Daily Archives: May 3, 2022

Did You Know…?

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Mother’s Day is this Sunday, May 8

According to the US Census Bureau, the first Mother’s Day was organized by Anna Jarvis on May 10, 1908, in Grafton, West Virginia and Philadelphia, Pennsylvania. It was such a success around the country that Jarvis asked Congress to set aside a day to honor mothers. In 1914 Congress made the second Sunday in May Mother’s Day.

Current Market Observations

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by Jonathan Susser, Investment Technology Associate

Overview

  • Global pressures continue to weigh on the markets, leading to a poor week for US equities and fixed income. Inflation remains a concern as agricultural commodities and oil appreciate in price, hurting consumers’ wallets at the grocery store and gas pump. The Russo-Ukrainian war continues to be a major point of global focus as Western aid is distributed to Ukraine.

Markets (as of April 29th; change since April 25th)

US Economy

  • The 1Q22 earnings season continues—of the 266 companies in the S&P 500 to report so far, about 66% have beaten revenue estimates and 81% have exceeded profit expectations. For the S&P 500 overall, year-over-year sales growth is projected to be roughly 11.1% and earnings to rise approximately 0.6%, according to Bloomberg.
  • In March, personal income rose 0.5% over February, lower than the revised 0.7% estimate. Personal spending nearly doubled estimates of 0.6% growth at 1.1%. Savings declined month-over-month to 6.2% versus the revised 6.8% figure seen in February. Chart 1 below showcases income versus spending rates on a year-to-year basis.

Chart 1: Personal Income versus Spending Rates Year-over-Year

  • The PCE Deflator rose 0.9% month-over-month, meeting projections. This compares to February’s revised 0.5% increase. On a year-over-year basis, the PCE Deflator rose 6.6%, slightly below the 6.7% expected and higher than February’s 6.3% increase. The PCE Core Price Index rose 0.3% from February, and 5.2% higher than last year, slightly lower than 5.3% expectations, as seen in Chart 2.

Chart 2: PCE Core Inflation Year-over-Year

Policy and Politics

  • President Biden requested $33 billion in both economic and military aid for Ukraine, causing the Kremlin to reframe the conflict as a war against the West and threaten retaliation. The Russian Defense Ministry claims that 1,351 soldiers have been lost to Ukraine, while UK intelligence claims that number to be north of 15,000.
  • China’s “Zero-COVID” lockdowns continue as roughly 180 million people across 27 cities remain stuck in their homes with no end in sight. In Beijing and Shanghai alone, this accounts for roughly 7.25% of China’s overall GDP.

What to Watch

  • The Federal Reserve is expected to raise rates by 50bps at the FOMC meeting on May 4th.
  • US Nonfarm Payrolls data will be released on Friday, May 6th, with estimates at 380k.
  • US Unemployment Rate data will be released on Friday, May 6th, with forecasts around 3.5%.

The Numbers & “Heat Map”

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THE NUMBERS
The Sources: Index Returns: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized. Interest Rates: Federal Reserve, Mortgage Bankers Association.

MARKET HEAT MAP
The health of the economy is a key driver of long-term returns in the stock market. Below, we assess the key economic conditions that we believe are of particular importance to investors.

US ECONOMY

CONSUMER HEALTH

NEUTRAL

 Q1 2022 Real GDP shrunk at a 1.4% annual rate according to the first advance estimate. This is the first contraction since the beginning of the pandemic. The main factors that resulted in a decrease in GDP were a surge in imports and trade deficit highlighting that the U.S. is buying more goods from foreign countries. This may be an indication that the U.S. economy has recovered faster than other countries.

CORPORATE EARNINGS

NEUTRAL

 For Q1 2022 the estimated earnings growth rate is 7.1% — the lowest since Q4 2020 (3.8%). This estimate was revised upward from the previous forecast of 6.6% in April 2022. So far, 55% of S&P500 companies have reported earnings — 80% reported a positive EPS surprise and 72% beat revenue expectations.

EMPLOYMENT

POSITIVE

 Total nonfarm payroll employment rose by 431,000 in March, and the unemployment rate edged down from 3.8% to 3.6%. Job growth was widespread, led by gains in leisure and hospitality, professional and business services, retail trade, and manufacturing.

INFLATION

NEGATIVE

 CPI rose 8.5% year-over-year in March 2022, the highest increase since 1982, driven by supply and demand mismatches and the additional strains on the global economy caused by the Russia- Ukraine conflict. Core CPI came in slightly below expectations (6.5% vs. 6.6%) while PPI hit the highest level on record (11.2%). Inflation concerns are clearly impacting the markets, the FED and consumer behavior.

FISCAL POLICY

NEUTRAL

 Congress passed a $1.5 trillion spending package expected to be signed into law next week. Republicans rejected any additional COVID-19 related aid, which was removed from the bill. A $13.6 billion aid package to help Ukraine saw strong bipartisan support. The Violence Against Women Act was reauthorized and Democrats pushed for a 6.7% increase in domestic spending.

MONETARY POLICY

NEUTRAL

 The Fed raised rates by the expected 25 bps in March and Jay Powell projected a clear path for 2022 with as many as six additional rate hikes bringing short-term rates to 1.75-2.00% by year end 2022. A 50 bps rate hike is expected at the next Fed meeting on 5/4/22.

GLOBAL CONSIDERATIONS

GEOPOLITICAL RISKS

NEGATIVE

 According to credit ratings agency S&P, Russia has defaulted on its foreign debt due on April 4th by offering to make payments in rubles and not dollars. Russia has 30 days to make a payment in dollars however, it is unlikely this will happen due to the current sanctions and restrictions on access to capital imposed by Western countries against Russia.

ECONOMIC RISKS

NEUTRAL

 Supply chain disruptions in the U.S. are waning but the rising cost of oil due to the Russian- Ukraine war is likely to cause additional inflationary pressures not only on gasoline prices but also on many other goods and services. China’s zero-covid policy has placed Shanghai on lockdown and is increasing restrictions on other major cities including Beijing. This may result in additional supply chain issues and inflationary pressures.

The “Heat Map” is a subjective analysis based upon metrics that VNFA’s investment committee believes are important to financial markets and the economy. The “Heat Map” is designed for informational purposes only and is not intended for use as a basis for investment decisions.

“Your Financial Choices”

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Tune in Wednesday, 6 PM for “Your Financial Choices” with Laurie Siebert on WDIY 88.1FM. Laurie will discuss: Estate Planning Implementation

Laurie can address questions on the air that are submitted either in advance or during the live show via yourfinancialchoices.com. Recordings of past shows are available to listen or download at both yourfinancialchoices.com and wdiy.org.