no significant pandemic experience in over a century, it was naively assumed that it would be under control by summer.  Obviously, COVID-19 virus proved more formidable and forced much unexpected change.  Over 10 million were unemployed by the end of March.  Oatmeal consumption jumped over 200%.  Liquor sales spiked in 2020 as people used it as a way to cope with mental distress.  COVID fatigue set in.  Isolation took its toll.  People died without the presence of family and friends.  Little did we know that the U.S. would grieve the loss of over 340,000 deaths over the course of the year. 

Uncounted small business owners lost their life work and many displaced workers lost jobs that would not return.  The number of shooting victims in New York City more than doubled in 2020, with low-income and minority communities hardest hit.  As if the COVID virus wasn’t enough, the May 25 killing of George Floyd thrust America into a soul-searching reckoning related to racial injustice.  Although not caused by COVID, this tragic event caused social upheaval and a deep a psychic scar.  Finally, the U.S. faced a polarizing election.

Gratitude for the Real Heroes:  Despite the many hardships, there came to be a recognition and profound sense of gratitude for the real heroes.  The healthcare and other essential workers cared for the virus victims and kept the country functioning.  

-Health care workers demonstrated incredible dedicated service despite personal danger and sacrifice as they risked their lives to save others. 

-Everyday workers delivered packages and stocked shelves.

-Medical supply people provided masks, car companies produced ventilators and Clorox disinfectant production was stepped up.

-Scientists and researchers raced against time to develop treatments and vaccines.

-And finally, there were uncounted and often un-noticed acts of helping and compassion by everyday people who helped meet needs wherever possible.

These examples showed courage and persistence in the face of adversity and long hours, and they are a true inspiration.  The sacrifices add up to something much bigger than is readily evident and help to comprehend the meaning of who and what is really essential.

Charitable Contributions:  Although charitable giving typically declines during economic crises, numerous reports show that people actually increased their giving.

Meals on Wheels, food banks and health-related charities saw increased giving during the pandemic, as Americans opened not only their hearts but also their checkbooks.  There was also a big upward shift in indirect aid.  As people became more aware of the needs in their community, there was help for vulnerable neighbors and support for local businesses through the downturn.

Expressions of Basic Humanity and the Human Spirit:  A common refrain has been that we are all in this together.  This hardship brought out many unique expressions of solidarity and resolve.  A few examples:

-People across the country cheered healthcare workers and COVID-19 survivors. 

-Parades of police and car caravans celebrated birthdays and other significant events.

-Minnesota landmarks were lit in purple to honor frontline workers battling the pandemic. 

-Singing from balconies and other social distanced places battled the isolation: Boston residents belted out “Lean On Me” and Chicago metro area residents responded by singing the National Anthem and “We are the Champions.”

-These events went viral on social media and helped many others to cope.

COVID-19 tested us.  We didn’t always act in the noblest ways.  We’re all susceptible to COVID fatigue.  There were certainly situations where social distancing was ignored and super spreader events caused more cases, hospitalizations and deaths.  Nevertheless, we don’t want to forget the inspirational displays of goodness and basic humanity that helped lift us all up.

Vaccines-The Beginning of the end:  The word “Unprecedented” certainly applies to COVID-19 vaccine development as drug companies created a vaccine against a novel pathogen within a year of its discovery, the fastest ever.  The shortest timeline previously was for the Mumps vaccine, which took four years according to the Washington Post.  Not everyone gets a chance to save the world, but dedicated individuals worked relentlessly to end this pernicious virus.  The work by Pfizer, Moderna and many others represents a testament to scientific genius, the spirit of invention, persistence and a commitment to a higher cause.  There is also a bright spot related to this research because the Messenger RNA used by Pfizer and Moderna may be used for future therapeutics to target other diseases, including cancer. 

These vaccines are truly a game changer.  We can only wonder what it would be like and how we would feel if these vaccines development time took two or three years.

Return to Normal?:  As the COVID-19 ordeal ends there is a natural desire to return to normal.  As the isolation gradually winds down, how quickly will people feel comfortable again seeing family and friends, taking vacations and going back to baseball and football games?  The reality is that we aren’t going all the way back and some changes will be permanent.  It has become a cliché to state that we have experienced 10 years of change in one year.  But the pandemic has accelerated structural changes long in the making.  Some businesses will not return and some jobs have been lost forever.  There is deep uncertainty about how consumer and office-worker behavior might have changed.  There is a huge hangover of debt.  Education is likely to see many permanent changes.  What will our churches be like, and who will come back?  Adversity causes changes, and how will people react?  COVID-19 forced us to be more resilient and self-reliant.  As we think of the lessons learned and our reshaped priorities, hopefully the changes will help us be more aware, patient, deeper, compassionate and thankful.


Healthcare factors aren’t typically big market drivers, but COVID-19 dominated the markets in 2020.  While 2020 was volatile, it is helpful to examine the year in a broader context.  The graph below shows the longest bull market in history from March 2009 through February 2020.  It also shows more protracted historic bear markets that often last far longer than the recent short downturn in 2020.  Although accurate short-term projections are difficult, history gives a longer perspective and says it would not be prudent to extrapolate the recent market strength forward for the next ten years.   

As shown below, investors benefitted from a record long 11-year bull market.  This time period was accompanied by a record long 10 ½ year economic expansion.  But both streaks ended in February as COVID-19 abruptly shut down the economy.  Since there was no good pandemic precedent, the market panicked with the fastest decline in history into a bear market with waves of indiscriminate selling.

Both the Federal Reserve and Congress, benefitting from what was learned from the 2008/2009 Great Recession, reacted in record time with extraordinary monetary and fiscal stimulus.  The market, recognizing this unprecedented stimulus, reacted with the fastest bull market recovery in history.  The whiplash in the first half of 2020 produced the most extreme quarterly performance variance since the 1930s.

The table below provides additional perspective:

-2020 performance was generally well above historic norms.

-Volatility as measured by Standard Deviation was also high compared to the longer-term ten-year average.

-Small cap stocks and emerging markets are particularly volatile.

-Foreign developed and emerging markets stocks have been laggards over the last ten years. 

-Long maturity U.S. Treasury bonds had extraordinary performance as interest rates declined and bond prices jumped upward (more below). 

The observations from the table above provide context and perspective related to expectations for the future.  One notable point is that recent performance is a poor forecast for the future.  Listed below is additional information related to market expectations.

Consensus Economic Outlook

There is a difference between the economy and the stock market, and the two do not move together in lockstep.  Nevertheless, the economy is a major driver of corporate profits, and corporate profits are a clear driver of the stock market.  The COVID-19 virus caused a global economic recession in 2020.  China and Taiwan were the only major economies to achieve positive 2020 economic growth.  The recession caused a significant reduction in 2020 corporate profits and contributed to the sharp market decline in March.  Consensus expectations show a significant 2021 recovery and this should help increase corporate profits and help support the market.

