Contributed by: Angela Palacios, CFP®, AIF®
As the U.S. Market entered correction territory (down 10%), another warning sign entered the state of the economy. Gross Domestic Product (GDP) for the first quarter fell at a 1.4% annualized pace. The definition of a recession is two consecutive quarters of negative GDP growth. Below is a great visual of the makeup of GDP growth this past quarter, so we can dive deeper into what is making up the negative number.
Source: Washington Post
The consumer continued to hold up its end of the bargain fairly well, contributing to nearly 2% of GDP growth as shown by personal consumption. But much of the drag this quarter came from an excessive amount of net exports (pink area), which are a negative drag to GDP. These imports were the largest ever on record this quarter as businesses worried about Russia’s invasion of Ukraine and front-loaded their imports. Also, consider that we are comparing against quarter 1 of 2021, which had a direct cash infusion by the Federal Reserve into consumers’ bank accounts. This quarter’s reading encompassed bad news like the Russia-Ukraine conflict and the biggest spike in covid cases ever here in the U.S.
All of this negative news has weighed on investor sentiment. This reading is typically a contrarian indicator, the AAII Investor Sentiment Survey, but has recently registered the worst reading since 1992. Readings were not this bad during the 2008/2009 financial crisis! Usually, a reading like this is contrarian because a market bounce generally follows it to the upside.
So, which indicator do you follow to make investment decisions? Often we get mixed signals from markets. It is best to determine what is important to pay attention to and what might be noise so that you can have an action plan built ahead of time during periods of stress. This is no easy task and is one of the main mistakes made by do-it-yourself investors. Planning is in our name, and the importance never diminishes. If you have questions and need to speak with someone, don’t hesitate to reach out to us!
Angela Palacios, CFP®, AIF®, is a partner and Director of Investments at Center for Financial Planning, Inc.® She chairs The Center Investment Committee and pens a quarterly Investment Commentary.
The forgoing is not a recommendation to buy or sell any individual security or any combination of securities. Be sure to contact a qualified professional regarding your particular situation before making any investment or withdrawal decision. The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Angela Palacios, CFP® AIF ®and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Individual investor's results will vary. Past performance does not guarantee future results. Investments mentioned may not be suitable for all investors.