What The SCOTUS Decision on Affirmative Action Means For Stocks & Investors
Reason enough to adjust your portfolio? Most likely not. But here's what to watch for and how to spot good opportunities.
Significant supreme court rulings are among the many factors that affect the stock market and the companies that make it up - seeing that they dictate how companies and institutions will operate going forward. Recently, the Supreme Court of the United States (SCOTUS) ruled against Affirmative Action, a ruling in which colleges could use race as a determinant of college admissions in efforts to create a more diverse student body.
What does that mean for the stock market? What should investors keep an eye on? Regardless of your political views, this article intends to help investors determine how to properly navigate their stock portfolio with the recent court ruling.
A Brief Overview of Affirmative Action
Affirmative action, a policy that first emerged in the United States in the 1960s, was instituted as a response to long-standing racial and gender discrimination. It was an initiative introduced under President John F. Kennedy in 1961 to counteract historical bias and injustice impeding minority groups' advancement in the workforce and higher education.
The underlying aim of affirmative action is to promote diversity and provide equal opportunities to people from all races, genders, or ethnic backgrounds who had been historically marginalized or underrepresented in these domains. Affirmative action policies help achieve these goals by actively recruiting individuals from these underrepresented groups or considering their race, gender, or ethnic background as a factor during the selection process for employment or college admission.
The justification for these policies is rooted in the desire to rectify past discrimination and to establish more equitable representation in education and employment.
However, over the years, affirmative action has sparked substantial controversy and legal challenges. Critics argue that it can lead to reverse discrimination, asserting that opportunities should be extended purely on the basis of merit.
Have things changed since the 1960s? As Justice Thomas said: "This is not 1958 or 1968... Today's youth do not shoulder moral debts of their ancestors."1 Regardless of your political stance on the subject, here’s how to look at things from an investor’s point of view.
How Does This Ruling Affect The Stock Market?
The short answer is that it doesn't affect any underlying fundamentals of how the economy performs or how a company turns a profit.
Why? Because the success of the economy is made up of the aggregate skills and abilities of its population, not the color of each individual's skin or the culture in which one grew up. On a company level, whether a business can produce a better service or good is purely based on the skills of the individuals that make up that company, the technological resources available to that company, and the solutions to common problems that the company provides - not the share of each race that makes up a company or institution.
The same is true for the economy. This ISN'T to say that diversity isn't important in the makeup of a company, but it certainly doesn't precede the skills and characteristics that qualify an individual for their respective occupation.
Remember that the recent court ruling against Affirmative Action is specific to colleges and universities, not necessarily how a company hires its employees. However, the ruling may lead companies to alter recruitment and promotion practices to pre-empt legal challenges.
What To Look For As An Investor
The wise thing to do as an investor is to watch for investing opportunities during short-term reactions to such rulings. Watch out for how the market, the media, and the public in general react. Chances are, we'll see minor fluctuations in sectors or companies more directly tied to the new SCOTUS ruling - particularly in the educational sectors and in companies whose business is related to providing products or services to this sector.
However, if a company's fundamentals have not changed, then there is no need to panic. The intelligent thing to do is to sit things out and, in fact, watch for buying opportunities.
Some areas that could be affected by the overruling of Affirmative Action for colleges and universities include:
Education Sector: The most immediate impact could be felt in the education sector, particularly among publicly traded for-profit educational institutions and education technology companies. If affirmative action policies are overturned, the demographics of student bodies could change, potentially affecting enrollment numbers, diversity initiatives, and overall campus culture.
Professional Services and Tech Firms: Many large corporations, including tech giants and professional services firms, have diversity and inclusion initiatives that could be influenced by changes in affirmative action policies. Depending on the specifics, these firms might need to revise their hiring practices, which could have legal, financial, and reputational implications.
Construction and Government Contracting Companies: In some sectors, like construction or government contracting, companies sometimes receive benefits for having a diverse workforce or minority ownership status. Recent SCOTUS ruling on affirmative action could affect the rules around such benefits, potentially influencing the competitive landscape in these sectors.
Human Resources and Legal Services: Companies that provide human resources consulting or legal services could see increased demand as businesses seek advice on navigating changes in the legal and regulatory landscape.
Public Sentiment and Consumer Brands: Major changes in social policy can also lead to shifts in public sentiment, which can impact consumer brands. If the decision to overturn affirmative action leads to protests or boycotts, for example, companies that are seen as taking a stand on the issue could see their stock prices affected.
It's important to note that these are possible scenarios. But, perhaps they may help us investors navigate the sophisticated waters of investing in individual stocks in hopes of finding great opportunities when the mass is panicking due to overhyped media headlines.
https://www.nytimes.com/live/2023/06/29/us/affirmative-action-supreme-court