Broker Check

Mosaic Weekly Article 5.01.2022

May 02, 2022

Earnings, earnings, earnings! That has been the driving force this week as companies both big and small reported a plethora of data points. In general, the numbers have been inline, but the warning sirens have been clear and loud. A common theme that has been recurring throughout this reporting period so far has been a conservative approach to the 2nd quarter guidance from many companies. First quarter GDP (gross domestic product) reported a surprisingly negative (1.4%) growth rate, well below the expectations of a +1% increase. Some of this weakness was attributed to the Omicron reemergence early in the year, but a slowdown in fixed investments, defense spending and a record trade imbalance also contributed to the decline. Keep in mind that this most recent report came on the heels of a record-breaking 4th quarter number where GDP gains of 6.9% broke records to close the year. There is no question that surging inflation had a significant impact to the overall 1st quarter weakness. I suspect, however, that it is too early in the year to see if this is indeed a new directional trend, but it certainly serves as a reminded of just how good the growth has been in general and a healthy pause or slowing down is most likely appropriate. The great “resetting” of 2022 remains the operative term to use for this period in which we are currently operating.

The surprisingly negative GDP number along with the surge in “warnings” from corporate America, provided fuel to the VIX (volatility index) which saw a sharp uptick throughout the week. For better or worse, we are seeing in real-time, just how efficient and clean the balance sheets of many of the worlds largest companies are operating within. A perfect example of this would be Google. After releasing a somewhat disappointing quarter from a revenue standpoint, the company announced a $70 billion stock buyback. Yes, you read that correctly, $70 billion with a big fat “B”.  On the heels of Google, Apple announced a $90 billion dollar stock buyback. That speaks volumes of how efficient and cash flow positive many of these companies are positioned right now. Navigating the current inflationary environment in the face of slowing growth will present many challenges in the coming months. We will clearly see a growing separation between the companies who can and can’t successfully maneuver through these perceived troubled waters.

I wrote about the overall market weakness last week and the possibility that we would re-test the March low levels. Well, we certainly did that on Tuesday and again on Friday. For now, it is difficult to determine if we can hold these levels and build a near-term “floor”. The continued volatility coupled with the Federal Reserves next moves will dictate how our summer looks. Personally, I like the conservative stance and cautionary forward-looking statements many of the companies that reported throughout the week issued. It is a clear sign of the speed bumps we are currently navigating and should provide the necessary footing the Federal Reserve will need to get moving. As Winston Churchill famously said, “Never let a good crisis go to waste”. This could be true for the investing world as well. Smart and well-run companies know a thing or two about the perceived expectations that investors and Wall Street places on them. Utilizing periods of uncertainty and fear to “clean house” and right size operations is common. This past week’s market downturn doesn’t feel good in many ways, but we have been here before and know that staying the course and focused on the longer-term is the prudent course of action. Perhaps April’s showers will indeed bring May flowers. The clock is ticking…….´╗┐