April 2022 U.S. Market Update
U.S. Market Update – April 2022
Christopher Gerber, CFA
During the first quarter of 2022, the U.S. Economy contracted at a 1.4% annual rate after inflation. As usual, when the going gets tough the American consumer goes on a buying spree. Consumer spending increased at a 2.7% annual rate in Q1. Going forward may be a bit slower.
The Purchasing Manager’s Index often anticipates increased sales. It shows raw material buying in anticipation of increasing sales. Our PMI in April dropped about 4.5% from March to April. Consider this good-sized, but also consider it during major uncertainty. Interestingly, several key economic variables look strong.
The March unemployment rate dropped to 3.6% from 3.8%, while the labor force participation rate (people available to work) ticked up to 62.4% from 62.3%. These are good numbers. Importantly, the Department of Labor defines employment as working one hour in a month. We also see wages increasing. Overall, these data show how employers need workers. Also, of note, the year-over-year gain in wages hit a recovery high of 5.6% in April, 2022. This increased competition for wages should inspire confidence in our domestic economy.
The chart below shows how much employers need workers. Job openings are up. Quits are up, likely due to workers moving to better jobs. Layoffs are way down.
Through April, 2022, 72% of S&P 500 companies exceeded earnings expectations and 59% have exceeded revenue expectations. This is amid disruptions like Omicron, inflation, supply chain, stronger dollar (hurts international sales) and high commodity prices (resulting from supply chain and war). The chart shows how companies are making most of their profits are from margin (markup). This is a sign of strength. Margin shows the lack of cheaper substitutes consumers have access to.
INFLATION & RATES
Inflation is a big issue. Inflationary pressures persist from demand outstripping supply. Employment is high. The Fed will tighten more if necessary.
During April, the Fed increased the Fed Funds target rate by one-half percent. There are likely increases to come. Also, the Federal Open Market Committee (FOMC) within the Federal Reserve held up longer-term bond prices during the 2009-2019 bull market (keeping longer-term rates low), and again during the COVID-19 outbreak in 2020. This “quantitative easing” (QE) program has ended, and the Fed is now selling its treasury holdings quickly, flooding the market, dropping prices, and increasing yields. The Fed has revised inflation expectations upward and GDP expectations downward for 2022. Considering national Fed Governors’ average expected rate increases at seven in 2022, the pace of economic activity may slow.
The war has dramatically increased commodity prices worldwide. The U.S. is in a reasonably advantageous position in some areas. Energy is one. U.S. consumers spend about 4% of their earned income on energy, lower than most other developed countries. This percentage is increasing due to higher costs, however. Going to the pump, paying energy bills, or buying food are shocks to the system. There are calls for more domestic energy production. There are calls for less in favor of renewables. Renewable energy as a major portion of global consumption is years away, plus it consumes energy to manufacture. Meanwhile, energy runs the world and Russia supplies a notable percentage of it. Expensive energy and China’s zero virus growth policy with its shutdowns will slow world economic growth. There is no way around it. At least having a large energy industry in the US will keep most profits resulting from increased worldwide prices here. They may ultimately fund greater economic growth and jobs at home. The charts below show domestic energy spending and domestic oil net imports.
Fidere Advisors is a privately-owned, full-service life planning firm, offering financial planning and asset aggregation. Asset aggregation systems are designed to align portfolios across accounts into a single, globally-optimized investment plans for the families it serves. FIDERE maintains liquidity of client capital at major custodians, and utilizes asset managers that have shown consistent historical performance through excellent risk management.
To build a plan, discuss your situation, or learn more about FIDERE, please connect with us anytime at: www.fidereadvisors.com or (833) 234-3373. To schedule a web meeting, visit: www.calendly.com/fidere-advisors. To view aggregate portfolio models, visit: www.fidereadvice.com/models.
Not an offer to transact any securities, and not a financial planning engagement.
Advisory Services through Fidere Advisors, LLC. (dba FIDERE), a Registered Investment Advisor. Information provided has been prepared from sources believed to be reliable but is not guaranteed and does not represent all available data necessary for making financial decisions and is for informational purposes only. FIDERE and its representatives do not offer tax or legal advice through FIDERE. Please consult the appropriate advisor.
THE RISK MANAGER consolidates current information into actionable content designed to help investors navigate risks in the current economic and market environment – from a conservative view. The larger purpose of this work is to optimize financial plans and bring the reader closer reaching long-term life goals.