There are a number of reasons to support the rationale for a strong 2021 economic recovery.  The rapid development of vaccines gives relief to lockdowns and shutdowns and a resumption of more normal growth.  There is also a fair amount of pent-up savings and demand, and consumers are likely itching to spend some of it.  It is encouraging that forecasts are being revised upward, and these positive revisions are a positive indicator.  It is noteworthy that many forecasts see a rising level of inflation.  Inflation has been very low over the past decade, but massive government stimulus, improving economic growth and widening government budget deficits are reasons to push inflation higher.  If inflation increases, it typically doesn’t hurt stocks too much unless inflation gets up to higher levels.  Higher inflation will crush long-maturity bonds, however.  While these forecasts focus on the vaccines and on hefty stimulus, domestic politics and geopolitical issues continue to be potential wildcard factors.  It needs to be said that economic forecasts are subject to a wide range of outcomes.

Wall Street Targets

Wall Street has long provided price and earnings targets for the upcoming year.  History shows that these expectations may not be accurate, but they do show what is priced into the market.  If there are no big surprises (like the 2020 coronavirus), then these targets provide perspective and can be helpful.

A summary of the top 14 Wall Street firms compiled by CNBC shows the following:

A few comments regarding these targets:

-Central bank stimulus and COVID-19 recovery are seen as major drivers.

-The recent uptick in mergers & acquisitions is seen as continuing in 2021.

-They all show the market moving up in 2021.  When everyone sees upside, much of the optimism may already be priced in and the stage could be set for a decline.

-All show lofty Price/Earnings ratios that show valuation levels well above historic levels.


Equity markets are expensive by most valuation metrics.  The S&P 500 consensus Price/Earnings ratio for the next/forward twelve months is a common valuation measure and is listed below:

At a cursory level, it looks like the market is nearly as expensive as the late 90s internet frenzy, and you have to wonder if we are “Partying like its 1999.”  Many remember how that ended.  There are a couple of major differences, however, between 1999 and 2020.  The 10-year U.S. Treasury bond yield was over 6% in 1999, and now it is at 0.9%.  In addition, many technology companies in 1999 were young and had minimal earnings, and today’s leaders have dominant business models.  (Like Microsoft, Google, Amazon, etc.)

Although valuation levels aren’t quite as stretched as in late 1999, it is still sobering to remember that the tech-heavy Nasdaq fell 78% from March 2000 to October 2002.

Market bulls acknowledge high current valuation multiples, but see equities delivering decent relative returns versus even more expensive bonds.  They believe that markets look less expensive when juxtaposed on a relative basis against current low interest rates and a low inflation environment.  While conceding high valuation levels, they believe equities will grow quickly and catch up to their high valuation levels.

Market bears point to the extraordinary monetary accommodation around the world driven by central bankers dealing with the virus-induced slowdown.  This stimulus has made all assets expensive, and results in low forward returns for both stocks and bonds.

It seems clear that the market has pulled forward some post-vaccine economic growth into current valuations and it will take time for the U.S. to grow its way into these valuation levels.  Central bank monetary stimulus has also made all assets expensive as nearly-free money distorts valuation levels.  It also seems reasonable that when equities are adjusted for low interest rates, valuations aren’t quite as extreme.  This is especially true given the fact that U.S. Treasury bondholders are currently receiving negative inflation-adjusted real rates of return due to low nominal interest rates.

History shows that Valuation levels are not a good predictor of short-term returns, but they are a good predictor of longer-term returns.  Consequently, the current high valuation levels could persist for some time.  There are market pundits predicting both an imminent bear market and a sustained bull market, but it would be a fool’s errand to confidently predict either.  Regardless, current valuation levels and low interest rates point to below-trend investment returns on a longer-term basis.  While returns for stocks could be lower over the next decade, they should still perform better than longer-maturity bonds.

What To Do Now

The markets have generated big returns in 2020, and also since 2009, and it is easy to be lulled into a false sense of overconfidence.  The big gains by year-end 2020 help us forget the precipitous decline in March.  But markets run on fear and greed and the euphoric emotion can plummet once again into volatile, undisciplined selling.   Here are some factors to consider:

-Don’t let big up or down market moves change your investment objective.  Big upside market moves make us forget the pain of down markets and to overestimate our tolerance for downside risk.  This could cause additional buying of an expensive market.  Similarly, big down markets cause us to abandon all hope and to get too conservative and to sell at the bottom.

-Rebalance.  At a high level, rebalancing involves trimming the weights of the biggest gainers (because they have grown too big compared to your strategic weight) and buying the laggards (which have become underweight).  To take an extreme example, if you own Tesla-TSLA (up over 700% in 2020), then the stock and the large growth asset class are too big and should be trimmed back.  The cash proceeds from the sale should be put into the cheaper underweight assets.  If you are a self-directed Do-It-Yourself (DIY) investor, then you need to rebalance your portfolio.  If you have an adviser, then ask them about rebalancing.

-From a tactical standpoint, Small Cap stocks and Emerging Markets have trailed in recent years and look most attractive.

-Avoid FOMO (the fear of missing out). Do your own thinking.  (See below)

-Stocks that are up the most are excellent candidates for charitable giving.  This is a way to help achieve a rebalanced portfolio.  A key Cornerstone objective is to encourage charitable giving.  See Charitable Contributions

-Avoid long-maturity bonds.  If inflation heats up, these bonds will perform badly.

-Don’t make plans for 10% future equity returns.  Current high valuation levels indicate that 6% equity returns are more reasonable for financial planning and retirement expectations.

More Detail and Red flags Below:


Investors should utilize funds unless there is sufficient time and experience to research individual securities.  Even then, most investors would achieve greater returns with an index fund than picking stocks.  Nevertheless, it is interesting to review some high performing and high-profile stocks as listed below:

(Sorted by 2020 returns)

Some Comments:

-The big winner was Novavax, a biotech company trading on Nasdaq that is in late-stage trials with a COVID-19 vaccine.  If the vaccine gets approved, the price will be justified.  Otherwise, it might return to single digits.

– Tesla is noteworthy.  Tesla is the sixth-largest company in the S&P 500 but it is not profitable without regulatory emissions credits.  Tesla’s market value is currently 2 times the combined value of Ford, GM and Toyota.  Elon Musk is a true visionary, but the valuation looks very stretched.

-Moderna is up based on their successful COVID-19 vaccine.  Few knew of Zoom before the pandemic hit, but Zoom kept us going through all the isolation.

-The S&P 500 market value is dominated by five big tech stocks:  Alphabet/Google, Amazon, Apple, Facebook and Microsoft.  These five stocks have significantly outperformed in the past.  You might characterize the S&P 500 as the Big 5 and the little 495.  The Big 5 outperformance may continue for a while but it is not likely to persist in the longer term.  A diversified portfolio has stood the test of time, and an overconcentration in these stocks poses longer-term performance risks. 

