THE NUMBERS
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.
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US ECONOMY |
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CONSUMER HEALTH |
POSITIVE |
U.S. Real GDP growth for Q4 2021 increased at an annual rate of 6.9% compared to 2.3% in Q3 (according to advance estimate). The acceleration was driven primarily by private inventory investment. Real GDP increased by 5.7% in 2021 versus a decrease of -3.4% in 2020. Disposable income saw a slight increase of 0.3% and personal saving rate decreased to 7.4% in Q4 from the previous 9.5% in Q3 highlighting increased consumer spending. |
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CORPORATE EARNINGS |
POSITIVE |
Fourth quarter earnings are showing strong results with 76% of companies that reported earnings so far beating estimates by an average of 8.2%. Some notable positive (Amazon) and negative (Facebook) surprises in big tech. Revenues also well above estimates with 77% of S&P 500 companies reporting actual revenue above forecasts. Blended earnings growth rate for 2021 was 47%. |
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EMPLOYMENT |
POSITIVE |
U.S. Payroll Report for January U.S. added 467,000 jobs in January, beating estimates of 125,000. Red-hot private sector hiring drives the payrolls surge. Revisions add 709,000 jobs in prior two months. Unemployment rate rises to 4% from 3.9%. |
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INFLATION |
NEGATIVE |
CPI rose 7.5% year-over-year in January 2022, the highest increase since 1982, driven by the global supply chain backlog and continued consumer pent up demand. Inflation concerns are clearly impacting the markets, the FED and consumer behavior. |
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FISCAL POLICY |
NEUTRAL |
The Build Back Better Bill has been scaled back from $2.2 trillion to a $1.8 trillion version as Senator Manchin continues to hold back support. President Biden has mentioned the idea of breaking up the BBB Bill into smaller pieces to be able to pass fractions at a time. The economy seems to be digesting a new world where fiscal policy is no longer considered an economic stimulus. |
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MONETARY POLICY |
NEUTRAL |
Fed discussed a triple threat of tightening: raise interest rates, halt purchases, and reduce its balance sheet (reducing holdings of Treasurys and mortgage-backed securities). Gradual and steady reduction of liquidity will be key in preserving market performance (fast and sudden changes would most likely result in panic-driven sell offs). |
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GLOBAL CONSIDERATIONS |
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GEOPOLITICAL RISKS |
NEUTRAL |
The Russia/Ukraine situation is very fluid with comments from Vladmir Putin, Volodymyr Zelenskyy and Joe Biden being part of the mix each day. COVID-19 concerns continue to abate and re-openings are more the norm than closures and lockdowns. |
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ECONOMIC RISKS |
NEUTRAL |
Supply chain disruptions in the U.S. are waning but now there are trucker protests on the Canadian / U.S. border. Canada is the second largest trading partner with the U.S. (after China) but our largest export market. |
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.