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.
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US ECONOMY |
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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. |
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CORPORATE EARNINGS |
NEUTRAL |
For Q1 2022 the estimated earnings growth rate is 9.1% — the lowest since Q4 2020 (3.8%). This estimate was revised upward from the previous forecast of 7.1% last week. So far, 87% of S&P500 companies have reported earnings — 79% reported a positive EPS surprise and 74% beat revenue expectations. |
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EMPLOYMENT |
POSITIVE |
Total nonfarm payroll employment rose by 428,000 in April compared to an estimated 398,000. The unemployment rate remained constant at 3.6%. Job growth was widespread, led by gains in leisure and hospitality, manufacturing, and transportation and warehousing. |
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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. |
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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. |
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MONETARY POLICY |
NEUTRAL |
The Fed raised rates by the expected 25 bps in March and 50 bps in May. Jay Powell projected a clear path for 2022 with as many as five additional rate hikes bringing short-term rates to 1.75- 2.00% by year end 2022. The next decisions by the Fed will be data-driven based on future inflation numbers and estimated economic growth. |
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GLOBAL CONSIDERATIONS |
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GEOPOLITICAL RISKS |
NEGATIVE |
Russia was able to avoid default last week by making the required payment on its debt however, the markets are still assessing the probability of default in the coming months at 87%. This is primarily due to sanctions imposed by Western countries which are hindering the Russian economy and restricting capital flows in and out of Russia. |
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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.