Poor Economic Data and Negative Sentiment

Chart of the Week

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The chart shows the months in which stocks and bonds in the United States have both suffered significant losses at the same time since 1973. Over the past 50 years, this has only happened three times before — and now, in April 2022, for the fourth time.

Why This Matters

Many investors are wondering whether, after the poor returns of the last two months, they should completely restructure their portfolio and, in particular, minimize risk. A number of highly unusual circumstances are currently affecting the stock and bond markets. Following the pandemic, supply chains remain disrupted, an interest rate reversal is taking place after an ultra-expansionary monetary policy unlike anything we have seen before, and there is the war in Ukraine. The chart above shows how rare it is for the two main asset classes to lose value at the same time. Structuring your portfolio around an exceptional event that has occurred only four times in 50 years does not make sense.

A similar picture emerges when looking at the rolling one-year losses of the S&P 500. To find a comparable period with a larger loss, one has to go back to 1974 or 1937 — meaning an event that occurs roughly every 50 years.

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Here, one has to go even further back in time to find comparable figures — all the way to the Marshall Plan in 1948.

One should remain calm and composed now and stick to their long-term investment strategy.

Poor Economic Data and Negative Sentiment

On Thursday, GDP growth figures were released in the United States. Unfortunately, there was no growth to speak of. In the first quarter of 2022, GDP contracted by 1.4%.

The chart shows the growth of the United States' gross domestic product since 2019.

Analysts had expected growth of 1.2% for the first quarter of 2022. If growth in the second quarter is also negative, the definition of a recession would be met.

The figures show that the U.S. economy is already cooling noticeably. In such a phase, raising interest rates as aggressively as is currently expected from the U.S. Federal Reserve is, in our view, irresponsible.

At the moment, many negative developments are converging. China is currently struggling, with limited success, to contain further outbreaks of the COVID pandemic. The strict lockdowns of cities and industrial facilities are preventing supply chains from returning to normal.

The chart shows the congestion of ships at the Port of Shanghai, the world’s largest container port. Many cargo vessels are unable to unload or load goods. This is causing major delivery delays for products and components in the United States and Europe.

High inflation and elevated mortgage rates are reducing the disposable income available to U.S. households to an extent not seen since 1970:

There is also more bad news from the war in Ukraine. An end to the war or a peace agreement still appears to be far off. A European boycott of Russian gas and oil supplies is becoming increasingly likely. This would likely lead to another sharp increase in energy prices. All of this is also weighing on consumer sentiment.

The chart shows consumer sentiment in the United States since 1980. The current figures are approaching the levels seen during the financial crisis.

As the Fear & Greed Index from CNN Money shows, investor sentiment is poor.

However, compared with historical levels (lower chart), the figures are not yet weak enough to suggest an immediate rebound in prices. We therefore expect markets to remain challenging over the next 1–2 weeks.

We are using this period to replace active managers who have disappointed us this year. As a result, we are temporarily increasing our cash allocation.

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Disclaimer:

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The content in these blogs is intended solely for general informational purposes and to help potential clients gain an understanding of our approach. It does not constitute recommendations that should lead to the purchase or sale of assets and does not constitute investment advice. Marmot.Finance cannot assess whether or how the statements made align with your investment objectives and risk profile. If you make investment decisions based on this blog post, you do so entirely at your own risk and responsibility. Marmot.Finance cannot be held liable for any losses you may incur as a result of the information contained in this blog post.

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