It may be tempting to invest in a few potential high-flyers to boost your retirement account.  For example, if you bought $1,000 worth of Amazon when it came public in May 1997, it would have grown to $2,175,000 by year-end 2020.  What’s not to like?  For every Amazon, however, there are hundreds of losers like and had the distinction of spiking over 10x during its first day of trading, but its business model is long gone.    

The reality is that it is difficult to find many of the big winners before they make their big moves.  Most of the big 2020 stocks benefitted from COVID-19, and no one saw the virus risk at the beginning of the year.  At this point it is difficult to identify the 2021 market drivers.

Small Cap Stocks:

Small cap stocks have outperformed large cap stocks historically, although they have been laggards over the last 10 years.  Small caps as measured by the Russell 2000 index trailed large caps in 2020 until the fourth quarter.

Although small caps are more volatile, they are important in a portfolio’s overall asset allocation plan.  Small caps are expected to offer significant forward growth because their greater operating leverage allows profits to grow faster in an expanding economy.  Small caps have been under-owned and should benefit from increased investor interest.

Foreign Stocks:

International stocks outperformed in the 1970s, 1980s, and the 2000s, but have trailed the S&P 500 since the 2008/2009 Great Recession.  International stocks are cheaper than U.S. stocks, and especially U.S. large cap growth stocks, and should benefit from investors seeking cheaper valuation levels. 

Emerging Market Stocks:

Emerging Mkts:  Emerging market stocks are another asset class that has trailed in recent years, but has provided a nice rebound in Q4.  Emerging market stocks are more volatile but offer better growth prospects than developed markets based on a younger population and a growing middle class.  China is a large component of emerging markets and it offers significant growth potential.  Emerging markets benefit from a weaker dollar, they are cheaper than developed markets, they offer diversification benefits and they look poised for good longer-term performance.

Historic Interest Rates

Interest rates have been trending lower since the early 1980s.  The 10-year U.S. Treasury bond interest rate peaked at 15.82% in September 1981 as the U.S. battled double-digit inflation.  As inflation subsided, rates have trended lower.  Interestingly, forecasters, including the US Federal Reserve, have consistently projected rising rates.  Historic long-term bond total return performance has been high due to bond price increases as rates declined.  With interest rates at current low levels, there is little potential for additional bond price gains.  Instead, any increase in yields will negatively impact bond prices and will be a drag on total return performance.  If inflation picks up faster than expected, then longer-maturity bonds will experience significant negative performance. 

Interest Rates in 2020:

The 10-year US Treasury bond began 2020 with a 1.92% yield.  As the COVID-19 pandemic spooked markets, the 10-year treasury yield briefly plunged below 0.5%, on March 9 due to recession fears.  The yield then spiked upward based on a safe haven flight-to-quality trade.  As vaccines allow for increased economic activity, rates have risen to 0.92% at yearend.  At this time, real yields (nominal yield net inflation) are negative.  Fed policy is to keep short-term rates like 90-day Treasury Bills pinned near zero through 2023.  With this low interest rate backdrop, short bonds will earn very little return and longer maturity bonds may have negative returns as interest rates eventually normalize and bond prices decline.    

Historic US Dollar:

The U.S. dollar peaked after Fed Chair Paul Volcker and President Reagan broke the back of double-digit inflation with high interest rates in the early 1980s.  The dollar rose again between 1997 and 2002 as Germany assumed high costs of reunifications with East Germany and as Europe implemented austerity plans and increased taxes.

US Dollar in 2020:

The dollar was trending up in early 2020 until markets panicked and interest rates fell over recession fears from the pandemic.  The dollar then blipped up in late March as traders pursued a safe haven flight-to-quality trade.  More recently the huge monetary and fiscal stimulus and the prospect of federal budget deficits have been factors causing the dollar to fall.  The Federal Reserve’s policy to keep short-term interest rates near zero until 2023 is also pressuring the dollar lower. 


The 2020 market produced great returns but trees don’t grow to the sky.  There are notable “Red Flags” that warrant scrutiny and consideration.

Fed Put. The Fed “Put” is seen as a Backstop:  the so-called Fed “Put” continues to provide investor support based on the widespread belief that the Federal Reserve will move aggressively to prevent or at least mitigate any deep market swoons.  Although there is no actual Fed Put trade, (Put Option trades offset market downside risk), Fed actions are seen as providing “Put-Like” protection against severe market declines.  In any event, the Fed Put narrative encourages risk taking without having the actual wherewithal to prevent a severe market decline.

FOMO:  The recent market strength has surprised many institutional investors, and there does appear to be an element of FOMO-the Fear Of Missing Out.  Markets trade on fear and greed, and the current market strength appears to have a significant amount of momentum-based trading.  The current greed factor can be reversed quickly, as was seen this past March. 

IPOs-Initial Public Offerings:  U.S. Initial Public Offerings (including Special Purpose Acquisition Corporations) raised a record $167 billion in the U.S. during 2020, compared with the previous record of $108 billion during the 1999 dot-com boom, according to Dealogic.  These deals have jumped roughly 18% on their first day of trading, and there is a concern that the market is getting too frothy.     

Margin Debt and Options Contracts-Investors borrowed a record $722 billion in margin debt against their investment portfolios through November according to the Financial Industry Regulatory Authority.  High margin debt levels preceded market peaks in 2000 and 2008.  Option contract volume has also been at record levels.  Call option contracts and other derivative strategies can be very lucrative in bull markets, but can be disastrous in sharp market declines.

New Retail Investors and Robinhood:  Market observers point to increased retail investment activity by newer and less experienced investors.  The Robinhood trading platform grew rapidly by offering zero commission trades and an appealing user interface.  Charles Schwab, Fidelity and others quickly matched Robinhood’s zero commission trades. With big 2020 gains, investing has been eurphoric, just as it was for day traders in 1999.  No one knows where markets are headed on a short-term basis, but the Robinhood phenomenon is a clear red flag. 

The Red Flags listed above are not a call to sell all and go to cash.  Time in the market is more important than timing the market.  But the analysis points to a disciplined approach to rebalancing and tactical adjustments away from high-flyers and towards under-owned and cheaper asset classes like small caps and emerging markets.  It is also a cautionary warning against the long-maturity bonds. 

Wrapping Up:

2020 was a year like no other.  The word “Unprecedented” was used often because it is hard to find another word to better describe the year.

To recount a few examples:

-Deaths, ICU units at capacity, temporary hospitals in parking lots.

-Health care and essential workers pushed to the limit.

-Record short vaccine timeline development.

-Charitable giving and acts of compassion.

-Numerous investment and economic records for depths, heights and speed. 

Looking to 2021:

Thanks to vaccines we can look forward to a better year as we can re-connect with family, friends and work associates.

The markets are less predictable but we can say a few things: 

-Last year’s gains were surprising, and the future will bring more surprises, both good and bad.

