1Q22: Bob and Weave…



It is quite easy to see that general economic conditions are deteriorating; it is considerably harder to know what to do given the many confounding signals. The employment data are nothing short of extraordinary. Over 431k jobs were added last month alone, driving the unemployment rate to 3.6% – essentially returning to pre-pandemic levels with last week registering the lowest weekly unemployment claims in the last 54 years. Wages increased 5.6% year-over-year through March, which while tracking below the scourge of inflation, was certainly a robust pace. Annual corporate profit growth in 2021 increased 35% according to Barron’s. An early April survey of 72 leading economists by Bloomberg concluded that the U.S. economy will expand 3.3% in 2022, 2.2% in 2023 and 2.0% in 2024, respectively.

And yet nearly every asset class was down significantly in 1Q22, other than Commodities which increased on average over 25% in the quarter according to Bloomberg data, with the S&P Energy Index up 37.7%. The S&P 500 and NASDAQ indices were down 4.6% and 9.1%, respectively, while U.S. government bonds lost 5.6%, again in the face of rising inflation. Most acutely, the SVB Leerink Digital Health index was down 76% since its February 2021 high. The S&P Biotech index lost nearly 48% over a similar time frame, erasing the gains achieved since the start of the pandemic. Most ominously, with the Federal Reserve signaling that it will raise rates more aggressively, the yield curve inverted last week with short-term rates greater than long-term rates; (Read more...)