US economic activity as measured by gross domestic product is expected to have grown at just a 1% annualized pace in the first quarter of the year, according to consensus expectations from Refinitiv. The Federal Reserve Bank of Atlanta’s GDPNow model projects a seasonally adjusted annualized growth rate of 1.3% for mid-April.
That would be a steep decline compared to the 6.9% pace of growth in the final quarter of 2021, and it would be the worst three-month period since the pandemic recession in the second quarter of 2020.
Economists had predicted growth would eventually slow from the pace seen during the grand reopening. But even compared to pre-pandemic times when the US economy was growing steadily at a more moderate pace, 1% would be disappointing.
For one thing, companies built up inventories in the last three months of last year, which boosted economic activity. However, according to economists from Action Economics, this expired in the first quarter of 2022.
The quarter also began with the omicron wave of the coronavirus, rising infections and renewed restrictions to contain the virus. While the effects were short-lived, the longer-term effects are only now becoming apparent.
Americans also had to fear rising prices, not to mention Russia’s invasion of Ukraine, which pushed up gas prices. In March, retail sales data from the Census Bureau showed that overall sales were boosted only by spending at gas stations, where sales rose nearly 9%. It emphasizes an important point: So far, US consumers are still spending liberally, but much of this seems to be due to pervasively higher prices rather than increased consumption. Even as Americans still have pent-up savings from the pandemic’s lockdown days, inflation rates not seen in 40 years aren’t exactly tempting people to indulge in extravagant shopping sprees. Eventually, this reality will catch up with US economic growth, which requires healthy consumer spending.
Forget the FAANGs. It is now a stock selection market
Investors blindly buying big tech stocks got a rude awakening last week after Netflix imploded. But Tesla’s good news proves that some top momentum stocks can still thrive in this rocky market.
The latest results from Tesla (TSLA) and Netflix (NFLX) show how stupid it is for investors to buy into topics and memes like the FAANGs or MT. FAANG if you want to add Microsoft and Tesla to the quintet of Facebook, Amazon, Apple, Netflix and Google. This is a market for stock pickers, reports my CNN business colleague Paul R. La Monica.
“This environment will create an important backdrop for active investing,” said Ken McAtamney, head of William Blair’s global equities team, in a report.
One of the biggest mistakes an investor can make is assuming that all stocks in a given sector should rise and fall at the same time. This is an overly simplistic, binary view of the world.
Instead, investors need to do their homework and find companies with strong business models and healthy fundamentals.
“Not all companies are created equal,” said Paul Moroz, chief investment officer at Mawer Investment Management.
Nasdaq’s big tech executives are a broad and diverse group. For that reason, investors shouldn’t assume that Netflix’s troubles are bad for the rest of the tech sector, or that Tesla’s good news gives traders a clear signal to buy every up-and-coming stock in sight.
“First quarter results to date underscore our view that investors need to be selective,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a report last week.
Coming up: How will the other Big Tech names fare? Earnings highlights this week include results from Apple, Amazon, Google, Facebook’s Meta and Microsoft.
Next
Monday: Germany business climate; Earnings from PepsiCo and Whirlpool
Tuesday: US Consumer Confidence; Revenues from 3M, General Electric, JetBlue, UPS, Warner Bros. Discovery, Alphabet, General Motors, Mondelez, Microsoft and Visa
Wednesday: Earnings from Boeing, Harley-Davidson, Kraft Heinz, Spotify, Ford Motor, Mattel, Meta and PayPal
Thursday: Bank of Japan Policy Decision; US Q1 GDP; income from Caterpillar, Altria, Domino’s Pizza, Mastercard, Twitter, Amazon, Apple, Intel, Roku and Robinhood
Friday: First Quarter GDP and Inflation Data for Europe; US Personal Income and Expense Data; PCE price index; ExxonMobil and Chevron revenue