-Last year ended up being a good year in the market but it is important to never confuse a bull market with brilliance.

-Markets are noted for teaching great humility and that definitely applies to this analysis.  The commentary is intended to provide educational perspective, but only time will tell what the future actually brings. 

-No one knows exactly when the music stops, but a proactive, disciplined approach is essential to providing good long-term returns. 

Goodbye 2020 and all the best to 2021!

Jeff Johnson, CFA

January 4, 2021

For additional investment and financial planning information See Cornerstone Investments

0.01% at the Bank? Some Alternatives

Interest Rates at 0.01% at your bank! This dates me but I remember my first mortgage at 9%. At the beginning of 2020 the economy was progressing on cruise control, unemployment was at low levels not seen in 50 years and you could earn roughly 2% on your money market fund. Nobody foresaw the COVID19 pandemic, a million+ lives lost and a global recession. Little did we know that Clorox, Peloton, Netflix and Zoom would be so important in our lives. The financial markets reacted violently with stocks first plunging 35-50% and then recovering at historic speed to all-time high levels. Interest rates reacted as well. Deposits at checking and savings accounts, money market funds and other short-term investments dropped precipitously, often to 0.01%. That’s one penny earned in one year on a $100. Talk about getting rich slowly. On the scale of things, this is not one of the biggest problems, but it is worth considering alternatives.

The Federal Reserve did what it had to do.

The Fed reacted to the COVID-induced shutdown and recession by driving down interest rates to support an economy that was in free fall. The Fed (with lessons learned from the Great Recession of 2008/2009) did a superb job and likely prevented a Depression. By driving down interest rates, they made borrowing much cheaper for car loans, mortgages, educational loans and for corporate borrowers to keep businesses running and people employed. But driving down interest rates also impacted deposits at financial institutions.

Banks, brokerage firms and other financial institutions reacted by reducing rates they paid on deposits to near zero. (It seems like a long time ago, but many money market funds were paying over 2.25% in 2019.) Banks and brokerage firms have been able to maintain sufficient depositary assets while paying little interest because these assets are “sticky”. It is a hassle to switch to alternative accounts that pay higher interest rates, but it may be worth it.

What You Can Do.

These low rates are not going to pop back up quickly again, either.  The Fed has communicated a policy to keep short-maturity rates near 0% until 2023, essentially “Lower for Longer”.  For perspective, the Fed kept rates near 0% after the Great Recession for 7 years-from late 2008 through late 2015.

With the prospect of essentially 0% for perhaps the next three years, it makes sense to consider alternatives. Although there is no silver bullet, a high-quality, short-term bond fund makes a lot of sense as a substitute for current money market holdings in cases where there is not a need for near-term liquidity.

Short-Term, High-Quality Bond Funds:  A good example is the Schwab Short-Term Bond Fund-SWSBX. There are others as well. For example, the Vanguard Short-Term Bond Fund-BSV is another candidate. In addition to purchases in Schwab or Vanguard, these funds can be purchased in many other brokerage accounts like Fidelity or JP Morgan as well.

The Schwab Short-Term Bond-SWSBX is recommended based on my Cornerstone LLC fund rating analysis.

Recommendation Rationale:
Higher Performance and Yields than most bank accounts and money market funds: SWSBX is up 4.18% for 2020 through October 23. The fund’s 12 Month Distribution Yield is 1.84% and the current month distribution yield is 1.17%.

Reasonably Conservative: 72% US Treasury’s, 28% Investment Grade Corporate bonds. Overall Credit Quality = AA.

Relatively short maturities and less vulnerable to unexpected rising interest rates. The Duration = 2.75 and Effective Maturity = 2.9 years.

Good Overall Ratings: Morningstar Overall Rating = 4 Stars (1 Star is lowest and 5 Stars is highest). Morningstar ranks it as Above-Average Return and Below-Average Risk compared to the comparable benchmark.

Lower Volatility: The NAV value increased every month in 2020, including March when stocks sank over 30%. It should be noted that this fund could have some negative monthly performance, but total return performance over a longer period of time should significantly exceed bank accounts and money market funds.

Future Performance: Fund Distribution rates and investment performance will likely come down over time as older higher-yielding bonds mature, and are replaced by new bonds that have lower yields.

As with all investments, there is a need to continue to monitor this fund and other alternatives and there may be a need to make changes based evolving market conditions.

Intermediate-Term Investment Grade Bonds represent the next step up in the risk/reward tradeoff. An example is the Vanguard Intermediate-Term Bond Index-VBIIX. This fund has a Credit Quality rating of A, a Duration of 6.5 and a Maturity of 7.4 years. This fund has returned 4.5% annualized over the last 5 years, but it represents more risk, and especially during economic recessions. This fund would also be more vulnerable to a sharp, unexpected rise in interest rates.

Other Alternatives Less Appealing:

Certificates of Deposit:
Bank and brokerage CDs are mostly locked in at very low interest rates and look less attractive. Some examples are listed below:

Schwab CDs: APY**
1 to 9 Months: 0.1%
10 to 18 Months: 0.15%
1.5 to 2.5 Yrs: 0.2%

Higher Yielding Online CDs-1 Yr* APY-1 Year
Ally Bank 0.65%
Marcus Bank by Goldman Sachs 0.65%
Synchrony Bank 0.60%

Online Savings Accounts:
These online savings accounts likely offer interest rates above your local bank, but you will need to set up the online account.
Higher Yielding Online Savings Accounts* APY
Vio Bank 0.76%
Citibank 0.70%
Synchrony Bank 0.65%

Top Online Money Market Accounts:
Online money market accounts also require setting up an online account.
Higher Yielding Online Money Market Accounts* APY
First Internet Bank 0.60%
Ally Bank 0.50%
Synchrony Bank 0.50%.

* Source = as of 10/23/20
**APY is the Annual Percentage Yield.

Note: The data listed above provides an indication of rates for larger, more well-known names, and it doesn’t necessarily reflect the highest rates. Rates often vary depending on the amount deposited and some of the highest APYs may include monthly service fees. Not all rates have identical terms and conditions, and some rates may be introductory promotional rates. ATM access and fees also varies widely. It is important to carefully review the terms and conditions of each offer before making any investment. The financial institutions listed above are not specifically recommended. Data as of 10/23/2020.

In addition to, other online sources include: (Lending Tree)

See Cornerstone Investments for more information related to investing and financial planning

Jeff Johnson, CFA
October 24, 2020

The information provided above is for informational and educational purposes and it does not constitute personal investment recommendations or investment advice. The investment information presented is generalized and it does not take into consideration the individualized needs, objectives, constraints or unique circumstances of individual investors. Historic market trends, risks, patterns and relationships may not continue into the future and assumptions and predictions may not prove valid. Past performance does not guarantee future performance. Markets are dynamic and subject to change and all investment commentary is subject to change or revision without notice. Cornerstone uses multiple data sources wherever possible to help provide data and information that is comparable across various asset classes and is consistent over the course of time. All data and content is derived from what are considered reliable and credible sources, but Cornerstone does not accept responsibility for any errors. The user accepts all responsibility for actions taken based on information from Cornerstone Investment Associates, LLC.

