Hello, we hope you are excited for springtime and, hopefully, some warmer weather! Rob and I wanted to send you a quick note about the state of the economy over the first quarter, and to talk about some of the fears that the current market conditions are creating. As you are probably aware, inflation is here and continues to move north. GDP (Gross Domestic Product) came in at a negative -1.4% growth rate for the first quarter of 2022. I know there has been a lot of talk about a possible recession coming in 2023, so the report of negative growth in the first quarter of 2022 has come as shock to most folks across the country.
Economically, a recession is defined as 2 consecutive quarters of negative GDP, so Q1 of 2022 is the first. Economists around the country study each part of what goes into the GDP calculation. Without boring everyone reading this, the bottom line is that the expectation for Q1, 2022 was an annual growth rate of 1%, not a -1.4%. For comparison, we saw a 6.9% growth rate in Q4, 2021.
The odd thing this go around is payrolls and corporate profits. For the first 3 months of 2022, non-farm payrolls have increased by 550,000 per month. Unemployment usually moves up as an economy moves into recession. Also, profits appear to still be increasing over many sectors of the economy.
The FED is making some moves to increase interest rates in order to combat higher inflation, but it appears these moves are too late. Interest rates were raised a 1/4 point in March, and another 1/2 point this week but the FED’s policies are still loose, which points to the increase of inflation moving forward. For more information about the FED and inflation please read the attached article by Brian Wesbury, Chief Economist for First Trust Portfolio’s.
Rob and I are paying very close attention to your portfolio, as are the money managers we work with. Although the markets and many portfolios have seen losses in the first quarter of 2022, the money managers have been adjusting the portfolios to be more defensive and pursue opportunities as they present themselves.
Keep in mind that every market moves downward into a correction from time to time, but those corrections have led to higher highs each time. What we do not know is how long the valley is between highs. Rest assured that we and the portfolio managers and just as concerned as you are, and we do take proactive measures as needed.
We know it can be scary right now with inflation and the situation in Ukraine, but even with all of the bad in the world, most accounts we manage are still in positive territory after all. Most analysts are calling for a good 3rd and 4th quarter as the situation in Ukraine (hopefully) gets figured out, and inflation concerns come down some as the Fed raises interest rates. Although we do not know what the rest of the year holds, we have seen the AssetMark accounts perform well in both good and bad times and, until you withdraw the money, you have not actually locked in any losses. For our clients who are taking distributions for retirement income, we tend to leave enough money in cash so that you do not have to worry about selling at a loss in order to maintain your income and lifestyle.
Our advice would be to stick with the plan, as the plan is still working very well. Let us know your thoughts and questions, we're here to help! Please take a few minutes to read the attached articles I believe they will shed light on the state of the economy.
Here are some articles regarding more information about inflation: