Market Update: Volatile Financial Markets & First Quarter 2022 U.S. GDP Results

Volatility in the financial markets has picked up over the past few weeks and we expect volatility levels to stay elevated in the near term. In addition to well-known investor concerns such as decades high inflation, hawkish U.S. Fed policy and the war in Ukraine, we are in the middle of the first quarter 2022 corporate earnings reporting season. With about 50% of S&P 500 companies having reported so far, overall results appear to be coming in ahead of analysts’ expectations. Nevertheless, results and forward-looking guidance from some high-profile tech stalwarts, including Amazon, Apple, Google, and Netflix, have suggested supply bottlenecks, rising costs and waning demand are impacting results. In contrast, global payments giant Visa reported strong results and noted consumer spending trends remain solid. Overall, we would not be surprised to see some softening in corporate earnings expectation as we move through the year; however, we still expect positive S&P 500 earnings growth in 2022.

On the economic front, this week the U.S. Bureau of Economic Analysis reported that real GDP for the U.S. in the first quarter of 2022 decreased at an annual rate of 1.4%, well below the consensus estimate of 1.5% growth [1]. While the headline result appears to be a disappointment, the underlying details were much more encouraging. The poor reading was mostly due to a significant increase in imports (which detracts from GDP), while personal consumption expenditures, a key driver of the U.S. economy, increased at a 2.7% annual rate, an acceleration from both the third and fourth quarters of 2021 [2]. As highlighted in our recent quarterly Economic and Financial Market Outlook, despite significant headwinds, we remain optimistic that the U.S. economy can post better than average economic growth in 2022 given the strong but still ongoing improvement in the U.S. labor market.

Periods of heightened uncertainty and volatility in the financial markets can be stressful for investors. Your Washington Trust Wealth Management team is here to guide you through such times, and we invite you to reach out should you have any questions or concerns regarding the financial markets, economy, or your portfolio.