2020 Mid-Year: Clorox, Zoom, FOMO and More

We all know that 9/11 changed everything, and so does COVID-19.  Stay-At-Home orders, social distancing and masks are now familiar parts of our routine.  Just as we evolved from 9/11, we will evolve from the novel coronavirus.  Nevertheless, “Unprecedented” seems to be the word that best characterizes the first half of 2020.  Listed below are relevant factors:

Noteworthy Movers: 

Although the broad stock market was down 3.1% for the first six months of 2020, Clorox was one of the top stock performers with a gain of 45%.  Few people knew of Zoom at the beginning of the year, but it is up 6X from it’s April 2019 IPO.  More obvious first-half winners include Amazon up 49%, NetFlix up 41% and Apple up 25%.  On the speculative side, Tesla was up 158%.  Airlines were the obvious losers with Delta down 52%

Index Benchmark Performance As Of 6/30/2020:

Major Benchmark Performance: Last 3 Last 12
1 Mo  Months YTD Months
Since: 5/31/20 3/31/20 12/31/19 6/30/19
As Of: 6/30/20 6/30/20 6/30/20 6/30/20
US Large Cap-S&P 500 1.99% 20.54% -3.08% 7.52%
US Small Cap-Russell 2000 3.53% 25.42% -12.98% -6.63%
Foreign Developed-MSCI EAFE 3.40% 14.87% -11.36% -5.15%
Foreign Emerging Mkts-MSCI EEM 7.35% 18.09% -9.77% -3.38%
US Bonds-Barclays Aggregate 0.63% 2.90% 6.14% 8.74%
Long Treasury-20 Yr+ US Treasury Bonds 0.13% 0.12% 21.62% 25.97%
High Yield-Bloomberg 0.98% 10.18% -3.80% 0.03%

The Bear Market struck with a vengeance in March after a record long 11-year bull market and a record long 10 ½ year economic expansion: 

In addition, the drop was accompanied by record-high volatility. The S&P 500 fell from an all-time high to a bear market decline of over -20% in only 22 trading days, the quickest decline in history, even faster than during the Great Depression. Moreover, the S&P 500 set a record of eight consecutive days in which the index moved up or down by at least 4%. Then, the S&P 500 made the quickest recovery in history from a Bear Market to a technical Bull Market (up 20% from a recent low). With the price volatility at record levels in both directions, the overall investment performance has improved significantly since the March 23 lows.

Performance has rebounded since the March lows:

Although the S&P 500 fell -33.9% by March 23 from the all-time high, it is now down only -3.1% YTD as of June 30.  The first quarter had the worst performance since the 2008 Great Financial Crisis, and then the second quarter was the best performance since the 4th quarter of 1998.  This whiplash was the first time with such extreme quarterly performance since the 1930s.  U.S. small caps continue to lag behind the perceived relative safety of larger U.S. companies and are down -13% so far in 2020.   Foreign developed equity is down -11.4%Emerging markets were the big surprise during June with a gain of 7.4%.  Longer maturity U.S. Treasury bonds benefited from declining interest rates and from investors seeking a safe haven, and are up 21.6% so far this year. Corporate bonds and especially high yield declined sharply in March due to increasing recessionary fears, but have since recovered somewhat in April through June largely due to the Federal Reserve’s corporate credit support.

Some market prognosticators refer to the big Q2 price recovery as the “Hopium” Trade and the Silly Season, but the reality is that the short-term market is difficult to predict and it forces humility on us all.

Economic Statistics are coming in better than expected:

Although economic statistics initially dropped precipitously due to the government-induced shutdown, they are now showing a significant improvement.

Unemployment (at a 50-year low of 3.5% in February) spiked to 14.7% in April but has since dropped to 11.1% for June.  Although this unemployment level is still a high level, it reflects the addition of 4.8 million new jobs and it was much better than the market expected.

– The Conference Board reported that its Consumer Confidence Index rose to a reading of 98.1 for June from 85.9 in May. Economists polled by Reuters had forecast the index rising to only 91.8 for June.

Retail sales for April declined 14.7%, the largest decline since 1992 when this data series was initiated. However, May retail sales jumped a record 17.7% on a month-over-month basis, well above the consensus expectation of 7.5%.  Retail sales were impacted by pent-up demand and government checks, so it is difficult to know what retail sales level will be reported in the future.  It is important to note that the May sales report was still down -6.1% on a year over year basis.

-The Leading Economic Indicators came in at a positive 2.8% after falling -6.1% in April and -7.5% in March. These statistics point to the sudden, large shutdown of the U.S. economy caused by the unprecedented coronavirus pandemic, and then an encouraging uptick.

Progress on Vaccines and Treatments:

Vaccines and treatments hold the promise of allowing the global economy to get back closer to normal, and there are numerous reports showing progress.  The U.K. government approved the use of dexamethasone, a steroid that cuts the risk of death for patients on ventilators and for those on oxygen.  There is also preliminary evidence supporting Gilead Science’s Remdesivir, an anti-viral treatment, and by vaccines from Moderna, Pfizer and others.  Moderna was said to “show promise” in phase-one trials and is progressing to phase-two trials.  Dr. Anthony Faucci, Director of the National Institute of Allergy and Infectious Diseases, also expressed optimism regarding a relatively quick approval.  However, a 12-18 month timeline still looks more likely.  Any COVID-19 vaccine would likely be first used to protect front-line health care workers and elderly who are at most risk to the virus.  Over time, a vaccine would achieve “herd immunity”, whereby the antibodies of the majority of individuals built up, either via exposure or vaccination, are sufficient to protect the remaining vulnerable people.  In the short-term, however, there is clearly a risk of a “Second Wave.”  Broad-based testing needs to be expanded so virus carriers can be identified and isolated.

FOMO-the Fear Of Missing Out:

The recent market strength has surprised many institutional investors, and there does appear to be an element of FOMO-the Fear Of Missing Out.  Markets trade on fear and greed, and the current market strength appears to have a significant amount of momentum-based trading.  Retail trading is up sharply based on commission-free trades and accounts like Robinhood that are said to be having significant trading volumes based on inexperienced traders.

Virus Resurgence:

As states move to reopen, there has been an unfortunate surge in new coronavirus cases and rising hospitalization rates in states like California, Texas, Florida and Arizona.  This has once again overstretched the health care system, and especially ICU units.  As a result, a number of states have paused or rolled back their re-openings, especially related to bars and restaurants.  There is also the prospect of a mutated version of the virus flaring up in the fall and winter.  Consequently, COVID-19 remains a global wildcard.

