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 1.5% annual rate according to the second estimate. 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. The July 2022 University of Michigan Consumer Sentiment (Confidence) Index hit 51, a level not seen since 2009 during the GFC, but up slightly from the June Index level of 50, an encouraging sign. |
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CORPORATE EARNINGS |
NEUTRAL |
The earnings growth rate for Q1 2022 was 9.2% — the lowest since Q4 2020 (3.8%). This estimate was revised upward from the previous forecast of 7.1% in April. All S&P500 companies have reported earnings — 77% reported a positive EPS surprise and 73% beat revenue expectations. The estimated growth rate for Q2 2022 is now 4.3% which would mark a new post-pandemic low; but still solidly in the “growth” stage. |
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EMPLOYMENT |
POSITIVE |
Total nonfarm payroll employment rose by 370,000 in June and the unemployment rate remained constant at 3.6%. Job growth was widespread, led by gains in leisure and hospitality, manufacturing, and transportation and warehousing. Employment in retail trade declined. |
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INFLATION |
NEGATIVE |
The annual inflation rate in the US accelerated to 9.1% in June, the highest since November 1981, from 8.6% in May and above forecasts of 8.8%. Core CPI increased by 5.9%, slightly below 6% in May, but above forecasts of 5.7%. The increase in CPI was driven by major surges in food and energy prices, as food costs rose by 10.4% and energy prices by 41.6%. |
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FISCAL POLICY |
NEUTRAL |
President Biden, who is suffering from his lowest approval ratings of his term, is recovering from COVID and is likely to come out of quarantine early this week; on Capitol Hill, it is the penultimate week to make progress on the Democrats’ (beleaguered) legislative agenda before Congress breaks for summer recess and things go dark until after Labor Day. |
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MONETARY POLICY |
NEUTRAL |
The FOMC meets this week and futures markets are pricing in an 80% chance of a 0.75 basis point rate hike at the meeting. Watch for Chairman Jay Powell press conference for any new direction the Fed may hint at taking. |
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GLOBAL CONSIDERATIONS |
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GEOPOLITICAL RISKS |
NEGATIVE |
Russia has defaulted on its debt as of Sunday, June 26th when the 30-day grace period on $100 million of interest payments expired. This is the first Russian default since 1918. Sanctions imposed by Western powers effectively isolated Russia and its financial system from Europe and the U.S. making it much harder for Russia to complete international financial transactions. |
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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. Starting in June, China has started to remove some restrictions in major cities to end the COVID-19 lockdown. |
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.