May 9th, 2022

An Economy of Mixed Signals

The Markets

There is a lot of uncertainty in financial markets and markets hate uncertainty.

In recent weeks, economic and financial market data have been telling different stories – and that makes it tough for investors to know where the United States economy is headed. Since stock markets move up and down based on what investors think will happen in the future, markets have been volatile. Here are some of the issues that have contributed to recent uncertainty.

•    Is economic growth slowing? At the end of April, the advance estimate for gross domestic product showed the U.S. economy contracted (-1.4 percent) during the first quarter of 2022. It was a puzzling piece of information because consumer spending, which accounts for more than two-thirds of economic activity rose by 2.7 percent during the period which suggests the economy is strong.

•    Is economic growth continuing? Right now, workers are in demand, which can be a sign of economic growth. Last week’s unemployment report showed stronger-than-expected jobs growth in April. The unemployment rate was 3.6 percent, and average hourly earnings rose by 5.5 percent. However, the percentage of people who are working or actively looking for work – ticked lower.

•    Will the Federal Reserve make a mistake? The U.S. economy recovered from the pandemic quicker than expected. One consequence was that high demand and limited supply pushed prices higher.

Last week, the Fed continued its fight against inflation by raising the fed-funds target rate by 0.50 percent. On Wednesday, investors welcomed the move and U.S. stock indices moved higher. On Thursday, they changed their minds and markets dropped lower

Bond yields have risen along with interest rates. At the end of last week, the 2-year U.S. Treasury note yielded 2.72 percent and the benchmark 10-year U.S. Treasury yielded more than 3 percent. The problem here is that the bonds themselves continue to lose value more than offsetting the income received. Higher yields are likely to affect stock markets, too, as investors attempt to find opportunities to invest for income with less risk.

Last week, we continued re-blending and increasing commodities, utilities, and defensive and low volatility stocks and sectors. All of these adjustments have been effective year to date.

ARE YOU LIVING THE AMERICAN DREAM? In a late March survey, conducted by an accounting technology firm, small business owners were asked if they were living the American Dream. Two-out-of-three small business owners said they were, although they thought the “American Dream” was changing. Small business owners said their American dream includes:

•    Being self-made,
•    Owning a business,
•    Being financially comfortable, and
•    Providing for their families.

They also want to:

•    Provide for the future,
•    Pay off a mortgage,
•    Push for good causes,
•    Give employees health and retirement benefits, and
•    Pay employees higher wages.

According to the IRS Small Business and Self-Employed Division, there are 57 million small business owners and self-employed taxpayers that have businesses with less than $10 million in assets.9 Over the past 25 years, small businesses have accounted for two of every three jobs created in the United States, reported the Small Business Administration.

Focus On The Positive
“There are no forms in nature. Nature is a vast, chaotic collection of shapes. You as an artist create configurations out of chaos. You make a formal statement where there was none to begin with. All art is a combination of an external event and an internal event…I make a photograph to give you the equivalent of what I felt. Equivalent is still the best word.” ―Ansel Adams, photographer