Market Valuations remain rich:

At this point, markets are ignoring weak 2020 corporate earnings, and are trading on expected 2021 earnings.  Nevertheless, various valuation metrics (like Price/Earnings ratios) for 2021 are still elevated.  It is important to remember that valuation doesn’t predict short-term performance, but valuation definitely impacts long-term performance potential.  In other words, markets could continue to move up on a short-term basis, but the longer-term performance might be a 5-7% average return/year rather than the historic 10%/year long-term U.S. stock return average.  See Market Valuation

Election Volatility:

According to recent political polls, Vice President Biden is leading President Trump by a significant margin, and the U.S. Senate might shift to control by the Democrats.  In the case where the Democrats win the presidency and control both the House and the Senate, then tax increases are likely.  Joe Biden has said he would raise the corporate tax rate from 21% to 28%, rolling back Trump’s 2017 corporate tax reforms.  Greater restrictions on corporate share buybacks are also likely.  A report from Goldman Sachs estimates that such an outcome would shift 2021 earnings per share for the S&P 500 to $150 from a current estimate of $170.  It is probably safe to say that a large earnings decline caused by a corporate tax increase would negatively impact market performance.  For individuals, higher capital gains tax rates, the elimination of the qualified dividend tax rate, and/or higher tax rates on top income earners are expected.  Without getting too deep into tax policy, there is a strong argument that higher corporate taxes makes our U.S. companies less competitive in international markets.  To the extent that U.S. companies are less competitive in the international market place, then they don’t expand  U.S. operations and they don’t hire U.S. workers.

Stock Market and Economic Disconnect:

The markets were buoyed in the second quarter by progress in “a flattening of the curve”, the prospect of re-opening the economy, and early reports regarding treatments and vaccines.  Moreover, recent economic statistics show a stronger-than-expected rebound from the initial dramatic declines.  As a result, the market seems to be anticipating a V-shaped recovery.  Although a downdraft to the March lows does not appear likely, there are numerous risks that could cause market weakness.

While recent economic statistics have been stronger than expected, they may reflect more pent-up demand rather than long-term growth.  Economic growth over the next year faces significant headwinds and is not likely to quickly recover lost output.  The economic recovery still looks like a “Nike Swoosh” or even a U-shaped recovery, not V-shaped, and it looks like there is a disconnect between the recent market rebound and the broader economic landscape. Although the market was up in the second quarter, it still looks vulnerable to additional sell-offs. The current situation seems to be the opposite of what happened in December 2018. At that time, the market sold off hard based on fears of a global economic recession, even though the economic data did not show an imminent recession. In January, 2019, Cornerstone described a Market/Economic Disconnect where economic fundamentals in late 2018 were much stronger than indicated by the sharp market decline. This time, however, the economic fundamentals are very weak, but the market has been ignoring these weak fundamentals as it rebounded significantly in April through June.  Only time will tell how the coronavirus recession plays out, but it is helpful to stay grounded in longer-term economic and market fundamentals.

It is helpful to remember that Bear Markets since 1950:

-the average bear market declined -35% and lasted an average of 14 months.

-the average bull market gained 199% and lasted an average of nearly 6 years.

Bear markets are typically much shorter than bull markets, they go down less, and they have always given way to another bull market.

The Federal Reserve has been very proactive:

ensuring funding for banks and companies. The Fed re-established many of the initiatives from the 2008 Great Financial Crisis that have proven positive in the past. A major difference is that the Fed established these support programs so quickly.  The Fed cut the Fed Funds rate to near zero in an emergency meeting.

The Fed also provided a “do whatever it takes” stance to support lending for small and large businesses, money market funds, state and local governments, and global central banks for foreign investors seeking the safety of the U.S. dollar.

U.S. Fiscal Legislation:

Congress passed a $2.2 Trillion coronavirus aid package to help stabilize the U.S. economy. Key provisions include support for individuals (the Paycheck Protection Plan and increased unemployment benefits), small businesses, large corporations, public health, and state and local governments.  This package is being called a rescue plan, and many politicians say there will need to be another round to provide stimulus. As with the Federal Reserve’s timely actions, the legislation is being implemented far faster than was the case in the 2008/2009 Great Recession.

U.S. Federal Budget Deficit:

Morgan Stanley released an estimate of the U.S. budget deficit of $3.7 Trillion for calendar year 2020, and they see an additional $3T in 2021. This would make the deficit approximately 15-20% of the U.S. GDP. This is larger than the 2008/2009 Great Recession level. This analysis does not incorporate the proposed $2T infrastructure bill. Although there is a clear need for monetary and fiscal spending during this downturn, there is also a looming longer-term issue related to U.S. budget deficits.


China was the first country to lockdown its economy in January, and official data show positive economic manufacturing and non-manufacturing growth resuming in March.  These reports do not indicate an imminent global turnaround, but they do represent a measure of improvement in China.  The Eurozone is experiencing economic improvement from the lows of March and April, but they are mired in an economic recession.  Japan is also stuck in a deep recession.

On a global basis, a June International Monetary Fund forecast shows a -4.9% 2020 global economic decline and then a 5.4% recovery for 2021.

What’s Next?

There is no good historic precedent for the coronavirus given that globalization has allowed pandemics to spread much more quickly than in the past. Consequently, we are in the midst of a global recession.  The first quarter market downdraft caused a lot of economic weakness to be priced in, but the strong second quarter market performance has now priced in a fairly optimistic outlook.  Since the depth and duration of the coronavirus remain unknown, continued market volatility can be expected.  With all these crosscurrents, it remains critically important to stay focused on longer-term fundamentals that should gradually improve.


Portfolio actions that you take (or don’t take) at this point can feel highly uncomfortable but the decisions are not rocket science. Investors were bailing on investment holdings at a near-record pace and then have been charging back in.  This is no time to be part of the herd’s stampede in either direction. Although there is much we don’t know about the ultimate coronavirus impact, there is also much we do know. There is nothing unique about the list below, but it is supported by ample historical evidence.

-Stay the course. Fear and Greed are really the biggest risks.

-Don’t sell unless you have a dire need for cash.

-Rebalance the portfolio to restore beaten-down equity holdings to a weight consistent with your long-term investment objectives.

-If you have cash, then add to equity holdings on a systematic basis. This isn’t easy, but a good strategy is to make several smaller investments over time rather than one larger trade. No plan is fail-safe, but this strategy is a way to get into the market without making one big move.

– Remember that investment performance is improved by buying in bear markets, not selling.

-Dollar Cost Averaging that invests a predetermined amount of dollars on systematic predetermined dates is a method that remains a valid investment strategy.

Jeff Johnson, CFA

July 9, 2020




If you think this market is crazy volatile, then you are right.  The market fell into a bear market (down -20%) faster than at any time in history, even including the Great Depression.  The daily price moves looked more like an out-of-control roller coaster than a rational, orderly market.

