A contraction behind, and more uncertainty ahead

Key takeaways

  • GDP contracted 0.4% in the first quarter of 2022 – or 1.4% annualized – mostly on the back of lower inventories and a slowdown in international trade.

  • Most importantly, consumer confidence – with spending up 0.7% –  remained resilient as recent surveys appeared to suggest.

  • Going forward, Fed policy, China, and the secondary effects of Russia’s invasion of Ukraine are likely to be on investor radars.

The Q1 2022 GDP contraction was somewhat unexpected, as most surveyed economists had pointed to a 1% annualized growth. The most notable negative drivers were international trade and inventories. The former suffered from further disruptions to supply chains from the war in Ukraine and from China’s “zero COVID” policy – which pushed the government to impose strict lockdowns in Shanghai, an important hub for global goods trade. Inventories were soft as businesses rushed to fill warehouses in Q4 2021 for the holiday season, which limited their need for further stocking in Q1 2022. 

Going forward, economic uncertainty is likely – in our view – to continue to negatively affect public market performance. 

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The Federal Reserve is attempting to fight inflation without sparking a recession, but long-end rates – and thus mortgage rates – have already increased substantially. 

In addition, investors are still gauging what sorts of economic consequences China’s zero COVID policy entails for the global economy. For now, despite the renminbi’s weakness, supply-chain disruptions and skyrocketing prices of shipping containers are contributing to higher inflation globally.

On that note, industrialized countries are slowly adapting to the disruptions caused by their own sanctions against Russia. Higher commodity prices – namely food and energy – as well as access to rare earth materials are all crucial issues policymakers in the US, Canada, Europe, Japan and Australia will have to deal with in the near future. 

Most importantly, however, consumer confidence remains robust in the United States, which, all things being equal, can be seen as a positive signal for the economy. While uncertainty may be fueling market volatility, alternative assets may allow investors to remain focused on the medium-term outlook. Check Yieldstreet’s offerings here.

Learn more about the ways Yieldstreet can help diversify and grow your portfolio.

Source:

 1. Bloomberg data as of April 15, 2022

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