First-quarter market performance for 2022 showed equity markets had a rocky start. January through February posted negative returns for equities, and fixed income markets were not spared. But as the quarter wrapped up, stock investors were glad to see that March took a turn for the better and recovered some of those losses. The S&P 500 is now a little more than 4% off its high from the start of the year. Nevertheless, several factors worried investors this year, and we continue to see those same trends be of top concern through 2022, namely:

  • Inflation
  • Interest rate hikes
  • Geopolitical tensions

Excluding the uncertainty of geopolitical tensions, some of these concerns are expected to be largely managed this year. While inflation may continue to rise in the near term, the recent trend in price growth should be mostly diminished as the Federal Reserve prepares to hike interest rates. This then strikes the question of how many rate hikes are too much or too little. Concerns are understandable, but last week’s labor reports and the latest inflation reading show that the Fed can hike several times without the worry of sliding the economy into a recession. So, inflation should be expected to moderate over the next few months and stabilize over the next two years with the planned interest rate hikes.

What does this mean for the stocks in your portfolio? According to data published by FactSet, earnings for S&P 500 companies in the first quarter of 2022 were indeed quite tepid. Analyst downwardly revised their Q1 2022 earnings estimates but this lower revision was smaller than the averages of the last five, ten, and fifteen-year averages. Furthermore, they go on to highlight that estimates for the remainder of 2022 have been increased in aggregate for the remainder of 2022 (image below). The combination of the drawdown experienced in Q1, along with the increased earnings estimates for the remainder of 2022 has led to the highest level of buy recommendations for S&P 500 since 2010.

We would be remiss not to mention that this year is still likely to face increased volatility. But with expected single-digit growth for equities, we continue to recommend quality companies with solid balance sheets that can generate strong revenues with strong economic moats. Characteristics that we see can withstand the changes in the economic environment. It’s a situation of mind over matter when it comes to reaction to short-term news, taking on unnecessary risk in your portfolio, and letting those actions affect your long-term goals.

– Jose Rendon

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All charts and data from Bloomberg unless otherwise indicated.

The information provided in this report should not be considered a recommendation to purchase or sell any particular security. There is no assurance that any securities discussed herein will remain in an account’s portfolio at the time you receive this report or that securities sold have not been repurchased. Past performance is no guarantee of future results. The reader should not assume that investments in the securities identified were or will be profitable.

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