Considering this manic behavior, you have to wonder where are the grown-ups?  You also have to ask why investment people making the big bucks can change their minds so quickly and erratically.  Where’s the conviction?  Disciplined or fickle?

The COVID-19 pandemic has been called a Black Swan-a hard to predict rare event that comes as a complete surprise and has a major effect.  It has been characterized as a Known Unknown, and it has been a trigger for the market volatility and downdraft.  There have been a number of other factors that combined, however, to cause a “Perfect Storm” of Volatility.

Despite the historically high volatility level, there has not been historically bad investment performance.  So far, investment performance has been similar to a typical bear market.  It is understood, that investment performance could still get worse.

The graph below shows the incredible volatility starting in March.

Listed below is the actual S&P 500 index performance.  It is down so much because there were more large volatile down days than up days.


Two key contributors to this Perfect Storm of volatility include:

-Human nature, with all the emotional euphoria on the way up and despair on the way down.

-Big, fast computers.  Algorithmic Trading, High Frequency Trading, and increasing use of momentum and volatility strategies represent the second major contributor to the volatility.  This trading was magnified by excessive financial (debt) leverage.

(Details are listed further below:)



First, it is important to keep perspective.  The main priority is saving lives.  Everything else comes back.

It shouldn’t impact your Investment Objectives:  It is important to maintain a long-term perspective.  The huge volatility in March shouldn’t impact a long-term focus.  This is not a financial crisis, but rather a crisis of confidence.  The depth and duration of the coronavirus are not known, but it does not appear to constitute the fundamental, systemic problems associated with the 2008 Great Financial Crisis.  Moreover, the massive government monetary and fiscal support being implemented is much larger and coming much quicker than in 2008.

The sudden -20% market decline has been painful (especially after 11 big years), but the decline is well within the historic range for bear markets.  The market decline should also be remembered within the context of the 31.5% gain by the S&P) 500 in 2019.  More importantly, the market will come back.

A review of Bull and Bear markets since 1950 shows:

-the average bear market declined -35% and lasted an average of 14 months.

-the average bull market gained 199% and lasted an average of nearly 6 years.

Bear markets are typically much shorter than bull markets, they go down less, and they have always given way to another bull market.

It might sound flippant, but in a way the market had gone too far too fast and was due for some downside.

It is important to remember that there are wide ranges around the average length and return of bull and bear markets.  Nevertheless, history shows that all bear markets end.

Portfolio actions that you take (or don’t take) at this point can feel highly uncomfortable but the decisions are not rocket science.  Investors have been bailing on investment holdings at a near-record pace and this is no time to be part of the herd’s stampede.  There is nothing unique about the list below, but it is supported by ample historical evidence.

-Stay the course.  Fear is really the biggest risk.

-Don’t sell unless you have a dire need for cash.

-Rebalance the portfolio to restore beaten-down equity holdings to a weight consistent with your long-term investment objectives.

-If you have cash, then add to equity holdings.  This isn’t easy, but a good strategy is to make several smaller investments over time rather than one larger trade.

– At this stage in the bear, there is likely to be far more upside than downside.  Remember that investment performance is improved by buying in bear markets, not selling.

It’s Deeper than Fear and Greed — Non-Investment Observations:

It is often said that the markets run on the animal spirits of Fear and Greed.  It’s not really that simple.  It’s too early to know the depth and duration, but here are some non-investment observations:

-It would be a mistake to bet against the resilience, creativity and persistence of Americans in this time of challenge.

-Health care workers are showing incredible dedicated service despite personal risk and sacrifice and are a true inspiration.  This is especially true for the nurses who have the most frontline exposure.

-Essential workers are taking on a new meaning as we see who really is essential.

-Human ingenuity from both the government and the private sector are working furiously and there are good reasons to remain optimistic.

-Many companies are forgoing profits and are keeping employees or paying what they can.

-The general public is showing impressive broad-based acceptance and support for social distancing and quarantines.  It has changed lives, but everyone seems to recognize that we are all in this together.

-There are uncounted and often un-noticed acts of helping and compassion that add up to something much bigger.

When considering all this, I am reminded of Genesis 1:27 where it says that we are created in the image of God.  It is gratifying to see humanity set aside mundane differences and rise up to face this challenge.  These are the times that bring out the best in all of us.



Human Nature-Complacency and then Panic:

Investors received stellar performance during the longest bull market in history, 11 years, and this was accompanied by the longest economic expansion in history, a stretch that ran for 10.5 years.  For years, investment performance ratcheted upward, causing a sense of complacency.  Central banks around the globe kept interest rates low, and encouraged investments in riskier assets.  Investing was characterized by the Fear Of Missing Out-FOMO.  With this benign backdrop it is little wonder that the sudden recognition of the coronavirus was a major factor that upset the apple cart and caused such volatile emotional selling.

Economic prospects-V-Shaped Recovery, or U, or L:  Epidemics historically cost lives but have not had big longer-term impacts on markets or the economy.  This time it looks different.  The speed and suddenness of the global shutdown is unprecedented and economists and others are only gradually beginning to understand the magnitude of this change and then to incorporate this into their models.  For example, Goldman Sach’s initial analysis of COVID-19 impact foresaw minimal impact to the U.S. and they saw 1.2% US GDP growth for 2020.  A subsequent forecast revised U.S. 2020 economic growth to 0.4%.  As of March 21, Goldman has significantly revised their 2020 GDP growth rate down to -3.8%.  This forecast includes a -24% annualized negative growth rate for Q2 and then a sharp Q3 recovery of 12% annualized and Q4 gain of 10%.  This analysis sees a V-shaped recovery.

The point is not to throw rocks at Goldman Sachs, because they are smart, savvy investors.  The point is that analysts are increasingly negative about near-term prospects.   Further, it warrants caution regarding how much we really comprehend about the coronavirus impacts.  Given the unprecedented nature of the shutdown, it seems that there may be more caution by both consumers and companies as we emerge on the other side and a U-shaped recovery is more likely than a V.  Finally, the coronavirus outbreak may prove to be worse than the 9/11 terrorist attacks, but it doesn’t look to be as severe as the full-blown 2008/2009 Great Financial Crisis.

COVID-19 Backdrop:  As 2020 began, investors were optimistic the economic expansion would continue, as calming trade tensions between the U.S. and China and three 2019 interest-rate cuts from the Federal Reserve lifted stocks.  The coronavirus was widely publicized by mid-January, but it was first ignored and markets went on to post all-time record highs by February 19.  For years, it paid to buy each dip in stocks and to embrace trades that bet against the return of volatility.  Then the COVID-19 virus became increasingly problematic and ultimately caused an unprecedented global shutdown.  Millions of the nation’s businesses suddenly closed their doors, international travel ground to a sudden halt, and personal interactions were sharply curtailed.  Markets reacted negatively with unprecedented volatility.  As the severity of the situation became increasingly apparent, economic and earnings forecasts were repeatedly revised down lower and lower.  The transition from complacency to a sudden, unprecedented global shutdown caused a huge emotional reaction and produced panicked selling.


Algorithmic trading was the other major factor in the huge March volatility.  Algorithmic trading essentially involves computer programs that follow defined sets of instructions (algorithms) to do stock trading far faster than humans can do.  It often utilizes back-testing of technical indicators like movements of 50-day and 200-day moving averages, trend following patterns and arbitrage opportunities based on pricing anomalies.

Algorithmic trading is different from fundamentally driven trading that is based on rigorous analysis of company valuation and revenue and earnings growth prospects.  Instead, “algo” trading looks for relatively small market dislocations and inefficiencies that can be rapidly exploited with strategies related to volatility, momentum and risk parity.  Quite simply, it’s not based on strong company earnings growth or an attractive valuation level.  Analysts at J.P. Morgan said “fundamental discretionary traders” accounted for only 10% of recent stock trading volume.  Goldman Sachs analysis shows equity algorithmic trading is nearly 3 times the level from 15 years ago.

High Frequency Trading-HFT:  Algorithmic trading is often based on High Frequency Trading (HFT) that utilizes powerful computers moving in and out of markets at lightning speeds measured in milliseconds.  In normal markets HFT adds liquidity and lowers costs by reducing bid-ask spreads on trades.  In March, however, profits at the large HFT algorithmic traders were reported to be extremely high, and there is now a question about the value of HFT in times of market duress.

Volatility Trades:  The 11-year bull market was accompanied by a below-average level of price volatility.  In this environment, hedge funds and other institutional investors utilized a variety of algorithmic strategies to trade on small changes in market volatility, regardless of whether they went up or down.  Since price volatility was low, many of these strategies used financial leverage at up to 10X.  As markets moved up, low volatility caused traders to buy risky assets.  As markets fell, volatility rose and the computers began selling.  As a result, during March this computer-based trading magnified both moves upward and downward.  In another example, investment strategies were established by market participants to either dampen volatility or enhance returns based on previously reliable relationships between assets.  Unfortunately, these pricing relationships fell apart when volatility spiked and caused devastating effects in panicked markets.

Six Sigma:  The Wall Street Journal reported prices gyrating by an incredible six standard deviations from the short-term norm.  These moves were exacerbated by the presumed low likelihood of extreme market moves with risk models largely based on a period of relative market calm. Since many of these trading strategies were structured with high financial leverage, it became a situation where everyone headed for the exit at the same time.  It is easy to see how unwinding these trades caused such panicked selling.

Momentum Trades also benefit from Algorithms:  Momentum trading is an investment strategy that has a good historic track record.  Momentum traders buy the stocks that are going up the fastest.  Or they might buy the stocks that have the greatest revenue or earnings momentum.  Regardless, this feeds on itself and the more momentum traders, the more it spirals upward.  When markets (or stocks) reverse and head down, then momentum traders are selling the assets that are falling the fastest.  They essentially turbocharge the upward buying interest and then magnify the downward selling pressure.

Fundamentals prevail over Algos on a long-term basis:  Since Algorithmic trading is focused on short-term factors like volatility and momentum, it has less relevance to fundamental factors.  Fundamentals still function to differentiate the merits between various companies and future prospects, and fundamentals still determine the long-term performance of investment assets.  What this means to a long-term investor is that algorithms probably reduce trading costs by a small amount during normal market activity, but a disciplined investment process still prevails on a long-term basis.

Liquidity Dried Up:

Liquidity in the financial markets means the ability to sell an investment asset quickly without having to sell it at a big discount.  Liquid investment assets usually have a large number of buyers and sellers readily available so that a transaction is easily traded and it minimally impacts the price.  US Treasury securities normally have the greatest liquidity.  Your house is far less liquid.  The sudden shutdown of the U.S. economy was unprecedented and it precipitated an immediate dash for cash.

Dash for Cash:  Individuals suddenly faced unemployment or reduced hours, particularly in the airline and entertainment industries. Businesses, seeing markets and revenue shutting down, drew down bank credit lines.  Small business owners were particularly vulnerable because they typically lack the financial flexibility of larger firms.  Fund managers faced redemptions as investors liquidated holdings.  Traders attempted to unwind trades that had worked in a low volatility investment environment.  In many of these cases, normal cash flow patterns were disrupted and caused an immediate need for cash.

US Treasuries & Gold-Traditional Safe Havens Didn’t Work:

US Treasuries prices typically rise (and yields drop) when investors seek a safe haven.  This time, Treasurys dropped the at the same time stock prices were dropping, so there was no safety anywhere.

The Treasury market was disrupted by other factors as well.  For example, even short maturity Treasury securities (due in 30 days or less), sold off because people wanted cash, NOW!

Gold is another asset the investors buy in scary times, but gold actually declined at the same time that the stock market began falling.

Risky Assets were Crushed:

With fears of an imminent recession, investors fled riskier debt, afraid companies that loaded up on credit amid low interest rates would have trouble repaying.  These assets became extremely illiquid, and the only way to unload them was to sell at a huge discount.  As an example, the high yield (junk bond) Exchange Traded Fund- HYG quickly fell 15%.  Somewhat ironically, investment managers during times like this are typically forced to sell their highest-quality assets because the discounts on lower quality assets are so extreme.

Short Covering:

Short covering is often the cause of markets spiking upwards.  A short trader essentially uses a derivative security to sell an investment asset today with the provision to buy it later before a specified date.  For example, a short trader hopes to sell a stock today for $100, and buy it in the future at $90, a lower price.  This can be extremely risky, but it can be lucrative.  When the market is going up instead of down, this trade becomes increasingly unprofitable.  You have already sold at $100, and now you have to buy at perhaps $110 or more.  As the market goes up, short traders have to sell (Cover) before they lose even more money.  A large number of short sellers covering (closing out their increasingly unprofitable trade), means prices go up even higher.  This was a part of the reason that the S&P 500 went up 9.4% on March 24.  Many times, large upward price moves are caused by short covering.

Margin Calls:

Investors are allowed to borrow money in their brokerage accounts to buy even more stock.  This works great in rising markets, and it made you feel like a rock star in 2019 when the S&P 500 went up 31.5%.

When stocks decline, investors are required to put in more collateral.  They need to add to their margin account.  When they don’t have the cash, their broker will liquidate some of their securities to re-establish their required margin.  This is a “Margin call”.  Obviously, the more selling pressure in the market place, the greater the number of margin calls and this results in a negative downward spiral.  Margin calls were a major negative factor in the 1929 stock market crash.

Final Comments:

These Cornerstone blog posts are designed to provide education and a long-term perspective related to investments.  The commentary relies on my career experience, credible sources and hard data as much as possible. Even so, there are always many surprises and unexpected outcomes and this certainly applies to the comments listed above.  As always, your feedback is helpful and beneficial.

Jeff Johnson, CFA

April 1, 2020